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Mexico: Constitutionality of rules limiting tax offsets

Mexico: Constitutionality of rules limiting tax offsets

The Supreme Court of Justice (Suprema Corte de Justicia de la Nación (SCJN)) issued a November 2019 decision in three “amparo” actions and concluded that a legislative rule limiting tax offsets to the same type of tax was constitutional in these three actions.


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Under Mexico’s legal system, decisions declaring a tax law as “unconstitutional” do not have the effect of invalidating the measure. Rather, the reach of the court’s injunctive relief—amparo—is limited to those taxpayers that petitioned the court and obtained a favorable ruling. All other taxpayers must comply with the law as written—even though the law may be unconstitutional—until each taxpayer obtains an amparo and invokes the protection of the federal courts.

2019 tax law changes, and legal challenges

An income tax law (Ley de Ingresos de la Federación para el Ejercicio 2019), enacted in late December 2018, established that effective 1 January 2019, taxpayers could offset certain tax balances related to the same type of tax. Concerning value added tax (VAT), the use of balances generally would be limited to credit in subsequent months. This rule was effective for taxes imposed under the income tax law during 2019.  One reason for this measure limiting tax offsets was that this treatment would address perceived tax evasion opportunities.

Taxpayers disagreed with this limitation, and filed amparo lawsuits asserting that the limitation was unconstitutional and noting in particular that it could affect a taxpayer’s cash-flow.

At the trial level in these amparo actions, a suspension or injunction against the limit was requested and granted in some cases. This was followed in June 2019 by a judgment of the Second Chamber of the SCJN (Segunda Sala de la SCJN) that concluded it was inappropriate to grant the requested injunctive relief. The Supreme Court in early November 2019, however, endorsed the taxpayer position to remove the rule that limited tax offsets.

KPMG observation

For those taxpayers that filed an action for an amparo that is still pending trial, they may want to consider the implications of the November 2019 judgment by the Supreme Court for their particular situations, even though the amparo actions do not invalidate the law as unconstitutional except for the parties to the lawsuit.

Read a November 2019 report (Spanish) prepared by the KPMG member firm in Mexico

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