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Mexico: Substance-only tax litigation proceedings introduced

23 August 2017

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Mauricio Martínez D’Meza Carlos Ramírez Larsen

Mexico's Federal Administrative Trial Law and the Federal Fiscal Code were amended on January 27 2017 to introduce a new kind of tax court proceeding called a "substance-only tax trial", which is available to taxpayers for assessments issued as of July 1 2017. The new type of trial will be heard before a specialised Chambers of the Tax Court, with specialised magistrates.

The new tribunal may consider only challenges to assessments exceeding 200 "measured units" (approximately $305,000).

The main features of the substance-only trial include the following:

  • Consider cases that are restricted to substance-related issues, i.e. issues relating to the determination of the tax base, the taxpayer, the applicable tax rate and/or the taxable event, as opposed to procedural issues. Thus, a taxpayer generally may challenge only the tax authorities' analysis of the facts of the case and/or their application of the law and its impact on the taxpayer's level of compliance, which may include claims that the tax authorities' analysis of applicable evidence was incorrect. In cases where tax benefits were lost because the taxpayer failed to meet formal requirements, the taxpayer may present arguments that the consequences of the formal non-compliance by the taxpayer were not justified by the purpose of the formal requirements;
  • An oral hearing will be held to determine which issues should be addressed. The magistrate in charge will present his/her understanding of the matter, to which the parties (the taxpayer and the tax authorities) may respond;
  • If a party wishes to plead its case outside of the initial hearing with the magistrate, it will have to notify and invite the opposing part to the hearing. If the other party fails to attend, the hearing may still take place;
  • The parties may present any type of evidence, as long as it previously was offered and exhibited during the audit/review before the tax authorities, during the process of reaching a settlement agreement coordinated by the tax ombudsman's office and/or during an administrative appeal;
  • Any party may submit an expert's opinion to support its position, but the opinion must be submitted at the time the special trial starts (i.e. at the time the taxpayer files the writ for annulment (or extension if so requested) or when the tax authorities respond to the writ). Special hearings are allowed for the parties to question experts' opinions; and
  • The collection process for the tax assessment will be automatically suspended until the end of the trial, and the taxpayer will not be required to provide a financial guarantee for the amount of the assessment. However, if the magistrate's decision is appealed, a financial guarantee will be required to maintain the suspension of the collection process (but not merely to file the appeal).

Comments

Substance-only tax trials should provide a less expensive litigation alternative for taxpayers that focuses on only the technical merits of the case, facilitating a quality analysis of the tax law without the distraction of procedural technicalities that may overshadow the correct interpretation of the law.

The introduction of oral proceedings (which otherwise are not available in tax litigation proceedings) also should yield positive results in terms of procedural economy, clarity of arguments and coherence of court decisions.

Mauricio Martínez D'Meza (maumartinez@deloittemx.com) and Carlos Ramírez Larsen (cramirezlarsen@deloittemx.com)
Deloitte
Website: www.deloitte.com/mx






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