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Mexican court rules against taxpayers on deduction limits and e-accounting

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By a majority vote, the Second Chamber of Mexico's Supreme Court of Justice ruled on the constitutional trials filed against the Income Tax Law that only allow employers to deduct certain payments.

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Mauricio Martínez

Hugo Romero

Deduction limits

By a majority of four votes against a stand-alone vote the Second Chamber of Mexico's Supreme Court of Justice, on September 21 2016, issued the first verdict regarding the constitutional trials ( amparo ) filed against the Income Tax Law, which has been in force since 2014 and that only allows employers to deduct 53% or 47% of payments made to their employees that are tax exempt including, among others, social security payments, employee's profit sharing, saving funds, contributions for the creation or increase pension/retirement funds, and premiums.

Also, unanimously, the Chamber declared additional limits to the deduction of social welfare benefits, as well as the prohibition to recognise the tax effects of inflation in the "cost of sales" deduction, to be unconstitutional.

As this was just the first amparo verdict issued, this ruling did not constitute a mandatory precedent to lower courts (jurisprudence). Another four rulings issued in the same way, with a qualified majority voting, are required for this to become jurisprudence. It is expected that the next rulings will be issued in the coming weeks because of the importance of this matter. Nevertheless, it is possible that the Supreme Court acting in full (11 Justices) will resolve the subsequent amparo lawsuits.

We can anticipate that the next amparo rulings will follow the previous, given the current acting Justices.

Electronic accounting

In addition to the previous resolution, on October 5 2016, the same Second Chamber of the Supreme Court issued a jurisprudence regarding the amparo lawsuits filed by the taxpayers against the obligation to upload their accounting information to the web page of the Mexican tax authorities.

The Supreme Court concluded that the provisions that regulate the obligation to keep electronic accounting and send it on a monthly basis is constitutional.

However, the Supreme Court declared Annex 24, which is the technical guideline for generating XML files specified by the consortium "w3" that are used to process the electronic accounting, to be unconstitutional because these were not issued by the Mexican tax authorities and were not in Spanish.

Without the Annex 24 declaration, it is impossible to comply with the electronic accounting obligations and to upload accounting records every month. Therefore, the effect of the jurisprudence is that until Annex 24 is corrected, there are no obligations on the taxpayer who filed the amparo to upload the accounting information.

Recently, the Mexican tax authorities published a new Annex 24, which will enter into force in November 2016, to try to correct the shortcomings of the previous one, as per the Supreme Court's verdict.

Regarding companies that filed an amparo , the effect of a new Annex 24 is that from January 2015 to October 2016 they do not have to upload their accounting information. However, the new Annex is still in breach of the Constitution and therefore taxpayers can file a new amparo against it.

Mauricio Martínez (maumartinez@deloittemx.com) and Hugo Romero (hromero@deloittemx.com)

Deloitte Mexico

Website: www.deloitte.com/mx

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