Deloitte - LATAM Regional Indirect Tax Interview (i)

Interview with Gabriela Sansores, Partner, Tax and Legal, Deloitte Spanish-Latin America

What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?

The most significant changes that have taken place in the last 12 months are aligned with the tax changes of recent years and aim to avoid abuse and, where appropriate, prevent evasion and tax fraud, through a much deeper implementation of formal controls, which does not necessarily translate into new taxes.

What has been the most significant impact of that change?

Certain amendments to the tax laws and procedural rules have impacted the taxpayers’ relationship with the tax authorities, including stricter controls regarding the formal fulfillment of tax obligations, many of which derive from different global actions, such as the Base Erosion and Profit Shifting (BEPS) initiative.

How do you anticipate that change impacting your work and the market moving forwards?

These changes are translated into direct opportunities to assist and advise our clients in the implementation and compliance of such tax amendments to comply with the new formal obligations, in order to mitigate potential risks (economic or legal) in case of an audit process.

How has this changed the way you offer tax advice?

Our tax advice places greater consideration on documenting the transaction, i.e., supporting the construction of substantive evidence, such as the business reason and materiality of the operations.

We must pay attention to the substance as well as to the formal aspects, since under Mexican tax rules, substance and form requirements are equally important.

What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?

The alignment of plans with the efforts of the Group of Twenty (G20) and the Organization for Economic Co-operation and Development (OECD) in the BEPS initiative, which establishes a series of actions to inhibit the transfer of profits outside Mexico, combat money laundering, and tax evasion; by introducing rules that strengthen source taxation.

What are the potential outcomes that might occur if those changes are implemented?

The alignment of Mexican tax legislation with the OECD tax initiatives will benefit from joining international standards and increase its chances of attracting investment from other countries.

Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?

Same as mentioned in point 6.

Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?

Aligned with the provisions of the OECD Pillar II initiative, significant tax incentives should be granted to the production of clean energy, supporting companies that use green technologies, or produce or consume solar or wind energy, among others.

How do you believe those changes would help improve the tax landscape in your market?

Mexico would be aligned with the global initiative to operate under clean energy standards, which could undoubtedly finance a structure that would significantly generate jobs and help close the gap between capital and work. It would be possible to modify consumption behavior.

How are issues surrounding the taxation of the digital economy affecting your work?

The digitalization of the economy has created significant challenges for international tax policies, including Mexico, which has envisioned it should hold taxing rights with respect to income derived by a non-resident when such income is derived from Mexican sources. As has been the case for most of the OECD BEPS-related measures, we would expect Mexico to adopt most of the recommendations under the Pillar One framework. In fact, in 2020, the amended VAT and income tax laws were amended to provide a mechanism to collect VAT triggered in services provided by foreign digital platforms and VAT/income tax triggered by individuals providing services and sales of goods through digital platforms and intermediation services.

How would you describe the tax authorities’ approach in your region/jurisdiction?

During the last four years, the tax authority has become more digital; this means that the auditing efforts are based on reports generated automatically by digital systems, fed with information generated by the taxpayers themselves.

In addition, Mexican tax legislation has been modified during the last few years to become aligned with the global BEPS actions, which translates into a more sophisticated tax authority and more tools to carry out its tax control activities.

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