Yesterday, the Mexican Secretary of Treasury submitted the 2020 economic plan proposal before the house of representatives. Among other documents, the economic plan includes the 2020 Federal Revenue Act project and a project that reforms, enacts and repeals several provisions of the Mexican Income Tax Law (“MITL”), the Value Added Tax Law (“VATL”), the Excise Taxes on Products and Services Law (“LIEPS”) and the Federal Fiscal Code (“FFC”). 

The economic plan includes several amendments and inclusions of new tax provisions that are extremely relevant to every business in Mexico, which require a thorough analysis to determine the extent of their implications. We will be circulating more detailed comments in the days to follow. For the time being, below is a brief summary of the most relevant changes: 

  • The proposal intends to amend the MITL in order to broaden the definition of permanent establishment; set forth new limitations for claiming foreign tax credits and for the deduction of related party transactions and payments that derive from “structured transactions”, including a new limitation for the deduction of interest payments that is calculated based on the taxpayers’ annual profit; include new provisions related to income obtained through foreign vehicles and foreign transparent entities; modify current provisions applicable to income obtained through controlled foreign entities subject to a preferential tax regime; exclude private REITs from the REIT tax regime and include provisions to tax users of digital platforms, among others. 

  • With respect to the VATL, the proposal intends to include an obligation for contractors to withhold taxes on fees deriving from labor outsourcing arrangements and include certain rules to regulate transactions executed through the digital economy. The proposed amendments would also eliminate the possibility to credit VAT linked to activities that are not subject to the VATL. 

  • The proposal intends to modify the LIEPS to update fees for tobacco and flavored beverages; include into the law the definitions of fuel that are currently included in the Federal Revenue Law, and incorporate provisions related to the offsetting of favorable balances that requires segregating balances per each type of product. 

  • The proposal intends to modify the FFC to include new provisions to counter the sale of fictitious invoices; include a domestic general anti-avoidance rule; amend provisions related to corporate veil and include an obligations for tax advisors to inform about certain “reportable arrangements”.