With the purpose of countering abusive practices that have been implemented in Mexico throughout the past years, the 2020 tax reform published on the Federal Official Gazette, on December 9th, establishes a series of modifications to the Federal Fiscal Code, including:

(i) a new general anti-abuse rule (GAAR);
(ii) the obligation for tax advisors to inform tax authorities about certain schemes considered as potentially aggressive and schemes used to implement abusive tax planning;
(iii) the elimination of certain exceptions which release dissolution and bankruptcy managers from joint and several liability, as well as the inclusion of additional cases in which partners, shareholders, general directors and managers administrators will be considered as jointly and severally liable for taxes owed by companies.  

  1. General anti-abuse rule

The new anti-abuse rule is based on Action 6 recommendations made by the Organization for Economic Cooperation and Development (OECD) and G20’s Base Erosion and Profit Shifting (BEPS) project.  

What does the general anti-abuse rule establish?

Following a series of relevant modifications to the original proposal made by Congress, the rule establishes that transactions which (i) lack of a “business reason” and (ii) create a direct or indirect tax benefit , will have the tax consequences that correspond to those transactions that would have been executed by the taxpayer to obtain a “reasonably expected economic benefit”, unless proven otherwise. 

It is important to note that the rule will be applied as a presumption, which means that the taxpayer will be able to argue against such presumption before it becomes definitive, and may only be applied within the context of a formal tax audit carried out by tax authorities, based in facts and circumstances that are discovered during such audit.    

When is a transaction considered to lack a business reason?

A transaction will be considered to lack a business reason when the reasonably expected economic benefit is lower than the tax benefit obtained from its execution, unless proven otherwise.

Additionally, the rule establishes that the tax authorities will be able to presume, unless proven otherwise, that a series of transactions will lack of a business reason, when the reasonably expected economic benefit might have been achieved by executing less transactions with a more burdensome outcome.