Elimination of Universal Tax Offset
Among the 2019 Mexican Tax Reforms, one of the main issues, which causes a significant financial impact on operating cash flows, was the elimination of universal tax offset, which has been used for the last 14 years. The decision of tax authorities to eliminate this administrative facility, leads to a problem in the cash flow of taxpayers.
In connection with the above, section VI of article 25 of the approved Federal Income Law for the current year, provides that with respect to the offsetting of favorable balances, beginning on January 1st, 2019, taxpayers will only be allowed to offset favorable balances against the same tax.
The later implies that favorable balances triggered in 2019 and onwards, will not be allowed to be offset or compensated against other federal taxes (Income Tax or VAT), or any withholdings whatsoever. As such, favorable balances will only be allowed as a credit against the same future payable tax, or subject to refund.
Regarding favorable balances generated until December 31st, 2018, the tax authorities recently published an anticipated version of the amendments to the Miscellaneous Resolutions in which they added rule 2.3.19. Such rule, allows taxpayers to offset favorable balances that were generated before 2019, against the taxpayer’s own tax debts.
In this regard, favorable balances caused prior to 2019 are allowed to be offset against future federal taxes such as Income Tax or VAT (except those generated by the importation of merchandise and also against withholding taxes).
Additionally, it is important to inform you that we consider there are elements to enforce the applicable legal defense against the elimination of the compensation rights, such as a constitutional complaint (amparo indirecto), in which the taxpayer would have to file before the following deadline: (i) if the taxpayer has favorable balances from 2018 and backward, the term expires February 12, 2019; otherwise, (ii) the expiration date would depend on the date when taxpayer is no longer able to offset the favorable balances, having the taxpayer in this case 15 working days to file the complaint.
If you are interested, we suggest to contact your tax lawyers, or if you require advice from a specialist in Mexican tax law, we will be glad to advice you in your specific situation.