Updates regarding tax compliance in Mexico. During the current fiscal year, the Tax Administration Service published new regulatory criteria on the 6% withholding value added tax (VAT) for services provided through the criteria 46/IVA/N, published in the early version of an amendment to the Annex 7 of the Miscellaneous Tax Resolution (RMF) for 2020. The criteria are described as follows:
46/VAT/N Withholding of 6% on the value added tax referred in fraction IV of Article 1a-A of the VAT Federal Law
Article 1o-A, fraction IV of the VAT federal law establishes which corporations are obliged to withhold the tax transferred to them, such as companies or natural persons with business activities who receive services through which they are made available to the contractor or a related party, personnel performing their duties on or outside the contractor’s premises or a related part therefore, whether or not they are under the direction, supervision, coordination or dependence of the contractor, regardless of the name given to the contractual obligation and that for specific provision that the withholding will be made for 6% of the value of the transaction actually paid.
Article 5 of the federal tax code refers that tax provisions on charge of individuals and the excepcions, moreover those which charges and penalties are strictly applicable. In this regard, the Supreme Court of Justice of the Nation has pointed out that in the case of strict rules of application it is valid, for the purposes of its interpretation, to apply several methods of interpretation.
In this regard, even though the legislative process where the origin was from Article 1o-A, fraction IV of the VAT Law initially referred to the withholding tax regarding the contract labour services referred to in the Federal Labour Law, during the decision by the Committee on Finance and Public Credit of the Chamber of Deputies was deleted such a reference and the provision was approved in those terms, hence, for tax purposes the services subject to retention are all those in which it is made available to the contractor or a related party thereof, staff who, whether or not under their direction, are under their direction , supervision, coordination or dependence, and regardless of the name given to the contractual obligation.
Therefore, when a company of Title II or Title III of the LISR or a natural person with business activity, in his capacity as contractor, receives services in which he is made available, it is understood that there will be retention when the functions of such staff are taken advantage of directly by the contractor or by a related party thereof. On the contrary, there will not be withholding if the services provided correspond to a service in which the contractor’s staff performs functions that are directly exploited by the contractor itself.
At Auxadi we are experts in providing value added services in accounting, tax compliance and international payroll management. If you need more information about our services, please do not hesitate to contact us.