Mexico: Tax litigation In Mexico: Overview

A Q&A guide to civil and criminal tax litigation in Mexico.

This Q&A provides a high level overview of the key practical issues in civil and criminal tax litigation, including: pre-court/pre-tribunal process, trial process, documentary evidence, witness evidence, expert evidence, closing the case in civil and criminal trials, decision, judgment or order, costs, appeals, and recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Tax Litigation: Country Q&A tool.

The Q&A is part of the global guide to tax litigation. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxlitigation-guide.

Overview of tax litigation

Issues subject to tax litigation

1. What are the most common issues subject to tax litigation in your jurisdiction?

The tax court system provides a forum where taxpayers can challenge the legality of administrative resolutions issued by the tax authorities through tax litigation. The most common issues subject to tax litigation initiated by taxpayers are based on the following grounds:

  • The administrative resolution or law violates the Mexican Constitution.
  • The tax authority that issued the administrative resolution or law had no legal basis for issuing it.
  • Incorrect interpretation or application of tax provisions.
  • Missing the exhibition of all the proper evidence during the audit process to challenge the tax authorities' conclusions.
  • Rejection of the methodology, comparable companies and adjustments used by taxpayers for the transfer pricing analysis.

A new ruling issued by Mexico's Supreme Court provides that if a taxpayer fails to submit in a timely manner the information and documentation requested by the tax authorities during an audit, the taxpayer cannot then later file that information and documentation as evidence in a subsequent court action for annulment.

A taxpayer can either file a complaint in writing to the Federal Tax Court, or submit an online application through the Online Justice System.

Legislative framework

2. Outline the legislative framework and principal pieces of legislation governing both civil and criminal tax litigation.

Civil tax litigation

Mexico follows a Civil Code system. In Mexico, like other countries which are influenced by the European judicial system (that is, the Roman system), the judicial process is based on the existing laws and court precedents issued by judges.

The power to impose taxes in Mexico rests primarily with the federal government. The Constitution grants exclusive powers to the Congress to levy taxes on the following matters:

  • Domestic and foreign trade.
  • The development and exploitation of natural resources.
  • All commercial and industrial activities, including those of financial institutions and insurance companies.
  • Certain public services.
  • Several products (such as tobacco, petroleum, and products derived from petroleum).

The states also have tax levying powers but they are restricted by the Constitution from levying taxes in areas exclusively reserved for the Congress.

There are many tax agreements entered between the states and the Congress for avoiding double taxation at both federal and state level. Under those agreements, tax revenues collected by the federal government are allocated and transferred to the states in cases where their powers to levy taxes have been limited.

The most important laws and regulations governing the Mexican tax system are as follows:

  • Constitution.
  • Federal Fiscal Code (FFC) and its Regulations.
  • Income Tax Law (ITL) and its Regulations.
  • Value Added Tax Law (VATL) and its Regulations.
  • Special Production and Services Tax Law (SPSTL).
  • Federal Taxpayers' Rights Law.
  • Omnibus Tax Regulations.
  • Tax authority standards (non-binding tax criteria) and jurisprudence.

In addition, Mexico has entered several Conventions for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with other jurisdictions with respect to taxes on income.

Finally, the executive power submits a Tax Reform Bill to Congress for each year with proposed amendments to the major federal taxes. Those amendments are usually enacted into law and become effective on 1 January of the following year.

Criminal tax litigation

In July 2016, Mexico adopted a new oral adversarial criminal justice system which is governed by the National Criminal Proceedings Code (NCPC).

Tax evasion and other criminal tax offences

3. What are the key elements that constitute tax evasion and other main criminal tax offences in your jurisdiction?

In general, the main tax offences in Mexico consist of the following (among others):

  • Smuggling.
  • Tax fraud.
  • Crimes concerning the Federal Tax Registry.
  • Crimes concerning tax accounting records.
  • Non-disclosure, alteration or destruction of accounting systems and records.
  • Claiming false tax losses.
  • Omitting information from Informative Declarations.
  • Disclosure and illegal use of confidential information.
  • Crimes concerning official seals and marks.
  • Illegal tag possession.

Liability for committing criminal tax offences will arise where a party does any of the following acts:

  • Plan an offence.
  • Engage in the conduct or commit the act described in the law.
  • Jointly commit an offence.
  • Use another person as an instrument to commit an offence.
  • Deceive another person and encourage him to commit an offence.
  • Intentionally help another person to commit an offence.
  • Assist another person after the offence has been committed, in fulfilment of a prior commitment.
  • Act as guarantor as a result of a legal provision, a contract or the byelaws, in crimes of omission which have material consequences (as a result of the overriding legal obligation that exists to prevent the crime).
  • As a result of a contract or agreement that implies the development of an independent activity, propose, determine or carry out by themselves (or through an intermediary) acts, operations or practices, the implementation of which directly results in the commission of a tax crime.

Mexico makes a distinction between tax evasion (which is not regulated under the Federal Fiscal Code (FFC)) and tax fraud (which is a criminal offence under the FFC).

The offence of tax fraud is the main offence that is committed. It consists of either resorting to deceit, or taking advantage of mistakes, to avoid paying all or part of a tax contribution, or to obtain an undue benefit, to the detriment of the federal tax authorities.

The offence of tax fraud will be aggravated when it arises as a result of:

  • The use of forged documents.
  • The repeated failure to issue supporting documentation (invoices) for the activities conducted (if the tax provisions require that such documentation be issued).
  • The submission of false data to obtain an undue refund of contributions from the tax authorities.
  • A failure to maintain accounting records or systems required by the tax provisions, or recording false data in those records or systems.
  • Failure to pay withheld, collected or charged contributions.
  • The provision of false data to improperly offset contributions.
  • The use of false data to credit or reduce contributions.

Pre-court/pre-tribunal process

Assessment, re-assessments and administrative determinations in civil law

4. Outline the procedure for tax assessments, re-assessments and administrative determinations in civil law.

The Mexican Tax Authority (Servicio de Administración Tributaria) (SAT) (www.sat.gob.mx/Paginas/Inicio.aspx) is the main tax authority.

Mexico has a self-reporting tax system. Mexican taxpayers must file several tax returns during each year (for example, income tax and value added tax returns). Taxpayers must comply with several different tax obligations.

Therefore, to ensure that taxpayers (and parties jointly and severally liable with them, including third parties related to them) have complied with the relevant tax provisions, the tax authority has the power to conduct an audit of any taxpayer.

Whilst conducting an audit of a taxpayer, if the tax authorities become aware of acts or omissions which imply a failure to comply with the tax provisions, they will assess the unpaid contributions, surcharges and penalties in a ruling. A personal notification of that ruling must be given to the taxpayer within a six-month period following the date on which the audit was concluded. The tax liability of a taxpayer for a given tax year is determined based on the tax laws in effect during that year.

Under the tax provisions, the tax authority can modify tax profits or losses by using presumptions to estimate the price for which taxpayers purchased or sold assets, as well as the consideration amount involved in any transaction (other than sales).

Taxpayers have the right to file an administrative appeal against the review conducted by the tax authority prior to commencing formal litigation (see Question 5).

Resolving disputes before commencing court proceedings

5. What are the main procedures used to resolve disputes before commencing proceedings in a civil court/tribunal?

Administrative appeal

Taxpayers have 30 business days to file an administrative appeal with the tax authority against the ruling issued by the tax authority to resolve the dispute prior to formal litigation (the time limit runs from the day on which the taxpayer receives the notification of the ruling from the tax authority). It is not mandatory to file an administrative appeal with the tax authority before bringing an action in the Federal Tax Court, and this course of action is entirely at the taxpayer's discretion. However, the benefit of this appeal procedure is twofold:

  • Taxpayers are not obliged to guarantee the payment of the tax assessment until the administrative appeal ruling is issued and served.
  • Taxpayers can submit evidence which was not initially submitted to the tax authority during the audit.

If the tax authority fails to issue a ruling on the administrative appeal, and notify the taxpayer of that ruling, within three months following the date on which the appeal was filed, the silence of the tax authority can be taken as confirmation of the tax assessment. Provided the tax authority does not expressly dismiss the administrative appeal, the taxpayer can file a nullity claim with the Federal Tax Court.

Once the tax authority has issued a ruling on the appeal and notified the taxpayer of that ruling, the taxpayer has 45 business days to file a claim to nullify that appeal ruling with the Federal Tax Court. The taxpayer, upon filing a nullity claim with the Federal Tax Court, then has ten business days to guarantee the payment of the tax liability assessed in the appeal ruling.

Settlements

A new settlement procedure was introduced in 2014, so that taxpayers who have been subject to a tax audit by the tax authority can elect to agree to a settlement. Where a taxpayer disagrees with the facts or omissions described in the last preliminary audit report, the final audit report or the provisional ruling, and believes the audit report or ruling constitutes a breach or misinterpretation of the tax provisions, the taxpayer can request that the tax authority adopt a settlement. The settlement is agreed by considering the fact(s) or omission(s) that the taxpayer disputes.

Taxpayers must submit a written application for a settlement with the Taxpayer Advocate Office. The written application must:

  • Describe the fact(s) or omission(s) with which the taxpayer disagrees.
  • Describe what qualifications the taxpayer believes should be attributed to those fact(s) or omission(s).

Any documentation deemed necessary can be enclosed with the application.

Once an application is received, the Taxpayer Advocate Office will request that the tax authority declare, within 20 days from the day on which the tax authority receives the request:

  • Whether it accepts the terms of the settlement or not.
  • The factual and legal grounds for not accepting the settlement, or the terms under which the settlement will be adopted.

Once the Taxpayer Advocate Office acknowledges receipt of a tax authority's answer, it will have a 20-day period within which to conclude the procedure. Whenever the procedure concludes with the execution of a settlement, it must be signed by the taxpayer and the tax authority, as well as by the Taxpayer Advocate Office.

In order to promote the adoption of settlements, the Taxpayer Advocate Office can organise round work tables, encouraging at all times that the tax authority and the taxpayer agree to the execution of a settlement.

Taxpayers who have executed a settlement will be entitled, on a single occasion, to a 100% remission of penalties. In cases of second or subsequent executions of settlements, the rules regarding the remission of penalties under the Federal Taxpayers' Rights Law will apply.

Elements of the offence in criminal law

6. What are the elements of the main criminal law offences in tax litigation?

The main criminal law offences subject to tax litigation are:

  • Tax fraud.
  • Smuggling.

The elements of the criminal offence of tax fraud are that a taxpayer intentionally deceives the tax authority to either:

  • Avoid full or partial payment of any tax contribution.
  • Obtain an undue benefit to the detriment of the federal treasury.

Every defence against tax fraud is different, but generally the taxpayer must prove the following:

  • The failure to pay was not intentional.
  • The behaviour did not cause any injury to the federal treasury.
  • The expert opinion concerning the accounting that the tax authority has relied on to determine the existence of a credit or the lack of payment of a contribution is discredited.

The elements of the criminal offence of smuggling consist of importing goods into Mexico, or exporting goods from Mexico, and either:

  • Omitting the total or partial payment of a tax contribution which was due.
  • Failing to obtain the required permission of a competent authority to import or export the goods.
  • Knowing that those goods being imported or exported have been prohibited from import or export.

The general defences against an indictment for the offence of smuggling are as follows:

  • Proof of the legal import of the goods.
  • Proof of payment that the corresponding contributions were made in order to legally import the product
  • Proof that the imported goods are legally allowed.

Early resolution

7. What are the main procedures used for the early resolution of criminal law offences before trial?

The National Criminal Proceedings Code (NCPC) provides the following alternative dispute resolution solutions for the early resolution of criminal proceedings:

  • Compensation agreements.
  • Conditional suspension of the process.
  • Summary procedure.
  • Plea bargaining.

Compensation agreements

These are agreements between the victim and the accused which aim to settle the dispute between them that originated the criminal proceedings. Such agreements must be approved by the Public Prosecutor or by the judge, depending on the procedural stage at which they are granted, and can be agreed at any stage of the proceedings (even before the decision to open the trial procedure is reached).

This alternative solution can be used for the following offences:

  • Smuggling.
  • Tax fraud.
  • Crimes committed against the Federal Register of Taxpayers.
  • Printing or producing illegal reproductions of tax receipts.

Conditional suspension of the process

This can be formulated by the Public Prosecutor or the accused, and it consists of providing a detailed report on the payment of compensation for the damage caused, and creating conditions that guarantee the rights of the victim. Where a conditional suspension of the process is agreed, this extinguishes the right to proceed against the accused in a criminal proceeding.

The judge will set a time limit which applies to a conditional suspension of the proceedings, which cannot be less than six months or more than three years. The judge will also authorise the programme to repair the damage caused by the accused, and the accused can have one or more conditions imposed upon him to ensure that the damage is fully compensated.

Conditional suspension of the process can be used for the following offences:

  • Tax fraud.
  • Smuggling.
  • Crimes committed against the Federal Register of Taxpayers.
  • Printing or producing illegal reproductions of tax receipts.

Summary procedure

This is a special procedure which is used to speed up the criminal proceedings. In this procedure, the defendant waives his right to trial and admits responsibility for the crime to obtain benefits in sentencing and save financial resources and time. The defendant is charged and agrees to be sentenced with the evidence presented by the Public Prosecutor.

Unlike plea bargaining (see below), the summary procedure does not imply an admission of guilt, only an admission of responsibility for the crime.

The accused benefits from a minimum reduction of one-third of the minimum sentence for the alleged offence, which can be further reduced to up to one-half of the minimum sentence for the alleged offence, depending on the legal classification of the offence and the facts of the case.

The summary procedure is carried out in open court before a judge, where the Public Prosecutor must be present along with the accused. The presence of the victim or his legal adviser is not required unless there is justified opposition to carrying out the summary procedure.

At the hearing, the judge ensures that the legal requirements are met, and that there is evidence to substantiate the allegation made by the Public Prosecutor. The judge listens to the arguments of the parties and finally provides a judgment, explaining the rationale and reasons taken into consideration.

To read this article in full, please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Basham, Ringe y Correa, S.C.
Chevez Ruiz Zamarripa
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Basham, Ringe y Correa, S.C.
Chevez Ruiz Zamarripa
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions