MEXICO Law and Practice Contributed by: Ángel Escalante, Gabriel Rojas, Daniel Colunga and Brenda Favela, Escalante & Asociados
The mechanism operates by determining the effective tax rate (ETR) in each jurisdiction where the multina - tional group operates. When the ETR in each jurisdic - tion falls below the 15% minimum rate, a top-up tax is triggered in order to increase the effective tax burden to the agreed minimum level. At the time of writing, Mexico has not formally imple - mented Pillar Two rules in its domestic legislation, and therefore the global minimum tax does not currently apply within the Mexican tax system. 4.4 Specific Features or Deviations of Pillar Two See 4.3 Pillar Two . 4.5 Digital Services Tax Mexico has not adopted a specific digital services tax (DST) comparable to those implemented in certain jurisdictions within the European Union. However, in 2020, domestic legislation introduced a special value added tax (VAT) regime applicable to digital services supplied by non-resident providers without a PE in Mexico. Under this regime, foreign digital service providers supplying services to users located in Mexico (ie, streaming platforms, digital intermediation platforms or online services) must: • register before SAT; • charge and remit VAT on the services provided; and • comply with reporting and information obligations. The objective of this regime is to ensure tax neu - trality between domestic and foreign digital service providers and secure VAT collection within the digital economy. 5. Anti-Avoidance and Anti-Evasion Measures 5.1 Definition and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes Under Article 108 of the FFC, a person commits tax fraud when, through deceit or by taking advantage
of errors, they wholly or partially omit the payment of taxes or obtain an undue benefit to the detriment of the federal treasury. In addition, Article 109 of the FFC establishes a series of conducts treated as equiva - lent to tax fraud, which are punishable with the same penalties. By contrast, the concepts of tax evasion and tax avoidance are not expressly defined in domestic tax legislation. However, under a doctrinal perspective, a distinction is typically made between: • tax evasion, which involves the unlawful failure to comply with tax obligations through concealment, misrepresentation or falsification; and • tax avoidance, which refers to the reduction or deferral of tax liabilities through formally lawful arrangements that exploit gaps or inconsistencies in the law, for the primary purpose of obtaining a tax advantage. The latter category is addressed primarily through the General Anti-Avoidance Rule (GAAR) established in Article 5-A of the FFC, which provides that legal acts lacking a valid business purpose and generating a direct or indirect tax benefit may be recharacterised for tax purposes, assigning them the tax effects that would reasonably correspond to the transactions that would have been carried out to obtain the expected economic benefit. The provision also establishes a rebuttable presump - tion that a transaction lacks a business purpose when the quantifiable economic benefit is lower than the tax benefit obtained. Cross-Border Transactions In cross-border transactions, the identification of abusive arrangements is further supported by sev - eral specific anti-avoidance mechanisms. First, Arti - cles 179 and 180 of the MITL require that transactions between related parties be conducted in accordance with the arm’s length principle, meaning that a devia - tion from arm’s length pricing may constitute an indi - cator of base erosion or artificial profit shifting. Second, preferential tax regime rules established in Articles 176 to 178 of the MITL aim to prevent the
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