Mexico introduces tax amnesty program – U.S. businesses with pending tax disputes in Mexico should consider immediate action

2013 Mexican Tax Reform Law

Mexico introduced a comprehensive tax amnesty as part of the 2013 tax reform published in the Mexican official gazette on December 17, 2013. Under the program 80 to 100 percent of federal tax debt and related penalties incurred by companies and individuals are forgiven upon request of the taxpayers. Tax penalties for 2012 and 2013, other than penalties for failure to pay the tax, are also reduced by 60 percent.

General conditions. Under the tax amnesty program initiated by the Mexican tax authority (Servicio de Administración Tributaria - SAT) 80 to 100 percent of tax debt of individuals and entities will be forgiven based on the taxpayer's request to the extent the tax debt originated from tax obligations incurred before January 1, 2007.

The amnesty program also allows for a 60 percent reduction of penalties, other than penalties for failure to pay the tax, for the years 2012 and 2013 to the extent such penalties are paid within 30 days of receiving the tax authorities' notification about the penalties.

The amnesty program is part of the 2013 tax reform law (Ley de Ingresos) that was approved by the Mexican parliament on December 13, 2012.

Scope of the amnesty. The tax debt that is covered by the amnesty may be due to omission of income; failure to pay federal income tax or trade import duties (cuotas compensatorias); inflationary interest and penalties regarding either the federal tax or trade import duties; and penalties due to the failure to comply with federal tax obligations other than the payment of the tax (e.g. reporting obligations).

Taxpayers, that have been under SAT audit for tax years 2009, 2010 and 2011 and where the SAT determined as a result of the audit that there had been no tax deficiency or where the taxpayer paid the tax deficiency found by the SAT, will be granted a 100 percent forgiveness of the pre-2007 tax debt.

Mechanics for requesting tax forgiveness. Taxpayers may request the forgiveness of their tax debt by submitting a written application to local office of the SAT corresponding to the taxpayer's domicile or corporate seat.

U.S. corporations or owners of Mexican corporations with operations in Mexico should carefully review their federal tax and trade import duty situation in Mexico for the years involved. Applying for the tax amnesty may result in significant tax savings. The tax amnesty seems to also apply to tax amounts that are under dispute with the Mexican tax authority including amounts that are being litigated in court. Obtaining forgiveness for disputed amounts may bring further savings as it would eliminate dispute and litigation costs.