Executive Summary:
- Effective rates represent a measurement parameter for tax authorities and not for taxpayers, since their purpose is to “measure tax risks.”
- If a taxpayer determines an income tax rate lower than the effective rate, the tax authority will inform the taxpayer that there is a tax risk, which does not necessarily imply non-compliance with tax provisions.
- It is advisable to review the income tax determination for fiscal years 2020 and 2021, compare the result with the effective rate and, if there is a “tax risk”, review and determine whether there is documentary support to justify the difference.
Pursuant to Article 33, first paragraph, Section I, subsection i) of the Federal Tax Code, the tax authorities are empowered to disclose reference parameters with respect to the effective income tax rates presented by other entities or legal entities that obtain income and in accordance with the various productive sectors or subsectors of Mexico.
To date, three publications have been made corresponding to the fiscal years 2020 and 2021, and on February 14, 2023, the “Third publication of effective income tax rates for large taxpayers” was released. These publications can be found on the Mexican Government's website.
The purpose of publishing the effective income tax rates is to “measure tax risks”, that is, the contingency of non-compliance with the tax provisions that are applicable to a taxpayer or a group of taxpayers and that impacts the correct payment of contributions, specifically in the area of income tax.
In this sense, the effective rates represent a measurement parameter for the tax authorities and not for the taxpayers, since based on the comparison made of said rates in relation to the situation of the taxpayers, the Tax Administration Service "may inform the taxpayer that it detected a tax risk based on the parameters established in the effective rates."
In this context, if a taxpayer determines an income tax that is lower than the effective rate, the tax authority will inform the taxpayer that there is a tax risk, which does not necessarily imply non-compliance with tax provisions; however, we consider that such a situation may provide an indication for the tax authorities to initiate their verification powers.
For the above reasons, it is advisable to review the income tax determination for fiscal years 2020 and 2021, compare the result with the effective rate published by the tax authorities and, if it is determined that there is a “tax risk”, review and determine whether there is documentary support to justify the difference.
We also recommend that you evaluate the tax results determined in fiscal years 2020 and 2021 to determine the areas of exposure and the steps to be taken to reduce the tax risks that may arise with respect to the effective rates published by the tax authorities.
