Santamarina Steta

Effective income tax rates for large taxpayers

Executive Summary

  • Effective rates represent a measurement parameter for the tax authorities and not for taxpayers since their purpose is to "measure tax risks."
  • If a taxpayer determines an income tax lower than the effective rate, the tax authority will inform the taxpayer that there is a tax risk, which does not necessarily imply noncompliance with tax provisions.
  • It is advisable to review the determination of the income tax corresponding to fiscal years 2020 and 2021, compare the result with the effective rate, and, if there is a "tax risk," review and determine if there is documentary support to justify the difference.

By Article 33, first paragraph, section I, paragraph i) of the Federal Tax Code, the tax authorities are empowered to publish reference parameters concerning the effective income tax rates of other entities or legal entities that obtain income and by the various productive sectors or sub-sectors in Mexico.

To date, three publications have been made corresponding to 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 the publication of the effective income tax rates is to "measure tax risks," that is, the contingency of non-compliance with the tax provisions applicable to a taxpayer or a group of taxpayers, which has an impact on the correct payment of taxes, 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 such rates about 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 noncompliance with tax provisions. However, we consider that such a situation may give a guideline for the tax authorities to initiate their verification powers.

Therefore, it is advisable to review the determination of income tax 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.

Likewise, we recommend an evaluation of 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 occur concerning the effective rates published by the tax authorities.

Authors

Mariano Calderón

Partner

mcalderon@s-s.mx

Diego Vázquez

Associate

dvazquez@s-s.mx