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R esulting from a G20 world leaders’ request, the OECD cre- ated an action plan to deal with base erosion and profit shift- ing (BEPS) issues. The 15 actions of this plan provide governments with instruments to confront tax avoidance and seek- ing to tax profits in the jurisdiction where the economic activity is performed, considering the actual economic nature and substance of the said activity. For years, the tax system in Mexico has been mainly formal. Therefore, taxpayers, tax authorities and tax courts have interpreted tax law based on a strict approach, with greater emphasis on formal procedures and compliance of formal requirements. However, in recent years tax authorities have begun to carry out audits and assessments of tax deficiencies where they intend to tax the transaction according to its economic substance, prioritising the actu- al nature of the transaction, rather than its formal structure and more often, pushing into the background the compliance of formal require- ments, in spite of the fact that such a substance approach exceeds the powers granted by the law to the tax authorities (With the exception of cases regarding criminal offenses and transfer pricing situations). In this context, even some tax courts have begun to analyse cases and issue their judgments based on the economic substance of the transactions carried out by taxpayers, in spite of its form. Following these local and international trends, in 2016 the Executive Branch proposed an amendment to the Federal Tax Code and the Federal Administrative Litigation Procedure Law, to introduce a new administrative procedure (substance-over-form administrative appeal) and a new law suit (substance-over-form annulment suit). This provides legal support to resolve tax contro- versies weighing economic substance of the business transactions involved, over formal requirements. In January 2017, a legislative reform was published, allowing taxpayers to challenge a tax assessment through traditional means of defence (in which the form and the substance of the transaction would be analysed) or, alternatively, through the new substance- over-form procedures. According to this reform, only specific tax assessments derived from certain fiscal audit procedures in which the amount of the case exceeds 200 annual times the unit of meas- ure (approximately $300,000), may be challenged through these new means of defence. The substance-over-form administrative appeal will be analysed and resolved by the current tax-dispute authorities, whereas the substance-over-form annulment suit will be ruled upon by a spe- cialised chamber of the Federal Court of Administrative Justice, which began to operate on July 1 2017. Substance-over-form annulment suits will follow the principles of orality and celerity, where hearings will be carried prioritising communication between the judge and the parties, and reducing timelines through the elimination of certain excessive procedural formalities. During this substance-over-form administrative appeal there is a possibility to hold a hearing where the taxpayer will have the opportunity to put forward his arguments orally in the presence of the tax authority that issued the challenged resolution and where the tax dispute authority will preside. Special feature | Mexico www.internationaltaxreview.com September 2017 1 Mexico has introduced new substance-over-form procedures that change the country’s formal approach into one more compliant with the BEPS Project. Taxpayers should take note of these developments as they may impact tax disputes, writes Bernardo Ramírez and Valentín Ibarra of Chevez, Ruiz, Zamarripa y Cía. New substance-over-form litigation procedures in Mexico When filing these substance-over-form procedures, taxpayers may only present arguments related to the substance of the case. These are defined by law as those referring to the taxpayer, scope of the tax, taxable basis, and rate or tariff of the tax obligations assessed by the tax authorities. Bernardo Ramírez F Chevez, Ruiz, Zamarripa y Cía. Vasco de Quiroga 2121 4º Piso, Peña Blanca Santa Fe CP 01210 México Tel: +52 (55) 5257 7018 [email protected] www.chevez.com Bernardo Ramírez F joined Chevez, Ruiz, Zamarripa y Cía in 1993 and was pro- moted to firm partner in 2004. He has more than 25 years of experience, and is specialised in tax aspects of project investment, energy projects and interna- tional tax planning. He graduated from the Autonomous Institute of Mexico (ITAM) in 1994, with a degree in public accounting with a specialisation in international taxation from the ITAM – Harvard joint programme. He is also member of the College of Public Accountants of Mexico (CCPM) and of the Academy of Fiscal Studies (AEF). Bernardo has been involved in academia. He was a professor of tax in the accounting programme at ITAM and in both, the international business LLM pro- gramme, and the accounting programme of the Ibeoamerican University. He has published several articles in specialised magazines regarding the taxa- tion of international transactions.
