Pop! Goes the Tax Weasel

BY: ORLANDO GOTAY

Late on a recent Sunday night, my “teletype” sprang to life, alerting me to important news on the Mexican tax front. And there sure were. The López Obrador administration issued its budget document for the following fiscal year.  Much like in the U.S., this voluminous proposal has to be approved by the National Congress.

But unlike up north, this budget contains a number of very specific tax measures, all designed to increase federal revenue, without enacting any new tax. How does one do that? Simply by finding gaps in existing tax collection schemes and plugging them.

The digital, shared economy is a major object of the tax reform package.  It does this by, among others, imposing a VAT collection obligation on out of Mexico digital service providers that serve the Mexico market … think of all those media streams into the country.

The Mexican government has also set its gaze on the many apps that many of us know too well:  Uber, AirBnB, Rappi and so many others. If the tax bills are approved, VAT tax withholding obligations will be imposed on the platform operators. It makes sense from the tax administrator’s viewpoint. So all those app users will come in one way or another into the taxman’s radar screen.

Another area of interest: property rentals. The budget document states that a large percentage of rentals go unreported as income. So the proposal says: if you are a landlord and you have to sue for rents, you have better had issued facturas (fiscal receipts) for the sought rent.  Otherwise, the court where you sue will be required to tell the SAT tax service.  Fair enough, landlords were required all along to report the rent, but I know many landlords that don’t issue facturas, mostly because their tenants either don’t know or don’t care to ask for a factura.  Still, that’s the proposed requirement.  It will be interesting to see how that proposal fares in the Mexican Congress.

Reading tea leaves here: The authorities are finding money that was “left on the table” because technology advances allowed for the creation (and now, identification and collection of tax) from that revenue. Not discussed here, but Mexico is also focusing on foreign participation in the national economy and is figuring ways to capture part of that benefit, even if the entities or persons themselves are not in Mexican territory.

If things continue to trend in this direction, and consistent with the “no new taxes” mantra of the López Obrador administration, it would not be far fetched to see increased efforts in policing the economic activities of non-local nationals within Mexico. That may not be the best low hanging fruit (withholding VAT from the Uber Eats or AirBnB provider is so much easier) but it is clearly within the horizon. Municipalities are also taking notice, imposing fees and taxes on AirBnB rentals and enforcing their rules. More to come, I’m sure! 

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.  His love of things Mexican has led him to devote part of his practice to federal and state tax matters of U.S. expats in Mexico.  He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer. This is just a most general outline. It is informational only and not meant as legal advice.