What kind of audits are performed in Mexico? And...| Asesores Stratego

In Mexico, the main tax authority is the Tax Administration Service (SAT),ountry.

Auditing is the exercise of public resources, which is important for the three branches of government, since it allows public sector entities and agencies to comply with the necessary transparency and accountability in order to analyze the obligations that by law correspond to the governments (Federal, State and Municipal) to implement the accounting and administrative control systems in order to support the operations carried out to obtain reliable financial information.

In general terms, it can be understood that auditing is the process through which the authority monitors the use of public resources (economic, human and material) with the purpose of taking care and verifying that at all times the accountability of individuals and legal entities in general to the Ministry of Finance and Public Credit is carried out in accordance with the law. Now, this procedure consists of the control mechanisms that are the inspection, surveillance, monitoring, auditing, supervision, and in its form of evaluation.

Having said the above, as a primordial antecedent we identify that taxes are and will be the basis that sustains each State, since their collection plays an important role in obtaining the common good of the State itself, therefore, in Mexico auditing is an issue of total importance, given that based on numeral 31, in its section lV, of the Political Constitution of the United Mexican States, it is established that all Mexican citizens will have the obligation to contribute to public spending.

Likewise, Article 1 of the Federal Tax Code establishes in detail that those obligated to contribute to public spending are individuals and corporations, the latter being understood as companies, which in relation to Article 2 establishes that it includes the contributions as such, being said contribution a compendium that is classified into taxes, social security contributions, contributions for improvements and duties.

Under this context and taking into account that contributing to public spending is an obligation, as well as that such contribution is necessary on the part of the Mexican State, since it is its main income and which is used to be able to invest such money in all public sectors in search of the collective benefit of the whole society.

As a result of the above, it is of vital importance for the Mexican government to collect such contributions from all individuals and for this purpose, there is, in hierarchical order, the Ministry of Finance and Public Credit, from which there are autonomous tax agencies such as the Tax Administration Service, the Social Security Institute and the National Workers’ Housing Fund Institute, among others.

The aforementioned agencies have the powers of autonomous tax authorities, i.e., they may impose determinations with the purpose of ensuring that all persons comply with their tax obligations, mainly to obtain the collection of taxes in general.

In Mexico, the main tax authority is the Tax Administration Service (SAT), which is in charge of ensuring that all individuals and companies comply with their tax obligations so that they pay their taxes in accordance with the legal provisions, such as the Income Tax Law and the Value Added Tax Law, since these two laws are the main ones that impose the payment of taxes in the country.

Now, the SAT as a tax authority has powers to be able to carry out the purely tax procedures to obtain its objective, which as mentioned above is to obtain the collection of taxes corresponding to each person in Mexico, being that its main powers are; the Power of Verification, Discretionary Power and Power of Collection. For this purpose, there are special procedures for the verification of tax obligations, which are carried out by the SAT in use of its auditing powers to determine if the persons contribute in the manner that by law corresponds to them and in the event that this is not the case, to impose tax credits as a sanction, determining liquid amounts that must be paid according to what the auditing authority determines that the person has omitted to declare to the SAT.

In this regard, it is worth mentioning the auditing procedures that the Tax Administration Service has, as well as a brief generalization of their stages and purposes, which consist of the following:

FIELD AUDIT

The field audit is a procedure implemented by the SAT or the tax authorities of the States, through their powers of verification that were granted to them mainly by the Federal Tax Code. The purpose of this procedure is to review the accounting, goods and merchandise of taxpayers as well as jointly and severally responsible parties and third parties, in order to verify due compliance with the tax and customs obligations to which they are subject.

The aforementioned procedure is based on articles 38, 42 and 43 of the Federal Tax Code. Among the basic requirements of the order of initiation of the Field Audit, is that such document has the following requirements:

Be in writing.
Place and date of issue.
The name of the company or person to be visited.
It expresses the respective grounds and motivation, as well as the object or purpose of the field audit(the tax and/or customs obligations to be reviewed).
Place or places where the visit will take place.
Name of personnel authorized to conduct the visit.
Bear the signature of the competent official.

A special feature of this procedure is that it is carried out at the taxpayer’s tax address, so it is focused on comprehensive or substantial reviews.

Pursuant to article 46-A of the CFF, it is established that the field audit will be carried out within a maximum period of 12 months from the business day on which the taxpayers are notified of the initiation of the verification powers. Once the 12 months have concluded, together with its verification powers, the authority has 6 months to issue a ruling in which it establishes the tax situation of the taxpayer and its probable determination of tax credits or imposition of penalties for noncompliance with the tax obligations that apply to it.

DESK AUDIT

Also known as desk review or tax audit, it is an inspection procedure by the authority in use of its powers of verification, it has similar characteristics to the Field Audit, since both have the objective of reviewing the due compliance of the tax and customs obligations to which the taxpayer is subject; the difference in this procedure is that this desk review is carried out in the offices of the tax authority, contrary to the field audit where the review is carried out at your tax address. In other words, the tax authority requires information and/or documentation supporting the reviewed obligations, from its office, without going to the taxpayer’s address.

The legal basis for this type of procedure is provided in articles 42 and 48 of the Federal Tax Code, and it is through these numbers that the authority is empowered to request reports, data or documents from taxpayers, jointly and severally responsible parties or third parties, the accounting or part of it to review them at the offices of the tax authority. Within the procedure, the taxpayer has a term of 20 days to present the documentation that disproves the facts or omissions, or otherwise, to correct its tax situation.

Likewise, as a general rule, this procedure will be developed in a maximum term of 12 months and once this term has expired, the authority will have a term of 6 months to determine the facts or omissions observed during the procedure, issuing the final resolution in which the tax situation of the taxpayer is determined regarding the obligations reviewed.

ELECTRONIC AUDIT

Electronic reviews are an act of auditing consisting of the electronic review of the information and documentation held by the tax authority, in order to verify compliance with tax and customs obligations of taxpayers, jointly and severally responsible parties or third parties related to them, based on the analysis of the information and documentation held by the tax authority, on one or more specific items or concepts of one or more taxes. Its legal basis is established in paragraphs 42 section IX and 53-B of the Federal Fiscal Code.

The purpose of this procedure is also to verify due compliance with the tax and customs obligations to which the taxpayer is subject for a certain review period, but in an expeditious and practical manner, through the use of electronic means recognized by the legislation in place.

An important aspect of this procedure is that it is carried out through the Tax Mailbox, which is the means of electronic communication between the taxpayer and the SAT.

Regarding the development of its procedure, it must be said that such review begins when the authority informs the taxpayer (through the tax mailbox) of the facts that derive in the omission of contributions, benefits or other irregularities, through a provisional resolution, by means of which the taxpayer is required, The taxpayer, jointly and severally responsible party or third party is required, within a period of 15 business days following the notification, to state what he/she deems appropriate and provide the information and documentation aimed at disproving the irregularities or proving the payment of the contributions or benefits included in the provisional resolution, which contains a pre-settlement.

When the taxpayer accepts the facts disclosed in the provisional resolution, he may choose to correct his tax situation by paying the total amount of the omitted taxes and charges, together with their accessories (fines, updates and surcharges), within 15 business days following the notification of such resolution, in which case he has the benefit of paying a fine equivalent to 20% of the omitted taxes; or, within the same term, the taxpayer may present the evidence and allegations he considers pertinent in order to disprove the presumption detected by the authority.

The authority will have a period of forty business days to issue and notify the resolution, determining the tax situation of the taxpayer, whether the presumptions were rebutted or whether the taxpayer is entitled to tax credits and/or penalties for noncompliance with the obligations reviewed.

PROCEDURE PROVIDED FOR IN ARTICLE 69-B CFF

Some time ago, the current Federal Government announced a plan to combat the “invoice companies” due to the damage they are estimated to have caused to the public treasury over the years, as a result of all the money that has not been collected due to tax evasion; a situation that is reflected in a decrease in the budget allocated to public sector programs.

Now, by means of the procedure set forth in number 69-B of the Federal Tax Code, the Tax Administration Service audits and penalizes companies that incur in these cases of non-existent operations, such as the purchase of invoices to reduce the amount of tax payments.

A non-existent transaction is configured when an invoice is issued for any concept without having the necessary resources to develop the activity described in the voucher, that is, without having the assets, personnel, infrastructure or material capacity directly or indirectly to provide the services or produce, market or deliver the goods covered by such vouchers, or without being a taxpayer that can be located by the tax authority, in addition to trying to prove expenses for such activities.

This procedure has several edges, and the success in its resolution will depend on the adequate defense that is exercised within the administrative procedure (as in all auditing procedures), so having a comprehensive defense at this stage is extremely key to obtaining a successful outcome.

CONSEQUENCES

In this context, it can be concluded that the audit process in Mexico plays an extremely important role in the national economy, since the tax authority will always seek to collect all contributions through the legal procedures and its powers that allow it to do so.

It should be noted that as a consequence of all these procedures, and even more so if they are not given adequate attention, the authorities may determine:

Impose penalties
Determine tax credits
Configure tax offenses
Suspend or cancel digital stamps
Among others

ADDITIONAL LEGAL DEFENSE ALTERNATIVES

If the final resolution issued is not favorable to the taxpayer’s interests, it may be challenged through the following means of defense:

Appeal for Revocation
Nullity Procedure
Direct Amparo (Direct Appeal)

In such appeals, the legality of the final resolution issued by the auditing authority on the aforementioned item of review will be resolved.

This document does not constitute a particular consultation, and therefore Asesores Stratego S. C., is not responsible for the interpretation or application granted. We are in your service to respond to any questions or comments. For more information regarding this subject and our services: info@asesores-stratego.com