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What are Reportable Schemes?
A reportable scheme is defined as any structure or project that involves a series of legal acts that could generate, directly or indirectly, a tax benefit in Mexico, regardless of the taxpayer's place of tax residence.
To qualify as a reportable scheme, the scheme must present at least one of the characteristics considered to be risky. These characteristics are detailed in the specific regulations.
Within the framework of the 2020 Tax Reform, the obligation to report certain tax schemes to the Tax Administration Service (SAT) was introduced. This measure aims to strengthen the audit tools by requiring the disclosure of plans, proposals or recommendations that seek to achieve tax savings, such as the reduction of tax payments or the elimination or postponement of tax obligations.
Once a scheme is reported, the tax authority issues a certificate with a specific identification number for the scheme. The tax advisor must provide this certificate to the taxpayer, who must include it in his or her tax returns.
Failure to disclose reportable schemes carries significant penalties. Tax advisors who fail to comply with this obligation may face fines ranging from 50,000 to 20 million pesos. Taxpayers, meanwhile, could receive penalties equivalent to 50% to 70% of the tax savings obtained.
Characteristics of a Reportable Scheme
According to Article 199 of the Federal Tax Code, a scheme is classified as reportable if it meets at least one of the following conditions:
- Avoid Information Sharing
The scheme prevents the exchange of financial or tax information with authorities, whether national or foreign. - Avoid Specific Tax Regulations
The scheme avoids the application of Article 4-B or Chapter I of Title VI of the Income Tax Law. - Tax Loss Carrying Forward
It consists of legal acts that allow transferring pending tax losses to other persons who did not generate said losses. - Return of Payments
A series of payments or transactions allow the return, in whole or in part, of the amount of the first payment to the person who made it or to someone related. - Application of International Conventions
It involves a foreign resident using a double taxation treaty in relation to income that is not taxed in the taxpayer's country of tax residence, or that is taxed at a lower rate compared to the corporate rate in that jurisdiction. - Interpretation of Tax Provisions
The scheme is based on an interpretation of the tax provisions that produces effects similar to those provided for in the non-binding criteria of the SAT. - Transfer of Depreciated Assets
It involves the transfer of a depreciated asset, totally or partially, allowing for its additional depreciation by the other party involved. - Hybrid Mechanisms
It uses hybrid mechanisms according to section XXIII of article 28 of the Income Tax Law. - Concealment of the beneficial owner
Prevents the identification of the beneficial owner of income or assets. - Tax Losses in Urgent Operations
It occurs when operations are carried out to obtain tax profits that allow for the reduction of tax losses whose application period is about to end. - Evasion of Additional Rate
Avoids the application of the additional rate 10% provided for in articles 140, 142 and 164 of the Income Tax Law. - Leasing and Subleasing
It grants the tenant temporary use of a property, and the tenant, in turn, grants the use of the same property to the landlord or someone related to the landlord. - Accounting and Tax Differences: It involves operations whose accounting and tax records show differences greater than 20%, excluding differences derived from the calculation of depreciation.
Who is required to report a scheme and what are the types of reportable schemes in Mexico?
Reportable schemes must be notified to the Tax Administration Service (SAT) by certain tax intermediaries. These intermediaries include:
- Lawyers
- Accountants
- Consultants
- Administrators
- Other professionals that develop, promote, organize or facilitate the implementation of a cross-border scheme subject to reporting, in accordance with DAC6 regulations.
In addition, taxpayers also have the option to report a scheme to the SAT in the following situations:
- Lack of Intermediary: When there is no intermediary involved.
- Professional Confidentiality: If the intermediary is not subject to the duty of professional confidentiality.
- Foreign Intermediary: If the intermediary is located outside of Mexico.
Regarding reportable schemes related to tax deductions in Mexico, the following regulations apply:
- Anti-Money Laundering Law (LFPIORPI): This law requires reporting significant operations and activities that may be linked to funds of illicit origin, contributing to the prevention of money laundering.
- Significant Transaction Reports (RTR): It enables you to identify and report significant transactions under tax legislation, especially those that could be classified as reportable schemes.
- Reportable Tax Planning Schemes: It seeks to identify and evaluate tax strategies that may be considered reportable schemes according to Mexican tax regulations.
What Types of Schemes May Require Reporting?
Identifying a reportable scheme can be complex and depends on a number of factors. Below are some general guidelines for determining whether a scheme may be reportable:
- Cross-Border Transactions: Transactions involving multiple tax jurisdictions are more likely to require reporting.
- Tax Benefit: Consideration should be given to whether the transaction is primarily intended to achieve a tax benefit, such as tax reduction. Schemes that generate significant tax benefits are more likely to be reportable.
- Complexity and Opacity: Unusual complexity or lack of transparency in a transaction may indicate that it is a reportable scheme.
- Lack of Economic Substance: Evaluate whether the transaction has real economic substance or whether it appears designed primarily to obtain tax benefits without providing significant economic value.
- Participation of Professional Advisors: If the transaction involves the participation of tax advisors, lawyers or other tax intermediaries, it is more likely to be reportable.
- Normative compliance: Stay up to date with the tax laws and regulations applicable in your jurisdiction and make sure you understand the specific reporting requirements set by the tax authorities.
- DAC6 criteria: Familiarize yourself with the specific criteria of DAC6 or other similar legislation to identify reportable schemes in accordance with current regulations.
It is crucial to conduct a detailed analysis to identify whether a scheme requires reporting and, if in doubt, consult tax and legal experts to ensure proper compliance with regulations.
What Information is Required to Develop a Reportable Scheme Disclosure Strategy?
For the disclosure of a reportable scheme, it is crucial to provide detailed information in accordance with the provisions of agreement 13/2021 published in the Official Gazette of the Federation (DOF). The required data includes:
- Tax Advisor or Taxpayer Data
- Name, company name or denomination and code in the Federal Taxpayers Registry (RFC) of the tax advisor or taxpayer reporting the scheme.
- Additional Information for Legal Tax Advisors
- Specific data of tax advisors who are legal entities, including information on the legal representatives responsible for the report.
- Reportable Scheme Details
- Beneficiaries of the Scheme: Name, company name or denomination of the beneficiary taxpayer and their RFC code.
- International Regulations: Rules applicable to residents abroad.
- Disclosure by the Taxpayer
- Information about Advisors: Name, corporate name or designation of tax advisors, if any, and regulations for advisors not resident in Mexico.
- Comprehensive Scheme Description
- Full Description: Detailed breakdown of each stage of the plan, project, proposal, advice or recommendation that involves legal acts to obtain a tax benefit.
- Tax Benefit: Precise description of the tax benefit obtained or expected.
- Information on Participating Entities
- Identification of the legal entities or corporations involved, including name, company name, RFC code and other relevant tax information.
- Fiscal Years
- Specification of the fiscal years in which the scheme has been implemented or is expected to be implemented.
- Additional Relevant Information
- Any other information that the tax advisor or taxpayer considers relevant to the review of the scheme.
- Additional Requirements
- Any other additional information that the tax authorities may require during the review process.
Reportable Schemes and Compliance
What is Compliance?
He compliance Compliance refers to the implementation and monitoring of policies, procedures and controls designed to ensure that an organization complies with all applicable laws and regulations. This includes local and international regulations, as well as internal policies that guide ethical behavior and risk management. A strong compliance program not only prevents non-compliance, but also protects the company from legal penalties, reputational damage and financial losses.
The Relationship between Compliance and Reportable Schemes
The intersection between compliance and reportable schemes lies in the commitment of organizations to ethical and compliant conduct. Here are two key ways in which they are related:
Prevention and Detection: A robust compliance program includes mechanisms for detecting and reporting tax or financial schemes that may be considered evasive. By integrating specific procedures to identify these schemes within the compliance framework, organizations not only ensure compliance with the law, but also act proactively to avoid future problems.
Regulatory Compliance: Reportable scheme regulations often require firms and their advisors to report certain structures or transactions. Incorporating these requirements into the compliance program ensures that the firm is not only aware of legal obligations, but also has the mechanisms in place to properly comply with them. This involves having clear processes for scheme assessment, staff training, and reporting to the relevant authorities.
Integrating reportable schemes into a company’s compliance framework strengthens the organization’s ability to operate within legal and ethical boundaries. It is not just about complying with laws, but about taking a proactive stance in managing risks and promoting transparent and responsible business practices. In an increasingly complex regulatory environment, this relationship not only protects the company, but also reinforces its commitment to integrity and long-term sustainability.
