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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.
What are intangible assets?
Intangible assets are those resources that do not have a physical form, but which provide significant value to a company. Unlike tangible assets, such as machinery or buildings, intangibles focus on elements that contribute to a company's ability to generate revenue and maintain a competitive advantage.
Common Types of Intangible Assets:
- Intellectual property: Includes patents, trademarks, copyrights, and trade secrets. These assets protect innovations and creations.
- Goodwill: It represents the intangible value that a company has built through its reputation, customer loyalty and business relationships.
- Licenses and Franchises: They allow companies to operate under a recognized brand or use specific technologies, generating additional income.
- Customer RelationsCustomer loyalty and satisfaction are vital assets that, although difficult to measure, are crucial for business growth.
- Organizational Capabilities: They include the knowledge, experience and skills of staff, which contribute to operational efficiency.
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.
Steps to Create a Reportable Schema
- Identification of relevant characteristics: The first step is to identify the key elements that define a schema as reportable. In general, a schema is reportable if it exhibits the following characteristics:
– Undue potential tax benefits: That is, if the transaction or structure is intended to reduce the tax burden without a substantive economic justification.
– Aggressive tax planning: Using tools, strategies or structures that, although legal, are clearly designed to avoid paying taxes.
– Lack of economic substance: If the transaction has little or no real economic activity behind it (for example, the use of fictitious entities or structures without genuine activities). - Compliance with the criteria established in the tax regulations: To determine whether a scheme is reportable, specific criteria established by applicable legislation must be met. Some examples of defining characteristics in Mexican legislation include:
– Transactions that generate a significant tax advantage without a real economic purpose.
– Corporate reorganizations that do not have a commercial purpose beyond tax optimization.
– Use of complex financial instruments that seek to minimize or avoid taxes.
– Use of offshore entities or structures for tax purposes. - Transaction evaluation: Once the characteristics have been identified, the transaction must be evaluated to see if it fits into any of the assumptions of reportable schemes established by the tax authorities. This may involve a detailed analysis of the nature of the transaction, the extent of the tax benefits, and the type of instruments used.
- Schema documentation: If the scheme qualifies for reporting, it is critical to document all details of the tax transaction or structure, which may include:
– Detailed description of the transaction or structure.
– The actors involved (e.g. companies, tax advisors, intermediaries).
– Fiscal objectives sought.
– Specific mechanisms or instruments used.
– Analysis of the tax benefits sought. - Presentation to the tax authority: The next step is to report the scheme to the appropriate tax authority, usually through a specific form or portal established by the Tax Administration Service (SAT) in Mexico. Companies or advisors are required to report the scheme within a specific time frame after its implementation or knowledge of its existence.
– In Mexico, the deadline for reporting the scheme can be up to 60 days from when the scheme is implemented or from when it is known that it is a reportable scheme. - Identification of potential risks and penalties: It is important to note that failure to report a reportable scheme can result in significant penalties. Tax authorities can impose fines for failing to comply with reporting obligations, and in more serious cases, they can initiate audit or investigation procedures.
- Constant review and monitoring: Once the scheme has been reported, it is essential to maintain constant monitoring to verify whether there are changes in the legislation that may affect the nature of the scheme or whether new regulations arise that may modify the classification of the scheme as reportable.
Influence of Reportable Schemes in a Company
Reportable schemes have a significant impact on a number of areas of a business, from financial management to corporate reputation. Some of the key influences are detailed below:
1. Transparency and Regulatory Compliance
Reportable schemes require companies to be more transparent about their operations. This involves the obligation to report certain transactions and structures that may be considered complex or potentially evasive. This approach promotes regulatory compliance and helps avoid penalties from tax authorities.
2. Risk Management
Identifying and reporting reportable schemes allows companies to better assess and manage the risks associated with their operations. By having visibility into transactions that require special attention, organizations can take proactive steps to mitigate legal and financial risks.
3. Corporate Reputation
Transparency in compliance with tax regulations and effective communication of reportable schemes can improve a company's reputation. An image of responsibility and ethics can attract investors, customers and business partners, strengthening the position in the market.
4. Fiscal and Financial Strategies
Reportable schemes can influence companies’ strategic decisions, especially when it comes to their tax planning. By better understanding reporting requirements, organizations can optimize their tax structures to align with regulations without incurring unnecessary risks.
5. Cost of Compliance
The need to comply with the requirements of reportable schemes can increase operational costs related to auditing and legal advice. Companies must invest in training, internal control systems and human resources to ensure they are aligned with regulations, which can be challenging, especially for SMEs.
6. Innovation in Business Models
The obligation to report certain schemes may push companies to innovate in their business models and operational practices. To minimise the impact of regulations, some organisations may seek more efficient and ethical alternatives in the management of their assets and transactions.
7. Consciousness and Internal Formation
Implementing reportable schemes also creates greater awareness among employees about the importance of compliance and business ethics. This can lead to the creation of training and awareness programs that foster a culture of responsibility within the organization.
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.
Related International Regulations (DAC6 and BEPS)
The Directive on Administrative Cooperation in the Tax Field (DAC6) of the European Union and the regulations related to the BEPS Plan OECD regulations have a significant impact on the identification and reporting of tax schemes. It is important for companies to be aware of these regulations and how they apply to the international transactions they carry out.
- DAC6 It requires tax intermediaries to report cross-border tax planning schemes that meet certain criteria. Although Mexico is not part of the EU, the OECD BEPS regulations have influenced many countries, including tax reforms in Mexico, and the DAC6 law is inspired by BEPS principles.
- BEPS (Base Erosion and Profit Shifting) sets out rules to combat base erosion and profit shifting, promoting transparency and fairness in international taxation. Companies must ensure that their tax structures are consistent with these rules.
Penalties for Not Reporting a Reportable Scheme
Aside from fines, companies may face more serious consequences if they fail to report schemes, such as:
- Suspension of tax benefits: If a company is found to have failed to report a scheme, it may lose the ability to benefit from certain tax deductions or exemptions.
- Additional research:Failure to report can trigger tax investigations leading to extensive audits and additional penalties.
- Aggravated penalties: In some cases, failure to report may lead to increased penalties if the failure is deemed to have been intentional.
Relationship of Reportable Schemes with the Registry of Intangibles of a Company
The relationship between reportable schemes and the registration of intangibles is crucial to ensure transparency and integrity in the management of a company's intangible assets. Reportable schemes are arrangements or transactions that, due to their complexity or nature, must be reported to tax and regulatory authorities to ensure compliance with current regulations.
1. Transparency and Regulatory Compliance
Reportable schemes seek to prevent the abuse of tax and financial structures that can affect the real value of intangible assets. By properly recording intangibles, companies can demonstrate the legitimacy of their valuation and use of these assets, which is essential to comply with regulations that require clear and accurate accounting.
2. Valuation of Intangible Assets
Intangibles such as brands and patents require accurate valuation to be reported properly. Reportable schemes help companies establish clear and fair criteria for evaluating these assets, ensuring that their values are not artificially inflated or diminished in financial statements.
3. Prevention of Legal Disputes
By properly reporting schemes involving intangibles, companies reduce the risk of audits and sanctions. Transparent management in the registration of intangibles, aligned with reportable schemes, provides legal support in the event of potential disputes with tax or regulatory authorities.
4. Optimization of Tax Strategies
Correctly identifying and recording intangibles in relation to reportable schemes allows companies to optimize their tax strategies. By understanding how intangibles impact their tax burden, organizations can make informed decisions that maximize their economic value without compromising legal compliance.
5. Promoting a Compliance Culture
Integrating reportable schemes into the intangible asset registration process fosters a culture of compliance within the company. Employees become more aware of the importance of transparency and ethics in asset management, which can contribute to a better reputation and trust in the market.
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.
