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Are you complying with the new Mexican controlling beneficiary tax obligation?
March 2022
In brief
The tax reform published in the Official Gazette on November 12, 2021, added a new obligation for Mexican parties. As of January 1, 2022, Mexican legal entities, trusts incorporated under the Mexican legislation, and contracting parties in any other Mexican legal agreement (e.g., Asociación en Participación), must obtain and keep as part of their books and records the applicable, trustworthy, complete, and updated relevant information to each of their ultimate controlling beneficiaries.
Likewise, any other person that intervenes in the juridical acts through which the legal entities or agreements are incorporated or executed, as well as financial system institutions, must secure and keep the necessary information to identify the ultimate controlling beneficiaries.
For these purposes, the controlling beneficiary is defined as any individual or group of individuals, whether Mexican or non-Mexican, with the ultimate control, even if indirect, of the Mexican entity or agreement. The provisions contained in both the Mexican Federal Tax Code and the applicable Miscellaneous Tax Regulations -- published on December 27, 2021 -- set forth the parameters for identifying the controlling beneficiary, as well as the applicable documentation and information to obtain.
Non-compliance
Taxpayers that fail to secure, maintain, or submit the relevant information and documentation with regard to a controlling beneficiary could be subject to penalties stated in the Mexican Federal Tax Code. These sanctions could range from MXN $500,000 (approx. US $25,000) up to MXN $2,000,000 (approx. US $100,000), depending on the breach and number of controlling beneficiaries of the legal entity or agreement.
In addition, if a taxpayer does not meet this new obligation, the Mexican Tax Authority is entitled to issue a negative opinion to the legal entity, trust, or agreement, with regard to its tax compliance obligations. This could carry additional negative consequences for the taxpayer.
The takeaway
Existing and future Mexican entities, trusts, and other forms of legal agreements should consider the following tasks for complying with this new obligation:
- Identifying the ultimate controlling beneficiary, or beneficiaries, for each obligated entity, through the analysis of the entity’s structure and the parameters established by local tax laws.
- Preparing a guide or manual to document the internal control procedures per obligated entity, to support the identification of the final beneficiary, as well as the process and accountability for updating the information when necessary.
- Continued reviewing of the controlling beneficiary support files to validate the entity’s compliance and confirm its contemporaneous updates.
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