Mexico Enacts Important Tax Law Changes Eliminating Universal Tax Credit Offsets

Mexico’s federal Congress recently enacted the 2019 Federal Revenue Law (the “Revenue Law”). An important change in Article 25, paragraph VI of the Revenue Law sets forth numerous limitations on tax credits, including an elimination of taxpayers’ ability to credit or offset all types of federal taxes against each other on a universal basis. The purpose of such new limitations is supposedly to combat tax evasion in Mexico.The Revenue Law now provides that taxpayers may “net out” positive balances against amounts owed only if both balances or amounts are for the same type of tax (e.g. Mexican income tax).The Revenue Law further provides that taxpayers with positive Value Added Tax balances may only credit or offset such tax against payable Value Added Tax during succeeding months, until the full balance has been completely credited or offset, or alternatively request a Value Added Tax refund.It is said that these measures were incorporated into the Revenue Law based on the proposition that many taxpayers in Mexico generate favorable tax balances by utilizing invoices from non-existent transactions.Finally, Rule 2.3.19 of the Sixth Resolution of Amendments to Mexico’s Miscellaneous Tax Rules for 2018-2019 provides the possibility for taxpayers to credit or offset balances of federal taxes generated as of December 31, 2018 against those they have to pay other than Mexican import duties and taxes for specific purposes, which may not be credited or offset.