After the previous 2018 try to pass a 3% Digital Services Tax in Mexico that was not passed by the Congress, the President’s political group filed a new proposal of Law in late August 2019, this time focused in Digital Platforms.
The bill requires foreign and national Digital Platforms to be registered as tax payers for both VAT and Income Tax purposes when they are providing
intermediation services for electronic commerce purposes. Accounting books of such taxable presence will also be required, as well as a local legal
representative, constituting all in all a kind of complete Permanent
Establishment figure.
The draft defines technological platforms as intermediaries that allow the exchange of goods and services to the final user or between users and supplier, facilitating the selling process while using electronic payments mainly.
The bill opens the possibility to apply a withholding mechanism for the payments of these intermediation platforms and providing a registry for digital platforms to calculate and pay their respective tax, but does no mention to the method or process to achieve it.
DET3 Comments
Discussions are to be hold at the high chamber yet, but is clear that the second largest Latin American economy is determined and taking individual steps and actions forward in parallel to the current OECD efforts at supranational level.
Departing from a DST transactional based approach, their idea is a more structural capturing of complete tax establishments of foreign digital companies. A profit allocation would be then required, and additional indirect tax compliance obligations will be bounding these companies, with potential extra costs passed to the final consumer in specific cases. The taxable presence triggering connection points are to be seen.
This would come on top of the new obligation some sharing economy platforms have since last June 2019 to withheld part of the money that flows through them in concept of VAT and Withholding Tax to their users.
The Government is setting serious focus into this as the penalty regime would contemplate a disconnection of the platform from the internet for local purposes if the tax requirements are not met, a measure whose legality would need to be analyzed.
The post 2019 summer new reality is that a significant part of the WW GDP, in the hands of Mexico, Brazil, Argentina amongst others in Latam, of a few relevant Asia Pacific countries, and of many European ones and the UK are preparing themselves to go-live locally and unilaterally soon. The puzzle of different local technical direct and indirect tax measures on top of the different compliance patchworks is something complex and deeply concerning for any international company.
The international tax system is in a tremendously stressed situation so the
pressure bar for the OECD to reach horizontal wide consensus in this difficult landscape is rising to very sensitive and loaded levels.
As more and more industries get digitalized at the same time the early signs of recession unripe, the impact of this situation in international trade and international collaborative business can be critical and deeply negative, especially for some of the new ecosystems that are being formed by players of different industries starting to compete in co-related ones through technological value propositions.
Mexico is a large country from a digital platforms user base perspective, so it is to be observed the reaction of the US relevant trade counterparty to this development. Are we to see the Maquila industry representatives drinking red Burgundy wine?
