The Tax Administration Service (SAT) recently published regulatory criterion 00/20413/ISR. Acts or transactions prohibited by the Federal Law for the Prevention and Identification of Transactions with Funds from Illegal Sources. Participating in such acts or transactions entails the impossibility to deduct expenses related to them, which establishes that those actions conducted by taxpayers in contravention of the provisions of article 32 of the Federal Law for the Prevention and Identification of Transactions with Funds from Illegal Sources (the Law) will not be deductible for Income Tax purposes.
Article 32 of the Law provides that it is prohibited to use cash, whether Mexican currency or foreign currencies, or precious metals to liquidate or pay anything, as well as to accept a liquidation or payment if it exceeds the thresholds set forth therein for the following acts or transactions: (i) creation or conveyance of in rem rights to real estate property; (ii) creation or conveyance of in rem rights to new or used vehicles; (iii) conveyance of title of watches, jewelry, precious metals, gems, and works of art; (iv) purchase of tickets to participate in stake games, contests, and sweepstakes (no threshold), as well as the delivery of prizes; (v) provision of car armoring services (no threshold) or real estate property armoring services; (vi) conveyance of title or creation of rights of any nature whatsoever to certificate representing equity quota or shares of legal entities; (vii) creation of loan rights for the use or enjoyment of real estate property and vehicles, whether or not armored.
Therefore, for SAT purposes, all transactions that fail to comply with the provisions of article 32 of the Law, if carried out in contravention of public order provisions, will not be deemed strictly indispensable for purposes of the taxpayer's activities; therefore, they will not be deductible in terms of articles 31, section I and 125, section II of the Income Tax Law.