In terms of the procedure set forth in Article 69-B of the Federal Fiscal Code (FFC), the tax authorities may presume that a taxpayer is doing nonexistent tax operations. Such procedure has been modified recently to secure clarity and transparency.

Article 69-B of the FFC establishes that such presumption is valid when a taxpayer has issued tax invoices: (i) without having assets, personnel, infrastructure or direct or indirect material capacity to provide services, produce, commercialize or deliver goods supported by the invoices; or (ii) that such taxpayers are not localized.

To make such presumption, and consider it a definitive conclusion, the tax authority must follow the following procedure:

I. Procedure.

  1. Taxpayer will be notified by mailbox or by personal service, and by a publication in the Federal Official Gazette (DOF) that exists a preliminarily assumption of practicing nonexistent fiscal operations. Taxpayers who appear in the preliminary list will have 15 days to submit evidence to prove the existence of its fiscal operations. As part of the amendments to the procedure, it is possible to request to the authority an extension of 5 additional days to submit evidence.
  2. Once submitted the evidence, the authority shall analyze them and notify the resolution to the taxpayer.
  3. The tax authority is now required to notify its decision within the following 50 days, and if the authority fails to notify the resolution within this period, the presumption of nonexistent fiscal operations will have no legal effect.
  4. The procedure also provides that within the first 20 days of this 50 days deadline, the authority may require additional documentation and information, which shall be provided by the taxpayer within the next 10 days.
  5. For procedures initiated before July 25th, 2018, there is NO deadline for the authority to notify the resolution, neither the opportunity to request an extension to submit evidence. There is even a questionable precedent, issued by the First Chamber of the Supreme Court of Justice that resolves that in these cases the authority has 5 years to notify its decision.
  6. If the taxpayer fails to demonstrate that the fiscal operations are real, his name will be included in a second definitive list, published in the DOF and on the website of the Tax Administration Service ("SAT"). The effect of such publication will be that the invoices issued by said taxpayer, will not have any tax effect for income tax and VAT purposes.

II. Legal and tax effects for the recipient of the tax invoices.

The procedure described is not only applicable to those taxpayers that do presumed nonexistent operations, but also to taxpayers who receive tax invoices from the operations carried on.

Taxpayers who receive tax invoices will have 30 days, as from the publication of the final list with the taxpayers who simulated operations, to demonstrate to the tax authority that effectively acquired goods or received the services, or to self correct their tax situation.

If the taxpayer does not prove the materiality of the operations, the taxpayer cannot give tax effects to the invoices, either taking the deduction for income tax or applying the credit for VAT purposes. The tax authority may assess differences in case the taxpayer decides to give tax effects to such invoices, and this could be considered as a criminal act.

III. Comments.

The publication of taxpayers who simulated operations is having a significant impact on the taxpayers' operations, since tax invoices recipients are losing the right to take the deduction for income tax or applying the credit for VAT purposes.

We have had several cases where the tax authority issued invitation letters to taxpayers recipients of tax invoices, in order to inform that said document cannot have legal effects, since they were issued by taxpayers included in the final list with taxpayers who simulated operations, thus, they are invited to self correct their situation by paying the differences for taking the deduction for income tax and applying the credit for VAT purposes.

Also, we have seen other cases where the invitation letter is not attended, and the tax authorities have decided to cancel the certificate to issue the electronic tax invoices, or another cases where tax audits are conducted when the differences are not paid.

Therefore, and with the aim to minimize the risk that this procedure set forth in Article 69-B of the FFC is causing to taxpayers, we recommend the following actions:

  1. Recommendations to the issuers of tax invoices. Have all the supporting documentation to demonstrate the materiality of the operations carried out. In case of being published in the preliminary list, we recommend to follow the procedure above described in order to submit all the documentation that demonstrate that the questioned operations were really performed, and avoid to be included in the definitive list.
  2. Recommendations to recipients of tax invoices In case it is possible, we suggest to regularly consult the provisional list, as well as the definitive list to identify on time if any of your suppliers are included in said lists, moreover in those companies that provide services. Such lists could be confirmed in the following link. If the taxpayer identified that their suppliers or issuers of tax invoices are on the final list of simulated operations, we recommend filing on time the information and documentation proving the materiality of the transactions carried on with such taxpayers. In case a taxpayer receives an invitation letter from the tax authorities, we recommend attending the invitation to avoid that the certificate to issue tax invoices is canceled. In case the tax authority concluded that a tax receipt do not have any legal effects, we recommend to approach said authorities, since in principle to assess a tax deficiency they should conduct a tax audit. Under these circumstances, it is possible to file the applicable legal remedies, since there are favorable legal precedents that have ruled that such determination is illegal.