Derived from the reforms to the tax legislation of both the year 2021 and the year 2022, we consider it relevant to consider the following for the presentation of the annual income tax return of 2021, as well as some points of interest for 2022.

I.       ISR Determination 2021

1.       Annual closing of 2021

In FRALLA we are at your service so that we can review together with your internal teams: i) the determination of the fiscal result for the year 2021, ii) the cumulative income, iii) the authorized deductions, iv) the determination of the OCT, iv) the profit coefficient for the provisional payments of ISR for 2022,  v) accounts receivable that due to their characteristics could be uncollectible and therefore deductible for 2021, vi) determination of the annual adjustment for inflation and exchange gains / losses, or, vii) some other operation that could have an impact on the determination and payment of the 2021 ISR.

2.       Limitation to the deduction of interest

As part of the reform of the tax legislation in 2021, a limitation on the deduction of interest exceeding 30% of the adjusted tax profit was included. Such restriction applies to groups or related parties whose accrued interest exceeds $20,000,000.

For the presentation of the annual declaration of ISR of 2021 it will be the first time in which the aforementioned non-deductible interests will be determined, so in FRALLA we put ourselves at your disposal in order to determine if this limitation would be applicable or not and, where appropriate, review the determination of non-deductible interests in accordance with the procedure established in the tax provisions.

3.      Transparent entities or foreign legal entities

Within the reform to the tax legislation of the year 2021, some modifications were approved that its entry into force was deferred for the year 2021 in terms of the recognition of the effects that could detonate having a structure abroad that involves transparent entities or foreign legal figures, as well as the various issues pending clarification for the treatment and registration of foreign legal figures that they administer private equity investments investing in Mexico.

In this regard, in FRALLA we would be able to review the current structure maintained, as well as the transparent entities or foreign legal figures that are part of it, in order to determine the applicability of the tax provisions and, where appropriate, the tax treatment for said entities or legal figures.

II.     Reportable schemes

As part of the reform to the tax legislation of the year 2021, Title Six of the Fiscal Code of the Federation “Of the Disclosure of Reportable Schemes” was added, in which the cases in which tax advisors or, where appropriate, taxpayers must disclose reportable schemes to the tax authorities are detailed, considering any plan as a reportable scheme,  project, proposal, advice, instruction or recommendation expressly or tacitly expressed in order to materialize a series of legal acts, which generate, directly or indirectly, the obtaining of a tax benefit in Mexico and that has any of the characteristics indicated in said Title.

The deadlines foreseen to comply with the obligations of reporting, presentation of informative declarations and issuance of certificates must be computed from January 1, 2022; for these purposes the schemes designed, marketed, organized, implemented or administered from the year 2021 or previously must be disclosed, when any of their tax effects are reflected in the fiscal year of 202 1 or later. The obligation is generated only for taxpayers to disclose those schemes that would have been held before 2021 but that some of their effects are reflected in 2022.

For these purposes, in FRALLA our services include the review of the operations or acts carried out before and / or from the year 2021, the determination, where appropriate, of the existence of any tax benefit in 2021 and the review of whether any of the 14 characteristics listed in the applicable legislation were met,   in order to determine if they would qualify as reportable schemes and, in such case, support the presentation of informative statements or issuance of certificates along with the integration of the information and documentation that must accompany them.

III.    Support Documentation and Certification of Liabilities

Within the reform of the tax legislation in force from the year 2022 it is foreseen that legal entities must have the supporting documentation of the Contribution Capital Accounts (CUCA) and the Net Tax Profit Account (CUFIN), as well as the minutes of the assembly when they involve contributions in kind or capitalization of liabilities, refunds, among others. This documentation includes account statements, appraisals, loan agreements, among others.

Particularly, with regard to the capitalization of liabilities through the miscellaneous rule for 2022, it was included that there must be a certification that endorses the accounting existence of the liability and the corresponding value; such certification must be issued by a Public Telephone Controller registered before the SAT.

In this sense, in FRALLA we have public accountants registered with the tax authorities who would be able to issue the corresponding certification for the capitalization of liabilities, as well as the ruling of operations of sale of shares. Our services also include the review and issuance of our recommendations for the determination of fiscal accounts (CUCA and CUFIN) in order to review and, where appropriate, complete the supporting documentation that must be available for these purposes.

IV.    Reform Outsourcing

In November 2021, the Federal Executive presented to the Chamber of Deputies a reform initiative to regulate the subcontracting or outsourcing regime. This reform includes, in addition to modifications to labor legislation, modifications to various tax provisions, among which the definition for tax purposes of subcontracting, the applicable requirements for taxpayers who contract such services and, where appropriate, the limitations of deduction and accreditation of taxes when the requirements are not met. The discussion of this proposal was postponed, however, it is expected to be discussed and, where appropriate, approved during the year 2022 and may have an impact from that year on the operations or structures currently maintained by taxpayers.

In this regard, in FRALLA we would be able to review the current structure maintained in relation to the staff hiring regime in order to determine if the possible approval of the reform initiative would have any impact and, where appropriate, develop alternatives in strict adherence to the legislation in order to mitigate any risk.

All of the above, in order to foresee some contingency and be able to make timely decisions that help our customers.

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March 2022

Mexico City, Mexico