Derived from the tax amendments carried out for both fiscal years 2020 and fiscal years 2021, we consider it is relevant to take into account the following ideas for the filing of the annual income tax return for 2020, as well as some interest suggestions for 2021.

I. Income Tax 2020

a) Annual closing of 2020

At FRALLA we are at your service so that we can review together with your internal teams: i) the determination of the fiscal result for fiscal year 2020, ii) the accumulated income, iii) the authorized deductions, iv) the determination of the PTU, v) the profit coefficient for the advanced payments for 2021, vi) accounts receivable that due to their characteristics could be uncollectible and therefore deductible for 2020, vii) determination of the annual adjustment for inflation and exchange gains / losses, or well, viii) any other operation that could have an impact on the determination and payment of the income tax for 2020

b) Limited to the deduction of interest

As part of the tax reform in 2020, a limitation was included on the deduction of interest that exceeds 30% of the “adjusted tax profit”. Said restriction is applicable to groups or related parties whose accrued interests in their charge exceed $ 20,000,000.

For the presentation of the annual income tax return for 2020, it will be the first time in which the aforementioned non-deductible interests will be determined, so in FRALLA we are at your disposal in order to determine whether or not said limitation would be applicable or not and, in if it were the case, review the determination of non-deductible interest in accordance with the procedure established in the tax provisions.

c) Transparent entities or foreign legal figures

Within the reform of the tax legislation for the year 2020, some modifications were approved that their entry into force was deferred to the year 2021 in terms of the recognition of the effects that could trigger having a structure abroad that involves transparent entities or foreign legal entities, as well as the various issues pending clarification for the treatment and registration of foreign legal entities that manage private equity investments that invest in Mexico.

In this regard, at 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 for 2020, Title Six of the Federal Fiscal Code “On the Disclosure of Reportable Schemes” was added stablishing the cases in which the tax advisors or, in some cases, the taxpayers must disclose the reportable schemes to the tax authorities, considering as a reportable scheme any plan, project, proposal, advice, instruction or recommendation expressly or tacitly in order to materialize a series of legal acts that generate, directly or indirectly, a tax benefit in Mexico and having any of the characteristics indicated in said Title.

The deadlines set to comply with the reporting obligations, presentation of informative returns and issuance of certificates must be computed as of January 1, 2021; for these purposes, the schemes designed, marketed, organized, implemented or administered from the year 2020 or earlier must be disclosed, when any of their tax effects is reflected in the fiscal year 2020 or later. The obligation is generated only for taxpayers to disclose those schemes that had been concluded before 2020 but that some of their tax effects are reflected in 20202.

At FRALLA our services include the review of the operations or acts carried out before and / or as of the year 2020, the determination, where appropriate, of the existence of any tax benefit in 2020 and the review of whether it was complied with any of the 14 characteristics listed in the applicable legislation, in order to determine if they would qualify as reportable schemes and, in this case, support our clients in the presentation of informative returns or issuance of certificates along with the integration of information and documentation that must be attached.

III. Documentation Support and Certification of Liabilities

Within the reform to the tax legislation in force as of fiscal year 2021, it is foreseen that legal entities must have the supporting documentation of the Capital Contribution Accounts (CUCA) and the Net Tax Profit Account (CUFIN), as well as the meeting minutes when they involve contributions in kind or capitalization of liabilities, reimbursements, among others. This documentation includes account statements, appraisals, loan contracts, among others.

For the particular case of the capitalization of liabilities through the miscellaneous tax rule for 2021, it was included that there must be a certification that guarantees the accounting existence of the liability and the corresponding value; such certification must be issued by a Public Accountant registered with the SAT.

In this sense, at 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 review of the determination in such cases were a sale of shares is carried out, including the issuance of the tax report. Our services also include the review and issuance of our recommendations for the determination of the fiscal accounts (CUCA and CUFIN) in order to review and, where appropriate, complete the supporting documentation that must be available for these purposes.

IV. Outsourcing Reform

In November 2020, the Federal Executive submitted to the Lower House of Congress an initiative to regulate the subcontracting or outsourcing regime. Said reform includes, in addition to modifications to the labor legislation, modifications to various tax provisions, among which the definition for tax purposes of subcontracting, the applicable requirements for taxpayers who contract said services and, where appropriate, the deduction limits and tax credit when requirements are not met. The discussion of said proposal was postponed, however, it is expected that it will be discussed and, where appropriate, approved during the fiscal year 2021, which may have an impact from that fiscal year on the operations or structures currently maintained by taxpayers.

In this regard, at FRALLA we would be able to review the current structure maintained in relation to the personnel hiring regime in order to determine whether 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 anticipate any contingency and be able to make timely decisions that help our clients.

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January 2021

Mexico City