Mexico proposes new rules to tax highly digitalized businesses

A bill was introduced to the Mexican Congress on August 21 to tax digital platforms this includes such global digital companies such as Airbnb, Uber and Netflix. Wat this means for consumers remains to be seen. But it is a clear indication that homeowners who rent their properties through such services such as Airbnb are soon to be subjected to extra scrutiny.

Background of the bill
In 2019, after the new administration was elected, there was an attempt to tax some highly digitalized businesses. This time, however, the government focused on the collection of taxes from users of some digital platforms under the argument that is merely updating the current tax legislation.
In a new effort to tax highly digitalized businesses, a bill was introduced in the Mexican Congress on August 21.
Mexico’s tax on highly digitalized businesses
Introduced in the Mexican Congress, the bill intends to equalize competition between traditional and digital commerce. The bill’s report states some multinationals operate in Mexico without being subject to taxation because they have put in place tax structures that do not create taxable presence.
The report adds that the non-taxed amounts that would otherwise be paid as income tax and VAT not only create issues for tax revenue but also could lead to tax avoidance through failure to report income or falsified invoicing.
Additionally, the report states that its purpose is to not only tax such activities, but also to integrate such actors within the current Mexico’s legal framework.

Amendments to VAT
The bill incorporates as taxpayers for VAT, those “national and foreign” companies that “provide services as intermediaries through technological platforms for electronic commerce purposes”.
The bill defines technological platforms as “intermediaries that allow the exchange of goods and services to the final user, easing the selling process while using electronic payments mostly”.
The bill adds that such intermediaries are obliged to keep its accounting records.
Amendments to the income tax laws
Further, under the bill, companies, both “national and foreign” that “provide services through a technological platform to provide goods and services” must pay income tax. For this purpose, companies must register a tax domicile in Mexico and have a legal representative in Mexican territory.
The amendment considers that such businesses will create a permanent residence for income tax purposes.

Antitrust amendments
The bill proposes that the Federal Trade Commission will create a registry to evaluate compliance with the best commercial practices and antitrust practices for highly digitalised businesses.
Impact on highly digitalized businesses
The bill mandates foreign companies to register a tax address in Mexico which will clearly subject foreign companies to Mexican taxation, whether for income tax or VAT purposes.
It must be added that the consequences of such registration will create a permanent establishment in Mexico and consequently increase liability for the central office. If foreign companies register, it will also give rise to other legal obligations, like registering in the Mexican Public Registry of Commerce or filing notices in accordance to the Mexican foreign investment law.
Another aspect of the bill is that the definition of “technological platform” is mostly aimed at including businesses that act as a liaison between suppliers and consumers. This proposal does not take in consideration the different types of business models that exist, like social media platforms, search engines, or online marketplaces.
It appears that the Mexican government has finally taken its first steps to tax highly digital businesses, and it is important to be vigilant on the process to avoid unexpected surprises in the coming weeks.
– original by Fernando Juarez Hernandez, s a tax attorney in Mexico City.