As part of the international commitments made by Mexico in the area of fiscal transparency with the Organization for Economic Cooperation and Development (OECD) and the Financial Action task force (FATF) —the latter, particularly in the context of the recommendations 24 (“Transparency and final beneficiary of the legal entities”), and 25 (“Transparency and final beneficiary of other legal structures”)— were incorporated into the applicable fiscal mexicana various obligations of identification related to the beneficiary driver.
In this context, the 1 of January of 2022 was reformed the Tax Code of the Russian Federation (CFF), by adding the items 32-B B, 32-B, C -, and 32-B (D), which regulate the obligation of taxpayers to identify, obtain, and retain —as part of its accounting records— the information of its beneficiaries drivers, as well as provide it to the Service of Tax Administration (SAT) when this is required.
In addition, by using the rules 2.8.1.20., 2.8.1.21. and 2.8.1.22. the Resolution Miscellaneous Fiscal (MRI) for 2022, is set the criteria, mechanisms and parameters for obtaining such documentation and information.
Because of the complexity, breadth and ambiguity of these obligations, various contributors challenged its constitutionality before the Judicial Power of the Federation (FPPS).
Analysis of the case decided by the Supreme Court of Justice of the Nation
Given the importance of the topic, the issue was resolved in the last instance by the Second Chamber of the Supreme Court of Justice of the Nation (SCJN) to resolve the under review 109/2023.
The litigation was to analyze the constitutionality of articles 32-B B, 32-B, C -, and 32-B Quinquies of the CFF, as well as the rules 2.1.47., fraction CENTURY; 2.8.1.20.; 2.8.1.21.; and 2.8.1.22. of the RM to 2022.
Taxpayers complainants argued that the legislation incorporated violated the fundamental rights recognized in articles 14 (legal certainty), 16 (legality and legal certainty) and 22 of the Constitution of the united Mexican States (CPEUM).
Test of proportionality
One of the main arguments was that the regulations in the matter of beneficiary driver does not exceed the test of proportionality, as it would not be reasonable or necessary, given that there were already similar provisions in the mexican legal framework, as the LFPIORPI, its regulation and article 27, paragraph B, section VI, of the CFF.
In this regard, the supreme court conducted a test of proportionality to determine if the rules:
- Chasing an end goal constitutionally valid
- It was appropriate or rational
- It was proportional in the narrow sense
1. Purpose and constitutionality of the norm
The Court concluded that the modifications were made to ensure that the tax administration is mexican meets the international standards that require minimum levels of transparency with regard to the beneficiaries drivers of commercial companies, trusts and other legal instruments for tax purposes.
Therefore, it was determined that the standards are pursuing a purpose, constitutionally, objective and valid, to combat tax evasion, terrorist financing and money laundering.
2. Appropriate standard or rational
The supreme court held that the standard is rational and appropriate to the objective pursued, since it allows the tax authority to have information on a timely and ongoing manner about the identity of the beneficiaries drivers, available, at any time and circumstance.
3. Proportionality in the strict sense
The Court found that the obligation to obtain, retain, and provide information on beneficiaries controllers saves a correspondence reasonable between the importance of the order sought and the effects which it produces on other constitutional rights, so that the test of proportionality.
Accordingly, the supreme court concluded that the regulations in the matter of beneficiary driver is constitutional.
Specialty of the obligation in fiscal matters
The complainants also argued that these obligations were already regulated by the LFPIORPI and by article 27 of the CFF.
However, the supreme court ruled that:
- The LFPIORPI pursues a different purpose of the tax, so that it is of obligations independent.
- Article 27 of the CFF is only obliged to inform general data of partners or shareholders, which is different to the identification of deeply beneficiary driver required by the new regulations.
Ambiguity of the law and the impossibility of query
It was alleged ambiguity of terms such as “any other legal figure”, “related parties” and “beneficiaries controllers”, as well as the impossibility of submitting queries to SAT on this topic.
The supreme court clarified that:
- At the national level, should be addressed to the definition in article 32-B-C of the CFF.
- At the international level, should be regarded as rules issued by the SAT, as well as the recommendations of the FATF and the Global Forum on Transparency and Exchange of Information for Tax Purposes of the OECD.
With regard to the prohibition of queries, pointed out that there is an imposition directly related to the amount of the operations, which is a prerequisite for appropriate consultation in accordance with article 18-A, section IV, of the CFF.
Fulfilment of the obligations of beneficiary driver
To confirm the constitutionality of the obligations, the supreme court reaffirms the responsibility of taxpayers to comply with Mexico’s international commitments in the area of tax transparency.
In general, taxpayers must:
- Implement internal control systems, properly documented, and reasonable.
- Identify, verify, and validate the beneficiary driver and, in his case, the chain of control.
- Indicate percentages of direct or indirect participation in the capital.
- Keep information accurate, complete, accurate and up-to-date.
- Provide timely access to the tax authorities all the information and relevant documentation.
Sanctions regime
The breach of these obligations can generate significant fines for each beneficiary controller, including:
- Do not obtain, retain, or submit the information required:
From $1,500,000 to $2,000,000 - Do not keep the information:
$800,000 to $1,000,000 - Submit information incomplete, inaccurate, or with errors:
$500,000 to $800,000
In addition, failure to comply may result in the opinion of tax compliance by the taxpayer is issued in a negative sense, in accordance with article 32-D of the CFF.
Conclusion
The supreme court recognized the constitutionality general of the tax obligations related to the identification of the beneficiary controller, based on the international commitments made by Mexico, and on the fight against tax evasion, terrorist financing and money laundering.
While many taxpayers have sought criteria to avoid complying with these obligations, the judgment of the Court confirms the obligation —primarily for corporations, trusts and other legal concepts— identify their beneficiaries drivers, which have a significant fiscal impact.
In the wake of this resolution, it is expected an increase in the processes of control, which could result in fines in the millions for taxpayers unfulfilled.