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Both Houses of Congress in a fast-track process approved the Economic Proposal for 2022. The Economic Proposal contains tax reform that focuses on eliminating loopholes in the legislation where there are perceived abuses by taxpayers. Companies should assess whether enhancements or modifications to existing structures are required.

With prior approval by the Lower Chamber of Congress, the Mexican Senate swiftly approved on October 26, 2021 President Andres Manuel's Economic Proposal for 2022, which includes the Revenue Law and tax reform. The Congress did not make significant changes to the original proposal. According to the Explanatory notes on the Bill, the tax reform focuses on closing loopholes in legislation where there are perceived abuses by taxpayers. It also would grant the Mexican tax authorities (SAT per its acronym in Spanish) additional collection tools and power in the audit process to challenge the substance and business purpose of transactions retroactively.

The President is expected to sign and publish the tax reform legislation soon. The tax reform would be effective January 1, 2022.

The tax reform would:

• Amend the transfer pricing rules to allow maquiladoras to qualify for the permanent establishment exemption
• Amend the thin capitalization rules
• Expand the definition of back-to-back loans to include any transaction lacking business purpose
• Limit the benefits for non-regulated special purpose financial institutions (SOFOMs)
• Require taxpayers to have a valid business purpose for domestic restructurings, spin-offs and mergers and additional reporting for those transactions

For more details on the tax reform, see Tax Alert 2021-1688.

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