March 4, 2022
Mexican input VAT may no longer be creditable for activities performed outside Mexico - action required by March 10
From 1 January 2022, taxpayers may no longer be able to claim credit for input value-added tax (VAT) for activities performed outside of Mexico. Taxpayers that wish to file an Amparo lawsuit challenging this new rule must do so by March 10.
The Mexican tax reform, which came into force on January 1, 2022, includes a broad definition about "non-VATable activities," requiring taxpayers to consider these activities when determining whether input VAT should be creditable. This definition/provision is significant and will affect businesses that are VAT registered in Mexico and incur VAT on costs in Mexico, but perform activities (e.g., sell goods or provide services) outside of Mexico.
The new law is likely to affect some supply chains, including manufacturing, mining and aviation to name a few.
Action required by March 10
Businesses affected by the new tax law should consider whether they wish to file an Amparo lawsuit challenging the constitutionality of these rules. The final decision will be made by the Supreme Court of Justice. Businesses that do not file an Amparo will have to follow the new rules from January 1, 2022, which will affect their VAT deduction.
The situation is time sensitive in that the Amparo lawsuit can only be requested after the first time the amended rule affects the taxpayer. If the provision is considered unconstitutional, the ruling will only protect those taxpayers that specifically requested it. The deadline to file an Amparo lawsuit is March 10.