On March 15, 2023, the Second Chamber of the Mexican Supreme Court of Justice approved binding case law, derived from conflicting criteria between two Circuit Courts under docket 413/2022, through which it determined that offsetting receivables that include value added tax (“VAT”) does not give rise to VAT credit. Although offsetting receivables remains valid, under […]
On March 15, 2023, the Second Chamber of the Mexican Supreme Court of Justice approved binding case law, derived from conflicting criteria between two Circuit Courts under docket 413/2022, through which it determined that offsetting receivables that include value added tax (“VAT”) does not give rise to VAT credit. Although offsetting receivables remains valid, under this case law the VAT portion (16%) of the receivables must be transferred in cash; otherwise, the VAT paid through offsetting will not give rise to a VAT credit and, thus, will become an additional cost. This case law makes the final determination on the interpretation of the law and is unappealable.
Given that the case law resolves an issue of interpretation, the case law applies both prospectively and retrospectively. Therefore, the tax authority may begin tax audits focused on transactions where offsetting took place, as well as continue denying VAT refunds based on this rationale. We cannot dismiss the possibility of the tax authority questioning VAT refunds that were granted without an audit and where offsetting took place.
The case law will have considerable impact on how certain regular transactions are implemented and taxpayers may have to change their day-to-day operations going forward in order to secure the VAT credit or increase their consideration in order to absorb the cost of no longer being entitled to the VAT credit.
We recommend our clients and friends to analyze the case law’s impact on its operations and, particularly, revisit the VAT implications of upcoming relevant transactions. Also, we recommend reviewing whether the VAT refunds already granted can be reviewed and questioned by the tax authority based on this case law, given that not all refunds can be revisited.
For more information, please feel free to contact:
Alejandro Santoyo
Tel: +52 (55) 4748-0617
Email: alejandro.santoyo@creel.mx
Omar Zúñiga
Tel: +52 (55) 4748-0665
Email: omar.zuniga@creel.mx
Jorge Correa
Tel: +52 (55) 4748-0625
Email: jorge.correa@creel.mx
Luis Vázquez
Tel: +52 (55) 4748-0677
Email: luis.vazquez@creel.mx
Eduardo Brandt
Tel: +52 (55) 4748-0623
Email: eduardo.brandt@creel.mx