Recently, the First Amendment to Annex 3 of the Treasury Rules for 2019 was published in the Official Gazette of the Federation, by means of which the following Non-Binding Ruling related to the operation of technological platforms that provide lodging services were announced:
i. Non-Binding Decision 41/ISR/NV
The first decision states that it is illegal not to accrue the income received by individuals and companies for providing lodging services through electronic platforms for Income Tax purposes. It establishes that individuals who rent real estate through these platforms provide lodging services and must pay taxes under the Business Activities Regime.
This is relevant since an individual who pays taxes under the Business Activities Regime can deduct the strictly necessary expenses as long as various requirements are met, including obtaining invoices and keeping account records. It is also important to mention that when individuals provide lodging services to companies, such companies must withhold 10% of the fees and pay them to the Tax Administration Service (“SAT”).
Note that one of the issues that is not addressed, and which is quite common, is that when the lessors are nonresidents, those nonresidents should pay taxes as Mexican individual residents for the activities performed in Mexico.
ii. Non-Binding Decision10/IVA/NV
The other ruling establishes that taxpayers who do not pay Value Added Tax (“VAT”) for providing lodging services through technological platforms are acting illegally. This criterion is important because it confirms that leasing real estate for lodging purposes is subject to VAT.
However, similar to what happens with the Income Tax Law, there are complexities in the VAT Law regarding the efficiency in the way of paying and/or withholding taxes when lessors are nonresidents or individuals renting real estate to companies.
iii. Additional Comments
The auditing of the provisions of the present rule is a major challenge for the SAT, due to the lack of information that it has on these operations. Likewise, the efficiency of the withholding mechanism is questionable, since it would be necessary for users to know the characteristics of the counterparties, which is quite unlikely.
Nevertheless, it is clear that one of the objectives of this new government is to tackle the tax evasion carried out through the digital economy, a situation that is not exclusive to Mexico, and that other countries are taking measures to prevent.
Lastly, the Organization for Economic Cooperation and Development (OECD) suggests the collaboration and active participation of electronic platforms in tax collection establishing facilities that allow compliance with the lowest operation costs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.