Internet blocking as SAT sanction is arbitrary and disproportionate: experts

The Ministry of Finance and Public Credit proposed as part of the Income Law within the Economic Package 2021 that companies that offer digital services and that reside abroad can be disconnected from the internet in case of not meeting their tax obligations.

The sanction with which it seeks to block access to the internet of digital platforms that do not comply with their tax obligations in Mexico is considered an arbitrary and disproportionate measure with which the most affected will be internet users in the country, experts summoned by the Institute of Legal Research of the UNAM and the Internet MX Association in the seminar Economic Package 2021 and Digital Economy.

The Ministry of Finance and Public Credit proposed as part of the Income Law within the Economic Package 2021 that companies that offer digital services and that reside abroad can be disconnected from the internet in case of not fulfilling their obligations to register in the Registry Federal Taxpayers (RFC); appoint a legal representative in the country; designate a domicile in national territory and process their advanced electronic signature. In addition, as part of this new regulation, it is proposed to unify the VAT withholding rates of all types of platforms to 2.4 percent.

Yubani Ramírez, coordinator of the Tax Law Commission of the Mexican Bar Association, believes that this initiative, which was reviewed by the plenary session of the Senate this Tuesday, October 27, after being endorsed by the Chamber of Deputies, even contradicts its own explanatory memorandum, since the simplification of the tax processes has not been fulfilled, nor are they provided with legal certainty. Nor does it seek to use technological instruments for efficient communication, because otherwise, it would not be proposing a disconnection from the internet; in addition to the fact that there are already agencies with the power to supervise compliance with the tax obligations of digital platforms.

“This measure, which is proposed as a punishment for taxpayers, for companies, will represent an impact on Mexican society,” said Ramírez, adding that the people affected by this type of measures are those who use music downloads, video games or even, who is receiving training online in the context of the health emergency caused by the Covid-19 pandemic.

The new proposals of the SHCP are added to the modifications that the tax authority proposed in 2019 as part of the Economic Package 2020 and that included for the first time the collection of VAT on digital products and services of electronic commerce, transport and delivery and accommodation, a a measure that, strictly speaking, entered into force on June 1, but that many companies have not been able to comply with due to the complexity of the requirements of the tax authority.

For Diana Juárez, from the international law firm Baker & McKenzie, the 2019 changes in the taxation of the digital economy completely changed the application of a Value Added Tax that reached an extraterritorial nature for companies; while for the general public it was an increase in taxes.

With the regulation that is intended to be included in the 2021 Economic Package, Juárez believes that to the companies’ requests to simplify the tax withholding process, the response by the Mexican tax authorities has been: “not only I do not provide taxpayers with the adequate tools to comply, but I also impose additional measures that further complicate your compliance and threaten you with a totally disproportionate sanction, ” she said.

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