In detail

Within Article 29-A of the Fiscal Code of the Federation (CFF), a provision that foresees the requirements that CFDIs shall comply with, a section IX is added, which provides, as a new requirement, that such receipts must cover existing, true transactions or real legal acts and, consequently, considers that if such requirement is not met, tax authorities may consider them to be false, and therefore general tax effects will be denied. Furthermore, not complying with such new requirement would entail criminal prosecution against taxpayers that are directly or indirectly involved in activities related to the CFDIs considered to be false by tax authorities. As a result of this addition, tax authorities are endowed with new powers to enforce compliance with this new requirement, which consists of the following:

1. Domiciliary audit to verify CFDIs covering existing, true transactions or real legal acts (Article 49 Bis of the CFF):

Article 49 Bis of the CFF is included, which establishes an abbreviated procedure for the SAT to verify the veracity of CFDIs without having to exhaust the traditional audit processes for which the generic term is one year. This procedure seeks to tackle the simulation of transactions, allowing tax authorities to issue a determination on the integrity of the CFDIs in an expeditious and efficient manner. The foregoing under the new requirement contained in article 29-A, section IX of the CFF.

Based on the prosed wording in the CFF Initiative, we note that Article 49 Bis of the CFF, if approved as proposed by the Federal Executive Branch, could generate legal uncertainty for taxpayers in view of the following:

1. It is an expedited declaration of falsehood of CFDIs, since tax authorities will have a maximum of 24 business days to finalize this new verification power.
2. The time for taxpayers to detract from the presumption of falsehood is very short (five business days), which makes it practically impossible to prove the veracity of the operations.
3. The initiation of this new procedure entails the suspension of the digital tax certificate (CSD), without the procedure provided for in Article 17-H Bis of the CFF (reinstatement of the CSD within 24 hours) being applicable.
4. Publication in the Mexican Tax Administration Service's (SATs) Portal and Mexican Official Gazette, in order for recipients of the CFDI considered to be false are aware of such determination.
5. No due process of hearing for the recipient of the CFDI considered to be false as, once a CFDI is declared as false, recipients will have 30 calendar days as of the date the issuer is published in the Mexican Official Gazette to reverse all tax effects through an amendment tax return. If the latter is not done, the recipient's CSD will be suspended.
6. Criminal implications for simulated transactions, such as:

• Application of the regime of corporate criminal liability, in accordance with Article 421 of the National Code of Criminal Procedures, and Article 11 Bis-B, section VIII Bis, of the Federal Criminal Code.
• Proceeding of the precautionary measure of unofficial pre-trial detention, in accordance with the reform of Article 19 of the Political Constitution of the United Mexican States.

2. Power to determine the falsehood of a CFDI during the exercise of any audit (article 29-A Bis of the CFF):

As a way of providing tax authorities with better audit tools to tackle simulated transactions, article 29-A Bis of the CFF is also included. Such provision grants tax authorities the power to determine the falsehood of a CFDI during the exercise of any verification power, without exhausting the procedure established in article 49-Bis of the CFF. The latter whenever tax authorities identify a potential non-compliance with the new requirement set forth in article 29-A, section IX of the CFF.

Hence, if tax authorities are already auditing a taxpayer, they will not need to exhaust the new procedure established in article 49 Bis of the CFF as article 29-A Bis of the CFF allows them to determine whether a CFDI is false with respect to certain transactions.

3. Reform of the tax crime provided for in Article 113 Bis of the CFF:

The CFF Initiative contemplates adding some changes to the wording of the crime provided for in section 113 Bis of the CFF, which currently punishes anyone who issues, sells, purchases or acquires tax receipts that cover non-existent or false transactions or simulated legal acts.

The proposed changes include: (i) expanding the criminal scope to also sanction anyone who "gives fiscal effects" to false tax receipts; (ii) establishing the power to investigate and prosecute this crime regardless of the status of a related administrative proceeding; (iii) expressly stating that the execution of this crime may cause material damage to the Federal Treasury, which must be subject to reparation; and, (iv) specifying that the digital services platforms referred to in the VAT Law and their holders will be subject to criminal sanction if they allow the publication of advertisements related to false CFDI's.

In light of the above, crimes associated with any activity carried out with false tax receipts may be imputable to both natural and legal persons involved in their commission. Under the current corporate criminal liability regime, legal persons and/or their representatives and/or their officers may be held criminally liable if it is proved that such crime was committed in the name of, on behalf of, for the benefit of or through the means provided by a company, even if the crime is committed by a related third party.

Sanctions against companies may include financial penalties based on the net income of the company, suspension of its activities, closure of its premises, judicial intervention, seizure of assets or dissolution of the company.

Recommended actions

In view of the above, and subject to waiting to see how the final wording is approved, from a tax perspective, we suggest creating a defense file with the information and documentation supporting the acquisition of goods and/or the effective provision and receipt of services (i.e., materiality), as well as (i) establishing compliance policies for the contracting of suppliers and (ii) constantly reviewing the lists published by tax authorities to monitor whether the taxpayer or any contractor or supplier has been published in the Mexican Official Gazette. The foregoing to avoid sanctions or actions by tax authorities that could jeopardize the business operation.

From a crime prevention point of view, it is suggested:

• Conduct a criminal risk assessment to identify the activities that expose the Organization to criminal tax risks subject to the corporate criminal liability regime.
• Design and implement corporate crime prevention policies, programs and/or internal controls aimed at preventing and mitigating any corporate criminal liability scenario.

Our multidisciplinary team of specialists in tax and criminal matters will be pleased to assist you in assessing the impact of these modifications and we can create mechanisms to mitigate risks in the event of the possible exercise of any of these powers by the tax authority.