CONSEQUENCES DERIVED USE OF CASH IN
EVERYDAY TRANSACTIONS, CARRIED OUT BY
NATURAL PERSONS IN MEXICO
Ligia María Zamora Borquez, Universidad Autónoma de Baja California
María del Mar Obregón Angulo, Universidad Autónoma de Baja California
ABSTRACT
This study focuses on the consequences of everyday cash transactions that may deem the natural
person, as a tax payer, worthy of certain economic boons.
It is addressed only to natural persons, whom unlike juridical persons, use cash as legal tender and
have less control over said transactions.
This is a red spot for the tax authority, who has taken steps through this past 10 years to ensure that
taxpayers use less cash, since this particular means of payment is scarcely traceable, and it is difficult
to clarify its origin and application, which complicates auditing.
The means for data recollection used in this study were a research on accounting laws related to the
usage of cash, as well as questionnaires on cash use applied to a specific sector of the natural
persons population of Ensenada, Baja California state.
The purpose of this study is to describe the consequences of the usage of cash, to analyze different
options that may work as a substitute for it and to propose manners of control to further enhance
insight on the origin and use of cash.
• JEL: K34
• KEYWORDS: Tax consequences, cash, natural persons.
INTRODUCTION
The tax authorities in order to collect income from Mexican people and residents of Mexico have had
to take various measures to ensure that they contribute to public expenditure, both from the
Federation, the Federal District, or from the State and Municipality in That resides in the proportional
and equitable way provided by the laws, as established in Article 31, Section IV of the Political
Constitution of the United Mexican States.
One of the main problems facing the country is tax evasion, which consists of hiding income in order
to pay less taxes, nowadays with all the technological advances that the Tax Administration Service
(SAT) has as the standard Taxpayers, electronic invoicing, payrolls, transfers, credit cards, tax checking
machines, electronic accounting, among others, it seems that everything is resolved, however cash is
still a payment instrument, which by itself, is untraceable by the authority, so it increasingly limits its
use, to force those who are in the register of taxpayers not to use it or try to do so by verifiable
means. It takes measures for this by imposing consequences, in tax laws, comparable to crimes.
Historical Background
Over the past 10 years, the tax authority has taken steps to try to ensure that taxpayers use less cash,
since this means of payment is not traceable, and makes it difficult to translate its origin and
application. The following is a summary of these measures.
2006
• Public notaries must report monthly on operations of persons not registered with the Federal
Taxpayers Registry (RFC) and article 107 of the Income Tax Law 2006 (LISR) is amended to
extend to non-subscribers In the RFC.
2008
• The obligation to report on the annual declaration of natural persons, on loans, donations
and prizes of six hundred thousand pesos or more was made.
• The Law on the Tax on Cash Deposits ,came into force, which obligeted the banking
institutions to collect 2% on the surplus of 25,000.00 pesos deposited in cash by one person
in their bank account in a calendar month, and to inform the SHCP.
2011
• Around 500,000 invitation letters were sent to the taxpayer's address in print, when the
authority records inconsistencies in the data submitted by the taxpayer upon registration in the
Federal Taxpayers Registry (RFC). Also, since the system had detected deposits in cash in
someone’s bank account that had not been declared, amounts above 400,000.00 pesos.
Historical Background
2012
2013
2014
• An intergovernmental agreement was signed between Mexico and the United States of
America to facilitate the implementation of the US Foreign Offshore Tax Compliance Act
(FATCA). This law was enacted in the U.S. On March 18, 2010, which is regulated by it, that
financial institutions and other foreign intermediaries must report directly to the IRS
(Internal Revenue Service) on the accounts of more than 50 thousand dollars of the United
States citizens In foreign countries.
• The Federal Law of Prevention and Identification of Operations with Resources of Illicit
Origin, known as "Anti Money Laundering Law published in the Official Federal Official
Gazette (DOF), enters into force on October 17, 2012. In essence, this law establishes a
series of vulnerable activities. Among others, games, contests and sweepstakes, the
purchase and sale of real estate, vehicles (air, sea and land), jewelry, works of art, prepaid
cards, etc. Just as the limits of these activities can be paid in cash, what is intended is to
limit the use of cash.
• Around 600,000 invitation letters were sent to taxpayers who were detected to have deposits
in bank accounts. Those taxpayers who had had deposits in their accounts greater than $
400,000.00 during fiscal year 2012 or 2013 and who had not filed an annual return.
Research Problem
However, with all these measures taken by the authority, cash is
considered a payment instrument difficult to track.
Therefore, it is currently in constant
control over revenues and bank
deposits. For example, invitation
letters, addressed to natural persons,
issued by the Tax Administration
Service (SAT) that takes as a tax base
the sum of deposits, leaving the
burden of proof to the individual to
detract from the presumption of
income.
Importance
This is why the importance of developing this work lies in making known to anyone
interested in the subject that the authority considers the use of cash as unreliable, since
it complicates revisions. Since cash is a payment instrument that leaves no trace to
taxpayers, it is difficult to verify that the declared income is the correct one, as well as
the source of the income.
It is important that people in reading this work know the existing tax provisions that
relate to the use of cash, especially the consequences contained therein, because it is
vital to remember the principle of law that states "Ignorance of the law does not exempt
the duty”. Aristoteles.
LITERARY REVIEW
In this investigation we review a tax law and support with previous
investigations, a qualitative study was carried out, in order to collect
information on Money Laundering (Riveiro, 2007; Esteban, 2012), Fiscal
Evasion (Arroyo, 2007; Fuentes, 2012) Cash (Hernández 2008) and fiscal
discrepancy (Landa, 2014).
In the tax law are the limitations on the use of cash in purchases and
expenditures as deduction requirements, obligations to report to the SAT
by taxpayers such as public notaries and credit institutions on cash
transactions, and income by fiscal discrepancy derived from the use of
cash limits were found.
•
•
•
•
•
Income.
Obligations to Inform.
Presumption of Income.
Tax Fraud.
Deductibility requirements.
Income
• Article 90 of the Income Tax Law (LISR) establishes the obligation to pay taxes to all natural
persons resident in Mexico who obtain income in cash, in assets, accrued when, under the terms
of this Title, in credit, In services in the cases indicated by this Law, or of any other type.
• In relation to the above, it is observed that the payment of income tax in the case of tax people,
who are the subject of this investigation, is related to the income actually collected, where the
first assumption is cash collection, regardless of whether the person performs An activity or not,
or if it is registered in the Federal Register of Taxpayers (RFC), the tax is caused only with the
perception of income.
• Now in the same law it is foreseen that not all income necessarily requires taxing and in that same
article in its second paragraph mentions that when a physical person receives income for loans,
donations or prizes, these will not be considered an income, nevertheless one has The obligation
to report, in the statement of the financial year, on these items, when individually or as a whole,
exceed $ 600,000.00, otherwise it will be considered as cumulative income.
Obligations to Inform
IRS law
There are ways in which the authority can track cash, and this occurs when the person, renting a
room or commercial house, acquires property or when depositing in bank accounts, financial
investments or credit cards. In the IRS law, obligations are imposed on certain people to report the
income received in cash, which are related to the type of activity they perform, the authority uses it
to detect those people who make cash payments.
• First, there is the obligation contained in article 118, paragraph V, to inform the fiscal authorities,
through electronic means and formats, of the SAT, no later than the 17th day of the month
immediately following that in which the operation, of the consideration received in cash, in
national currency, as well as in pieces of gold or silver, whose amount is greater than one hundred
thousand pesos for lease.
• In the same way, taxpayers who obtain income from the alienation of assets are also required to
report, according to article 128 of the LISR, no later than the 17th day of the month immediately
following that in which the operation is carried out, Of the consideration received in cash in
national or foreign currency, as well as in pieces of gold or silver, whose amount exceeds one
hundred thousand pesos.
• Lastly, article 55, section IV of the LISR, establishes the obligation for financial system institutions,
which is to provide annually by February 15 the information on cash deposits made in accounts
opened to Name of the taxpayers in said institutions, when the monthly amount accumulated for
the cash deposits made in all the accounts of which the taxpayer is holder in the same institution
of the financial system exceeds $ 15,000.00, as well as for all the acquisitions Cash cashier's
checks.
Presumption of Income
Once you have all that information, the SAT determines the discrepancies for omitted income, and
then proceed to determine a presumptive income, this will cause the individual to have to pay
income tax on those income.
In this case the presumption of income derived from bank deposits is found in article 59 III of the
Fiscal Code of the Federation, which mentions that for the verification of income, the value of the
acts, activities or assets for which they are due Pay contributions, as well as updating the
assumptions for the application of the rates established in the tax provisions, the tax authorities shall
presume, unless evidence to the contrary that they will be income deposits in the bank account of
the taxpayer that do not correspond to records of their Accounting that it is required to carry, are
income and value of acts or activities for which contributions must be paid.
For this purpose, the taxpayer will not be considered in the accounts for deposits in his bank account
when, when he is obliged to carry it, he does not present it to the authority when he exercises his
powers of verification.
Tax Fraud
The authority can classify the offense of tax fraud under the terms of article 109 of the CFF, which
provides for the recording of cumulative income less than the actual income earned, as well as the
fact of making expenditures higher than declared income, properly speaking, the tax discrepancy, As
a crime comparable to tax fraud, with deprivation of liberty from 3 months to 9 years when the
amount of defrauded exceeds $ 1,832,920.
If it is not income, it is recommended to go to the Administration that corresponds to you according
to your tax address to verify through the corresponding documentation that these are amounts that
you are not obliged to accumulate in accordance with the legal provisions (as in the case That they
had given you a loan or received a donation).
Deductibility requirements
In the case of operations carried out in cash, in terms of deductibility, restrictions have been
implemented to avoid the use of cash.
In the LISR in article 147 IV, of the title of natural persons, there is the requirement for an expense to
be deductible, which must be covered by the fiscal voucher and that payments whose consideration
exceeds $ 2,000.00 pesos, are made through Electronic transfer of funds from accounts opened in
the name of the taxpayer in institutions that make up the financial system and the entities
authorized for this purpose by the Bank of Mexico; Personal check of the taxpayer's account, credit
card, debit, service, or through so-called electronic wallets authorized by the Tax Administration
Service.
However, in the case of the taxpayers of the Tax Incorporation Regime, according to what is stated in
art. 112 of this same law, may pay the expenses related to their purchases and investments, whose
amount is more than $ 5,000.00 pesos.
In addition to authorized deductions, taxpayers may deduct in their annual statement for the year
the personal deductions authorized under article 151 of the LISR.
Personal deductions as the name implies have to do with personal expenses that the individual
performs in a fiscal year, and that have no relation to their activity, as in the case of authorized
deductions.
These personal deductions are also conditional, unless paid in cash, so that they can be deducted in
the annual return. Where in the same article clarifies that the payment of these expenses must be
made by check of the taxpayer, electronic transfer of funds, credit card, debit card or services.
METHODOLOGY
The focus of this research is mixed, because it is a combination of the quantitative and the
qualitative approach.
For the work of the present investigation began with the development of an idea to
investigate, the qualitative method was used to analyze the fiscal laws in relation to the
subject and a review of the literature related to the subject to investigate was carried out, with
The objective of collecting relevant and necessary information to frame the research problem.
Subsequently, for the quantitative part of this research, a sample was selected based on the
population of natural persons of the city of Ensenada, BC. , To which they were applied a
questionnaire that contains closed questions with options, in order to facilitate their answer
and to be able to analyze the results that this throws. For this part of the research we chose to
use a convenience sample of 228 questionnaires.
MIXED
RESULTS
Of the 228 questionnaires that were applied, the following results were obtained:
Question about personal situation
RFC
Payment
form
Annual
declaration
Only 44% are enrolled in the Federal Taxpayers Registry (RFC), 39% are not and the other 17% are
unaware of their fiscal situation.
Of the people that if you have RFC, 83% have a bank account, however 77% told us that their most used
form of payment is cash.
While in the case of non-RFCs, 57% have a bank account, and 90% use cash as the main form of payment.
Of those who are enrolled in the RFC only 37% have an annual declaration, and 63% do not submit, 73%
do not submit because they are not obliged.
Questions on the fiscal consequences related to the use of cash
Invitation
letters
99% of the sample does not know from which amount of cash deposits per month, the bank has an
obligation to inform the SAT, and hence 57% do not know about the invitation letters sent by the SAT on
the basis of such information for To charge ISR on said deposits, the rest knows little or regular and of
those few only 10% know they are to charge ISR on said deposits.
Deductions
50% do not know what personal deductions are to be paid in cash, and 90% do not know how much the
maximum amount is allowed to pay a cash bill for the case of authorized deductions.
Anti-money
laundering
law
As for the anti-money laundering law 61% have not heard of it, the rest just a little.
82% are not aware of the activities contained in said law that are limited to be paid or collected in cash.
And 85% are not aware of the fines, for not informing the SAT, about the clients who paid in cash those
activities, contained in this law.
RESULTS
On the other hand, based on the qualitative study of this investigation, consisting of the analysis of the tax
laws, obtain information on the consequences derived from the use of cash, which are mentioned below:
CONSEQUENCES
Accumulation
of Income
DESCRIPTION
When a physical person receives income from loans, donations or prizes, these are not
considered an income; however, it is required to inform, in the statement of the
exercise, about these concepts, when individually or as a whole, exceed $ 600,000.00,
since otherwise it will be considered as a cumulative income.
Cash deposits made at banking institutions, as well as credit card payments, which are
not documented, will be presumed income and the 35% tax rate will be applied
without deduction.
LAW
Law on
Income Tax.
Expenses higher than $ 2,000.00 are not deductible in cash and in the case of Tax
Incorporation Regime if they exceed $ 5,000.00.
In the case of personal deductions that individuals can apply in the annual statement
of the year, such as medical expenses, tuition fees, and medical expenses insurance
premium, cannot be paid in cash, otherwise the consequence is a Decrease in the
balance in favor or increase of the payment of income tax, if applicable.
Law on
Income Tax.
Penalties for not
reporting
Those who do not inform about the persons who carry out the activities and amounts
indicated in the anti-money laundering law will impose a sanction of 10,000 and up to
65,000 days of Minimum Wage, equivalent to ($ 800,400.00 to 5,202,600.00 pesos).
Federal Law of
Prevention and
Identification of
Operations with
Resources of
Illegal Origin.
Crime of
tax fraud
In the event that the offense of tax evasion is defined as income concealment, this is
punishable by: With imprisonment from 3 months to 2 years when the amount
defrauded is less than 1million 369 thousand 930 pesos, 2 to 5 years of 1 Million 369
thousand 930 pesos to 2 million 54 thousand 890 pesos, and from 3 to 9 years when
the amount of defrauded was greater than $ 2 million 54 thousand 89 pesos.
No Expense
Deductibility
Federation
fiscal Code.
CONCLUSIONS
The consequences of the use of cash range from a non-deductibility of taxes to the typification of the
crime of tax defraud.
For what it is important to document all the operations carried out, in order to verify that a deposit is
not necessarily an income, it can be a loan, a donation between spouses, an inheritance, for
example, which are assumptions in which the Equity of the person, but it is not necessarily income
taxed for ISR, since these are contained, among others, in article 93 of the LISR, which contains all
income that is considered exempt for income tax purposes.
Although it is true that the bank has an obligation to report cash deposits in excess of $ 15,000.00
pesos per month, it is recommended that the use of cash be replaced by bank transfers, checks,
electronic purses, all that which leaves evidence.
Regarding the deductibility of expenses or purchases, the reduction of the taxable base for ISR, it is
also important to take care of the maximum amounts allowed, established LISR, to be able to pay
cash expense, and that this can be deductible, which is of $ 2,000.00 per invoice or $ 5,000.00 in the
case of the Fiscal Incorporation Regime.
Finally, it is recommended that to control and transparent the origin and application of cash, is to
keep an accounting record and keep bank statements.
REFERENCE
• Law on Income Tax.
• Federal Law of Prevention and Identification of Operations with
Resources of Illegal Origin.
• Federation fiscal Code.
• Impact in Mexico of the FATCA (Foreign Account Tax Compliance Act)
within the scenario of global cooperation for the exchange of
information and prevention of tax evasion (S.F.)
• Statistical information of SAT (S.F), Recovered from sat, gob.mx.
• Letter Invitation for deposit in cash (S.F), Recovered from: hlp.mx.
ACKNOWLEDGMENTS
“I thank the Autonomous University of Baja California for the
support to participate in this congress, the thesis director, for
her counseling, and my family for their support and
understanding”.
BIOGRAPHY
• Ligia Maria Zamora Borquez holds a BA in Accounting from the Autonomous University of Baja
California. Accountant of Corporación Pierre S.A., Student of Masters in Taxes in the Faculty of
Administrative and Social Sciences, UABC, E-mail [email protected].
• María del Mar Obregón Angulo is a Master in Accounting from the Autonomous University of Baja
California. Full-time Full-time Lecturer at the Autonomous University of Baja California, attached
to the Faculty of Administrative and Social Sciences. It can be contacted at the Faculty of
Administrative and Social Sciences, Boulevard de los Lagos and Boulevard Sánchez Zertuche
without number Ensenada Baja California, Mexico, Email [email protected]