PwC Reports:
A sentence is issued against the
limitation on deductions contained
in the new Income Tax Law
On March 25, the First Circuit in Mexico City issued a sentence granting an
injunction against article 28 sections I and XXX .This article which was enacted
beginning in 2014, limits the deduction of payroll expenses that are
exempt in the hands of the employee to 47%, or 53% when non-taxed
fringe benefits are maintained.
Likewise, the sentence refers to employee Social Security contributions covered by
the employer, which are considered non-deductible according to section one of the
same article.
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Summary of the relevant portions
of this court decision:
This sentence specifies that the limitation is disproportionate. It
restricts the deduction of a necessary and indispensable expense
from being recognized as disbursements to the detriment of the
wealth which is the object of the income received by the taxpayer.
Therefore, this affects the proportionality principle established by
the Mexican Constitution.
Additionally, the court decision considers that this limitation
discourages the granting of these types of benefits to employees,
which affects their quality of life and that of their families, with no
justifiable reason for limiting this deduction for the employer.
Lastly, the court decision claims that the taxable income tax base is
unjustifiably affected by article 28 section XXX of the Income Tax
Law, because it does not entirely correspond to the actual capacity
of the taxpayer to pay income taxes, since it does not allow the
taxpayer to claim a legal deduction necessary for calculating the
base of the tax.
What are the effects of this sentence?
The provisions of section XXX article 28 of the Income Tax Law will
not be applicable to the specific plaintiff, once it has become final
and conclusive.
This would result in an allowance of the full deduction of all
payments , without applying the 0.53 or 0.47 factor.
As from the date of notification of this sentence, this being an
injunction against a Federal Law, the authorities will have 10
business days to file an appeal. It will then be sent to the Supreme
Court, which may confirm or reject the criterion in question.
PwC
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For further information, please contact:
Mauricio Hurtado
Lead Partner for Tax and Legal Services
+01 (55) 5263-6000 Ext 6045
[email protected]
Partners In the Tax and
Legal Service Department
Raúl Bolaños
Partner
+01 (55) 5263-6000 Ext 6083
[email protected]
Eduardo Méndez
Partner
+01 (55) 5263-6000 Ext 6064
[email protected]
José Antonio Garduño
Partner
+ 01 (81) 8152-2000 Ext 2058
[email protected]
Pilar López
Partner
+01 (55) 5263-6000 Ext 6152
[email protected]
Sandro Castañeda
Partner
+01 (55) 5263-6000 Ext 5796
[email protected]
Ivonne Pruneda
Managing Director
+01 (55) 5263-6000 Ext 5794
[email protected]
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