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Mexico’s tax to digital economy: temporary block for infringing companies

The original initiative was to turn off the switch for tax infringing digital companies, like Google and Facebook, a measure that would cause an economic loss of over MXN $6 billion per day

Mexico’s tax to digital economy: temporary block for infringing companies
19/10/2019 |10:38Leonor Flores, Horacio Jiménez y Carina García |
Redacción El Universal
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Only a temporary block will be the administrative sanction for digital economy companies , such as Google, Facebook, and Twitter , that do not pay VAT and do not register with Mexico’s tax authorities .

The original initiative was to turn off the switch for those companies, a measure that, according to the Latin American Internet Association , would generate a blackout with an economic loss of over MXN $6 billion.

The changes to the 2020 Tax Package include modifying the blocks to the telecoms network for a temporary block.

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According to a statement presented on Wednesday in the Lower Chamber’s Finance Commission , the requirement of the advanced electronic signature was added.

If digital companies do not comply with these requirements, instead of being plugged off, they will experience a temporary block to the access to the digital services provided by suppliers of public telecoms networks in Mexico until they correct their tax obligations.

Mexico’s Tax Administration Service (SAT)

will notify the taxpayer of the infringement and they will have 15 days for the correction; once the period ends without the action of the taxpayer, authorities will proceed to issue the temporary block order through a general administrator public officer.

SAT will issue the order to the suppliers so that in a period of 5 days maximum they temporary block the taxpayer’s access to digital services .

The name of the supplier and the date from which the temporary block must be carried out will be published on SAT’s website and in the Federation’s Official Journal.

The rise of big internet companies like Google and Facebook has pushed current tax rules to the limit as such firms can legally book profit and park assets like trademarks and patents in low tax countries like Ireland regardless of where their customers are.

Earlier this year more than 130 countries and territories agreed that a rewriting of tax rules largely going back to the 1920s was overdue and tasked the Paris-based OECD public policy forum to come up with proposals.

The issue of taxing big cross-border multinational firms has become all the more urgent as a growing number of countries have adopted plans for their own tax on digital companies in the absence of a global deal.

“The current system is under stress and will not survive if we don’t remove the tensions,” OECD head of tax policy Pascal Saint-Amans told journalists on a conference call.

Facebook, Google, Twitter, Mercado Libre, and Airbnb

, among other of the 12 firms that make up the Internet Latin American Association (ALAI) , asked Mexican authorities for more time to comply with the new rules of the 2020 Tax Package .

They consider it necessary to have 12 months instead of one, as proposed in the fiscal miscellaneous, because that took time in Europe, specifically in France, where in last July they were able to establish a 3% tax of the income of digital economy businesses .

With more time, they believe, they can prevent being turned off and even a general digital outage , which can have an esteemed economic impact of MXN $6.474 billion per day , equivalent to 0.03 point s of the gross domestic product (GNP).

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