What news with the SAT in Mexico?

The suggestive title of this series’ original post paraphrases the charismatic Head of the SAT of Mexico, Aristóteles Núñez, in the event on Digital taxation that the SAT in conjunction with AMEXIPAC organized last year. In the second edition of this event, in which I had the opportunity to participate in a panel, the head of the SAT told us some of the initiatives that they are introducing. In Mexico, as in many of our countries in Latin America, the number of electronic tax returns very high. As in other countries in which the percentage of returns in electronic format is one hundred per cent (or very close values), the application to prepare these returns is developed by the Administration and made available to taxpayers. In his comments, Aristoteles wondered, almost rhetorically, if that application was in line with the expectations of taxpayers, if it was simple, if it was adjusted to the business models and information systems that taxpayers had. He answered that probably it is not the case, because it is made internally by the same people who have always done it and they are following the mechanisms that have been always used.

The SAT is attempting to break this paradigm through the participation of companies from the private sector that, a-la-PAC, operate as receivers of digital documents. In short, these companies could develop applications and services to provide other options to taxpayers. That would surely go through applications with interfaces more simple or adaptable to segments of taxpayers in certain economic sectors. In my opinion, the most interesting change could come with the ability that taxpayer management information systems (ERP, financial management, accounting applications, etc.) would have APIs to generate electronic documents equivalent to the returns to be sent to the receiver of the digital documents and, later, to SAT. Reminding that in Mexico there are at this time 77 PACs certifying electronic invoices, most of them offering additional services to their customers, this scenario seems viable and carries the possibility of integrating tax compliance to the taxpayers’ internal processes. My guess is that the Administration will continue to provide its own solution and that the taxpayer would be the one who would choose among the options by criteria such as ease of use or access to other services. To me, the question of how these mechanisms would operate in relation to the pre-filling of the statements is still in doubt, but I find it very interesting, in particular for corporate entities.

It is not the only novelty of the SAT. In an event on electronic invoicing managed by the CAPTAC-DR, the IFC of the World Bank Group, the IDB and the SAT of Mexico, Fernando Martinez Coss, of the Mexican SAT administration and his team commented several innovations that are already being implemented with invoices on issues of tax control. Undoubtedly, one of the most important is the one related with EFOS and EDOS. These peculiar entities, with acronyms that seem to come out of a novel of Tolkien, face serious problems. Due to the existence of electronic invoicing, and the analysis of these data, the SAT can identify tax evasion mechanisms in which a legal entity has been simulating operations to “sell” invoices to other taxpayers for the sole purpose of reducing their tax burden by applying false tax credits. After identifying the process, the SAT may list the sellers of invoices or companies that billed simulated operations, called EFOS (that have been issuing invoices without assets, personnel, infrastructure or material capacity to provide the services or produce the goods). This has direct consequences for the buyers of these invoices or companies that infer simulated operations- EDOS. These operations will be not recognized and so they will have to regularize their tax status. The mechanism, which includes the detection of a fraud scheme using “outsourcing” of personnel schemes, is covered in article 69-B of the Federation´s Tax Code, and was the object of a demand to review legal protections (“amparo” in Spanish). This issue was recently decided by the Supreme Court, which ruled to deny the protections. The SAT has now a very important tool to combat this type of fraud.

One more thing. Adrián Guarneros shared with us about the pilot project being developed by the SAT to identify suspect operations from electronic invoices, if they are outside the regular patterns of some taxpayers. When some of these cases are detected, a call service contact the taxpayer to let him know the existence of this strange invoice and verify if it actually corresponds to a real operation or if, for example, the data of the taxpayer buyer are being used fraudulently in some operations. It is an interesting and useful service for those taxpayers and it responds to the culture of instantaneity we are used to in today’s society. No doubt, taxpayers will be grateful that in very short time, operation with fraudulent intention is detected and the tax administration acts and helps to correct a mistake or to avoid a subsequent problem. But it is also clear, beyond doubt, that such response capacity demonstrates the power of the Administration and of the information that is in their power, and this will constitute in a deterrent for those who have intentions to act badly, thus raising the feeling of risk and improving compliance.

These and other elements, including the introduction of the digital mailbox, are presented in the book “the new tax administration in Mexico.“ Digital DNA: Axis of transformation of the tax services“, that the Head of the SAT has presented at the International Forum on Digital taxation.

Of course, those convinced of the opportunities that technology brings to the administrations feel like shouting: “Viva Mexico…!”

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