05 / 02 / 22
Regulation in relation to the identification of the Controlling Beneficiary
MEXICO CITY, MEXICO, March 28th, 2022 – On November 12 and December 27, 2021, the “Decree amending, adding and repealing several provisions of the Income Tax Law, the Value Added Tax Law, the Special Tax on Production and Services Law, the Federal Tax on New Automobiles Law, the Federal Tax Code and other regulations” and the “Miscellaneous Tax Resolution for the fiscal year 2022 and its Annex 19” were released in the Official Gazette of the Federation, by means of which new obligations were introduced in the Federal Tax Code for companies, fiduciaries, trustors or trustees, financial institutions, members of the financial system, notary publics, among others (hereinafter, “obligated parties”), as well as consequences in the event of noncompliance by the regulated parties.
In this regard, among the various amendments made to the tax regulatory framework, Articles 32-B Ter, 32-B Quater, 32-B Quinquies, 32-D, section IX, 42, sections XII and XIII, 49, section I, 84-M and 84-N of the Federal Tax Code were added in connection with Rules 2.1.37, paragraph 12, 2.1.8.20, 2.1.8.21, 2.1.8.22 and 2.1.8.23 of the Miscellaneous Tax Resolution for 2022, which establish the legal regime for the identification of the individual or group of individuals who qualify as “Controlling Beneficiary” by the obligated parties, as well as the obligations to inform the Tax Administration Service of their existence.
In addition, by means of such regulations, the tax authorities were authorized to request from the taxpayers the information related to the “Controlling Beneficiary”, in an audit procedure which entitles them to verify the adequate compliance of the obligations of identification and truthfulness of the information of the “Controlling Beneficiary“, as well as to impose sanctions when they fail to identify the “Controlling Beneficiary”.
However, as will be explained, we consider that this new requirement contains certain aspects that prevent them from effectively complying with it on a daily basis, mainly because they collide with existing provisions in other laws that regulate similar matters, they do not address the real economic and administrative situation of the obligated parties thus, compliance with these new obligations will be complicated.
Definition of Controlling Beneficiary
Briefly, the aforementioned provisions regulate the legal regime applicable to the obligated parties including the obligation to provide the Tax Administration Service (Servicio de Administración Tributaria) with the information related to the individual or group of individuals who qualify as “Controlling Beneficiary”. Failing to comply could result in fines.
According to Article 32-B Ter of the Federal Tax Code, it is considered that an individual is a “Controlling Beneficiary” in the following cases:
a) If directly or through others or through any legal act, obtains the benefit derived from its participation in a company, a trust or any other legal entity, the rights of use, enjoyment, or disposal of an asset or service or on whose behalf a transaction is carried out, even if it does so or they do so on a contingent basis.
b) If directly, indirectly, or contingently, exercises control over the company, trust or any other legal entity.
Control is understood as when it allows them to:
i) To impose, directly or indirectly, decisions in the general stockholders’ meetings, partners or equivalent bodies, or appoint or dismiss the majority of the board members, managers or their equivalents.
ii) To maintain the ownership of the rights that allow them, directly or indirectly, to exercise voting rights for more than 15% of the capital stock, or.
iii) To manage, directly or indirectly, the administration, strategy or main policies of the company, trust, or any other legal entity.
iv) In the case of “fideicomisos”, the trustor or trustors, the truste, the trustee or trustees, as well as any other person involved and who ultimately exercises effective control in the agreement, even on a contingent basis, will be considered controlling beneficiaries.
As it can be noticed from the legislation recently incorporated into the Federal Tax Code, it provides two different definitions of what we can understand as Controlling Beneficiary: first, the one who receives a benefit; second, the one who exercises control.
In order to apply these two definitions, Rule 2.8.1.20 of the Miscellaneous Tax Resolution for 2022 was added, whereby the obligated entities must successively identify the Controlling Beneficiary, thereby, first meet the content of section I of article 32-B Ter of the Federal Tax Code is considered (Beneficiary) and, in the event that is not possible to identify such person, section II of said article is applied (control).
Documentation to be identified and provided
On the other hand, according to the content of Rules 2.8.1.21, 2.8.1.22 and 2.8.1.23 of the Miscellaneous Tax Resolution for 2022, the obligated entities (without considering the financial entities and the other entities that are part of the financial system since they do it with a different method) must implement their own methods for the identification of the Controlling Beneficiary or those who they consider to have the same quality. These methods must be reasonable and necessary since they will be considered part of the accounting and must be kept for a period of five years. The following documentation should be included:
I. The full name and surnames, which must correspond with the official document that certify the identity.
II. The aliases
III. The date of birth. When applicable, date of death.
IV. The gender
V. The country of birth and nationality. In case of several nationalities, identify all of them.
VI. The CURP (a unique code which identifies all Mexican citizens and residents) or its equivalent, in the case of other countries or jurisdictions.
VII. The country or jurisdiction of residence for tax purposes.
VIII. The type and number or code of official identification.
IX. The RFC code or tax identification number, or its equivalent, in case of being a non-Mexican resident for tax purposes.
X. The marital status, with identification of the spouse and patrimonial regime, or identification of the concubine or concubinary, if applicable.
XI. The contact information: e-mail and telephone numbers.
XII. The home address and tax domicile.
It should be noted that we consider the aforementioned documentation is excessive, and in some cases, impossible to obtain, as well as unnecessary, since none of it is related to compliance with tax obligations and, in addition, the documentation and information required from subjects that are not relevant.
Notaries Public
It is also worth mentioning that the obligation for the identification of the Controlling Beneficiary is also established, mainly, for notaries public. In addition to the information listed, notaries public must obtain the following:
I. Identification information of the notary, brokerage, office, as well as of the person in charge of them before whom the contract or legal act that gave rise to the incorporation of the legal entities or execution of trusts or any other legal figure has been formalized.
II. Date of incorporation or execution, according to the deed, minutes, policy, similar or equivalent that supports the incorporation of the legal entity or execution of the trust or legal entity.
III. The full name of those who constitute, integrate or are part of the legal entity according to the constituent act or public deed or participated in the execution of the trust or legal entity.
IV. Amount of the capital stock of the legal entity according to the constituent act or public deed or of the assets of the trust or legal entity.
V. In case that with its intervention the legal entity, trust or any other legal entity makes modifications to the fixed or variable capital or to the assets of the “fideicomiso” or legal entity, the information supporting the amount and acts or agreements necessary for such purpose.
VI. Name of the sole director or equivalent, if applicable, members of the board of directors or equivalent body.
VII. Registration information, if any, before the public or equivalent registries.
Tax Audits
With the reform, the Mexican tax authorities will be able to identify the Controlling Beneficiary.
Article 32-B Ter of the Federal Tax Code establishes that the Tax Administration Service may request to the taxpayers the information of identification of the Controlling Beneficiary, which must be provided within 15 business days following the requirement.
Thus, this obligation does not imply the obligation to periodically provide information to the tax authorities, but only to keep information and provide it if required.
Regardless of the foregoing, the Tax Administration Service may visit the public registries in Mexico City and in the States of the Republic, the Financial Intelligence Unit of the Ministry of Finance and Public Credit, the National Banking and Securities Commission, the National Commission of the Retirement Savings System or the National Insurance and Bonding Commission in order to verify the truthfulness of the information provided by the obligated parties.
Penalties
Failure to comply with this obligation implies sanctions that will impact taxpayers in three areas, namely:
i) Obtaining a negative compliance opinion with tax obligations.
Non-compliance of the obligation analyzed is considered as a breach of the tax provisions.
ii) Impossibility of being hired in the public sector.
Public entities, organs and powers of the Federation are prohibited from contracting acquisitions, leasing, services or public works to those taxpayers that do not comply with the obligation analyzed.
iii) Imposition of fines.
To the subjects that do not obtain, keep or submit the information within the established terms, with fines from $1,500,000.00 to $2,000,000.00 Mexican pesos (from US$75,000.00 to US$100,000.00) for each Controlling Beneficiary that is part of the company, trust, or legal entity in question.
Failing to update information, could generate fines from $800,000.00 to $1,000,000.00 Mexican pesos (from US$40,000.00 to US$50,000.00) for each Controlling Beneficiary that is part of the company, “fideicomiso”, or legal entity in question.
Submitting information incomplete, inaccurate, with errors or in a different form, could generate fines from $500,000.00 to $800,000.00 Mexican pesos (from US$25,000.00 to US$40,000.00) for each Controlling Beneficiary that is part of the company, “fideicomiso” or legal entity in question.
Conclusion
The obligation analyzed contains practical problems for its application, since, on one side, there are other legal provisions that already contemplate the obligation to identify the Controlling Beneficiary under less strict criteria.
Also, considering that each obligated entity has a different structure, is not always possible to have access to the information or to obtain it in due course.
Finally, with respect to the penalties, we consider that they are excessive, since they are imposed for each person or group of persons that are not identified by the regulated entities, without really considering the particular circumstances of the structure of each regulated entity.
In this regard, since the obligation analyzed contains elements that could make it impossible for the obligated parties to comply in an optimal manner, we suggest reaching out to us for being advised over the best ways to achieve compliance with such obligation or, if necessary, and of course taking into consideration the particular causes of each obligated party, the promotion of an indirect amparo proceeding.