In 2011, following a trend permeating all areas of law, including tax, the Mexican Congress amended the Mexican Constitution to include rules for the constitutional protection of human rights. (See amendment to the Constitution published in the Federal Official Gazette on June 10, 2011.) With the aim to protect the taxpayer's rights, a legal amendment created the Attorney General's Office for Taxpayers' Defense (Procuraduría para la Defensa del Contribuyente or Prodecon for its Spanish acronym). This governmental agency acts as a tax ombudsman, protects the taxpayers' rights and prevents arbitrariness from the Mexican Tax Administration Service (Servicio de Administration Tributaria, the MX Service).
Prodecon initiated operations on 1 September 2011, offering taxpayers an alternative mechanism to solve tax disputes with the MX Service, acting as a mediator and guaranteeing the taxpayers' rights. Today Prodecon helps taxpayers and the MX Service to reach agreements and settle tax disputes efficiently. With the entry of the new Government, there is a public concern about Prodecon's continuity.
Taxpayers have these options before Prodecon: (i) file a complaint for a violation of their rights as taxpayers; (ii) request a conclusive agreement procedure that is a form of mediation; and (iii) request a ruling regarding a specific tax situation. This article will focus on the conclusive agreement option. Articles 69-C to 69-H of the Mexican Federal Tax Code and Prodecon's guidelines govern the procedure and application of the conclusive agreement.
The conclusive agreement is an alternative tax dispute mechanism for taxpayers subject to a tax audit, with the aim to reach a conciliation agreement with the Service. Prodecon assists both parties as mediator.
Tax audits in Mexico usually last twelve months, and sometimes can extend from eighteen months to two years. During the audit, the MX Service reviews the taxpayer's compliance with its tax obligations. After the audit period, the MX Service may, within six months, issue a deficiency tax assessment (including deficiency tax, fines, inflationary adjustment and surcharges), depending on the results obtained in the audit. The fines range from 55% to 75% of the deficiency tax.
If the MX Service issues a deficiency assessment, the taxpayer has these conventional legal remedies: (i) file an administrative tax appeal for reconsideration where the legal department of the MX Service hears and decides the appeal; or (ii) file a nullity appeal before the Federal Court of Administrative Justice. In the nullity appeal, the taxpayer must post a bond or other security to guarantee the payment of the deficiency assessment in the event of an adverse resolution against the taxpayer. Besides those two legal remedies, taxpayers have the option to file a request for a conclusive agreement before Prodecon.
Prodecon issues the conclusive agreement. Prodecon, the taxpayer and the Service sign the agreement. Thereafter, the taxpayer pays the deficiency amounts established in the agreement (if any) and the MX Service closes the audit based upon the agreement. The conclusive agreement procedure has these advantages over the conventional remedies:
1. Term. A conclusive agreement takes approximately from four to nine months, compared to two to four years for a final resolution in a nullity appeal.
2. Saving. It saves legal advisor and accountant fees because the conclusive agreement takes less time and involvement of legal and accounting professionals.
3. Bond. It saves the cost of the nullity bond, since the taxpayer need not guarantee the deficiency assessment in the conclusive agreement procedure.
4. Fines pardon/cancelation. With the conclusive agreement, taxpayers can reduce up to 100% of the fines.
5. Suspension of terms. With the conclusive agreement all the terms of the audit are suspended until the conclusive agreement procedure is completed.
6. Collection. The conclusive agreement procedure also helps increase the tax revenue collection, because the collection is achieved in less time and the personnel and material resources used by the Service in obtaining such collection are better managed.
Thanks to the conclusive agreement procedure, taxpayers are in a better position during a tax audit. Prodecon's support guarantees the protection of taxpayers' rights and prevents arbitrariness by the Service, especially regarding the application of the substance over form rules.