Interview with Mauricio Martínez D´Meza, S-LATAM Tax Controversy Leader, Deloitte Mexico
1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
Mexico
A judicial reform recently passed and enacted by the new Administration provides for an election process for the country´s judges, magistrates, and justices. This election will take place during the next two years, with half of them being elected by mid-2025 and the other half by mid-2026. there are concerns as to whether an election process, which has very open application criteria, will find candidates with appropriate qualifications for such important posts.
The reform also creates a new oversight body for these new judges, which will review the technical merits of any and all decisions they issue, which could impact their independence. Members of this oversight body will be elected by Congress
Argentina
Changes in the past 12 months include the Tax Amnesty Regime introduced by Law 27,443, including an Asset Regularization Regime, among other tax reforms. Additionally, Law 27,442, known as Bases and Starting Points for Argentine's Freedom (known as “Ley Bases”), establishes an Incentive Regime for Investments (called “RIGI”) exceeding US$200,000,000 across various industries such as mining, oil & gas, steel, energy, tourism, forestry, technology, and infrastructure. Furthermore, Ley Bases encompasses structural changes to labor law, concessions, administrative procedures law, the energy federal regime, and a state reform aimed at reorganizing the Administrative Body, privatizing certain state-owned companies, and modifying public employment law.
Colombia
On 22 May, the Ministry of Finance issued Decree 659 of 2024, which partially amended Decree 1165 of 2019. This update aims to align customs regulations with the current realities of operations and improve the country's logistical performance in accordance with the National Logistics Policy and recommendations from the National Planning Department.
This Decree introduces significant changes in several areas, including Customs Agencies, Primary Customs Zones, Import Regime, Tariff Classification, and Free Trade Zones. Additionally, it establishes new provisions for handling seized, confiscated, and abandoned goods, among other topics. These modifications are intended to optimize customs procedures and enhance logistical efficiency in Colombia.
2. What has been the most significant impact of that change?
Mexico
As the changes have not been implemented yet, one can only foresee their impact in the coming years, and this will be highly dependent on the Judges appointed through the new process
Argentina
From an economic perspective, granting investments a special regime that provides certainty and stability to the investor seems to be paying off. The current expectations indicate a growing economy, largely due to investments in sectors such as oil & gas, lithium, and steel. Despite these being long-term investments, they are expected to significantly boost the employment ratio and help Argentina improve its trade balance.
Additionally, the tax measures implemented support the current government's budget, allowing for the execution of various structural changes. It is important to note that the deficit-zero policy appears to be non-negotiable for the current government.
Colombia
Decree 659 of 2024 introduces significant changes to Colombia's customs regime, particularly the mandatory submission of an Advance Declaration for all import operations at least 48 hours before the arrival of goods. This requirement also applies to Authorized Economic Operators (AEO) with some exceptions, including imports from Free Trade Zones and urgent shipments. Non-compliance will result in fines and potential seizure of goods, while late submissions will incur reduced fines if promptly addressed.
The decree also enforces the submission of Advance Entry Declarations for goods entering Free Trade Zones and related transfers, with non-compliance resulting in fines. Additionally, shipment authorization requests are required for operations from Free Trade Zones to the rest of the world, serving as proof of internationalization plan commitments. Other modifications include new definitions, adjustments to consolidated customs duty payments, and categorized obligations from Decree 920 of 2023. The decree will partially come into force on 6 June 2024, with some provisions dependent on updates to the DIAN's electronic system.
3. How do you anticipate that change impacting your work and the market moving forwards?
Mexico
Refocussing tax controversy to avoid litigation and seek administrative resolution of disputes may help mitigate concerns over a novel and unproven judicial process. Also, alternative means of conflict resolution will play a bigger role, when applicable, i.e., Mutual Agreement Procedures.
Therefore, we believe that the need for services involving discussions with the tax authorities prior to litigation will increase.
Argentina
In light of recent changes to tax legislation in Argentina over the past 12 months, we have seen an increase in client inquiries regarding the Tax Package, including the Tax Amnesty and the Assets Regularization Regime. These legislative changes have also led to several matters, such as inflation adjustments concerning Income Tax, Aporte Solidario y Extraordinario, and some complex issues in Transfer Pricing, included in the Tax Amnesty.
Furthermore, the market and our advisory services have been impacted by the Incentive Regime for Investments (RIGI). This regime requires us to provide comprehensive advisory services to our clients, not only in tax matters but also in structuring the special vehicle needed to carry out the investment. This includes legal, financial advisory, risk, compliance, and accounting perspectives.
Several advisory opportunities emerged due to the recent reforms in employment law. These changes are opening new areas where we can provide valuable guidance and support to our clients. We believe that by staying ahead of these developments, we can position ourselves as trusted advisers and enhance our service offerings to keep on delivering exceptional value to our clients.
Colombia
The implementation of Decree 659 of 2024 is expected to significantly enhance Colombia's competitiveness in international trade. By aligning the customs regulations with modern operational realities and improving logistical performance, the decree aims to create a more efficient and streamlined customs process.
For businesses, this means reducing bureaucratic hurdles and potentially lowering costs associated with importation. The introduction of updated and clear guidelines for Customs Agencies, Primary Customs Zones, Import Regimes, and Tariff Classifications will facilitate smoother and faster clearance of goods. This efficiency will likely attract more international businesses to consider Colombia a viable market for importing and exporting goods.
4. How has this changed the way you offer tax advice?
Mexico
Tax advice will need to consider a more hazardous litigation environment and focus on compliance services to strengthen taxpayers’ positions prior to being audited, such as the creation of defense files, tax due diligences, double-checking on business reasons, and adequate evidence of transactions with tax implications.
Argentina
The new economic and political landscape has altered our approach to offering tax advice. It's interesting to note that it's not merely the reforms themselves that are influencing our strategies, but rather the changing environment and the emerging demands from taxpayers. Taxpayers are now seeking solutions to long-standing challenges they've faced over the past 15 years. These include issues like accruing tax credits, the inability to apply the inflation adjustment mechanism outlined in the Income Tax law, and various restrictions on intercompany debt payments, imports, and dividend payments to shareholders. Given these complexities, we find ourselves in a position where creativity is paramount. Our goal is to provide innovative solutions that comply with the applicable laws, adding significant value to our clients.
Colombia
The implementation of Decree 659 of 2024 has significantly influenced the approach to providing tax advice, particularly in the context of customs and international trade. Here are several ways in which tax advisory services have adapted to these changes:
- Enhanced Focus on Compliance: With the introduction of Advance Declaration for imports, tax advisory services now place a greater emphasis on ensuring clients understand and comply with these updates.
- Streamlined Procedures and Documentation: The decree’s aim to streamline customs processes necessitates that tax advisers guide clients through the new, more efficient procedures. This includes helping clients prepare and submit the required documentation accurately and timely, thereby minimizing the risk of penalties and delays.
- Risk Management and Penalty Avoidance: Given the new sanctions for non-compliance, tax advisers now play a crucial role in helping clients identify potential risks and implement strategies to mitigate agains fines and seizures of goods. This involves a thorough review of clients' import operations and approach to ensuring all declarations are submitted within the stipulated timeframes.
- Strategic Planning for Import Operations: The updates to the Import Regime and Tariff Classifications require advisers to offer more strategic guidance on optimizing import operations. This includes advising on efficient routes and methods for importing goods, leveraging Free Trade Zones, and taking advantage of any new benefits or incentives introduced by the decree.
- Adaptation to Technological Changes: The decree’s dependence on updates to the DIAN's Integrated Electronic System means that tax advisers must stay abreast of technological advancements and ensure clients are equipped to handle electronic submissions and data management effectively. This may involve recommending specific software solutions or platforms that facilitate compliance with the new electronic requirements.
- Tailored Advisory Services: Recognizing that different businesses will be affected in various ways by the decree, tax advisers are now offering more tailored services. This could involve sector-specific advice, customized compliance checklists, and personalized training sessions to address the needs of each client.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Mexico
The new Administration has confirmed it will not pursue a substantive tax reform (no new taxes), instead anchoring the collection results in the Tax Administration´s audit effectiveness. This hints at the possibility of strengthening the Administration´s auditing powers, but this remains to be seen in the near future.
This could also mean that tax laws may be amended to limit further the use of certain tax attributes, such as deductions, tax credits, and NOLs.
Argentina
Given the robust and structural package of reforms that Milei's government achieved in Congress, despite not having a majority, it is to be expected that there will be no major reforms until the midterm elections in mid-2025. During these elections, half of the seats in the National Congress will be contested once again. However, changes are anticipated, particularly concerning lifting the exchange restriction and the crawling peg that currently regulates the devaluation of the currency. Although there is no accurate information available at this time, changes are expected depending on the economic evolution between now and March 2025. Please note that the Open, Simultaneous and Mandatory Primary (PASO) elections are scheduled for 3 August 2025, while the general elections will take place on 26 October.
Colombia
Through the Ministry of Finance and Public Credit, the national government presented a Tax Reform bill to Congress. This proposed legislation aims to modify several key aspects, including, among others, (i) a gradual reduction in the corporate income tax rate; (ii) the exclusion of VAT for services of hotels, vacation centers, and other types of accommodation in municipalities with less than 200,000 inhabitants; (iii) exemption of VAT for equipment, elements, machinery, and national or imported services destined for pre-investment and investment for the production and utilization of electric energy through non-conventional sources; (iv) modifications to the minimum income tax, the rate of which will increase from 15% to 20% and will apply to taxpayers who determine fiscal losses; (v) reintroduction of the wealth tax for national companies and permanent establishments of foreign entities; (vi) Increase the occasional gains tax rate from 15% to 20%.
6. What are the potential outcomes that might occur if those changes are implemented?
Mexico
Tax authorities may feel empowered to be much more assertive in their investigations.
In practice, there are already indicators of this approach, both in the conduct of tax audits and reacting to taxpayer´s private ruling requests.
Argentina
We will have to wait to see how the political spectrum moves depending on the economic outcomes by March and PASO results, but the market is expecting lower rates of inflation and the release of the exchange restriction to buy foreign currency and pay imports, dividends, intercompany debts, etc.
Colombia
It is possible that Congress may not approve the bill this year. If that is the case, it will be presented again next year.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Mexico
As long as alternative means of conflict resolution are available, tax controversy services should remain in high demand, especially from global tax firms that can interact internally to render such services (cross-country). In instances where these means of resolution are available, tax controversy services should become more relevant when rendering tax advice since the stakes of a possible controversy will also be higher.
As mentioned above, pre-litigation services will also be in higher demand.
Argentina
Whatever other changes may occur besides the ones that already took place will most probably have a positive effect on our practice, as any change in the tax legal framework or even a change of criteria regarding certain matters may imply a higher demand for advisory services on controversial matters that may result in tax controversy case with the federal tax authority ARCA.
Colombia
Overall, while some of the proposed changes may present challenges, they also offer opportunities for professional services firms to provide valuable guidance and support to clients navigating the new tax landscape.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
Mexico
It would be advisable to include, as part of the reform package, safeguards to the appeal process and the strengthening of the taxpayers´right, vis-à-vis, the judicial reform.
Argentina
While it is great that RIGI has been approved, promoting and granting benefits to investments higher than US$200,000,000, it might be worth updating the Ley de Economía del Conocimiento n° 27,506. This law could provide further support and incentives to industries in our current economic landscape.
The refund processes for tax credits and the interest rate paid to taxpayers seem to be something that should be reviewed by Congress and the tax authority. A specific period in which the taxpayer can get an answer to its refund request would be a welcome inclusion in the Tax Procedure Law 11,683 or in the appropriate resolution. Nowadays, once the taxpayer submits a refund, he/she cannot know how many years it will take to get refunds for payments in excess of the tax due or withholdings in excess of the tax due.
Colombia
Months ago, a bill was presented to Congress to amend Law 1563 of 2012 to authorize arbitration as a mechanism for resolving tax and exchange conflicts. The initiative aims to address the issue of delays in resolving these disputes and to respond to justified complaints against the administrative contentious jurisdiction. However, the bill was not processed because it stipulated that the possibility for a taxpayer to apply or not the arbitration agreement had to be approved by the tax authority, which violated the principles of voluntariness and empowerment, thus freezing the process in Congress. It would be very positive for this matter to be revisited and for the necessary modifications to be made to the bill so that it can finally be approved.
9. How do you believe those changes would help improve the tax landscape in your market?
Mexico
Adequate and fair tax settlements with the tax authorities should be favored, as opposed to always pushing for litigation. If the taxpayer is able to clearly and efficiently discuss its tax positions with the tax authority, tax collection will increase through self-correction, while not making litigation as pivotal as it has been so far.
Argentina
Updating Ley de Economía del Conocimiento n° 27,506 and any other benefits regime at a provincial level should promote an increase in tech entrepreneurs and tech companies, leading to increased investment in such types of companies.
Regarding the tax refund processes, it seems fair and constitutional to expect to timely refunds and to get an interest calculated over a market interest rate. If the tax authority puts taxpayers in a situation of unresolved status, brings uncertainty for taxpayers could discourge investors, especially when the Argentinian currency is exposed to inflation and devaluation. A correction of the interest rate and clarity on the time it will take to get an answer from the tax authority improve the relationship with taxpayers, in addition to being their constitutional right.
Colombia
The introduction of arbitration as a mechanism for resolving tax disputes could significantly improve the tax landscape by providing a faster and more efficient way to resolve conflicts. This would reduce the backlog of cases in the administrative contentious jurisdiction and provide taxpayers with a more streamlined and reliable process for addressing their tax issues.
10. How are issues surrounding the taxation of the digital economy affecting your work?
Mexico
It has required tax professionals to increase their technical knowledge on the matter and become more comfortable in discussing technology in taxes, but also to become familiar with said technology to foresee the evolution of this type of economy. Also, developing the necessary expertise vis-à-vis indirect taxes is a must.
Argentina
Some concerns have been raised regarding the varying criteria that different provinces are using to tax the digital economy. These differences can lead to the same income being taxed multiple times, which is understandably troublesome for our clients. A specific concern that has emerged is the allocation of income and expenses for calculating the distribution rate within provinces for Turnover Tax purposes. This is a critical concern for taxpayers as it directly impacts their tax liabilities.
This situation presents us with a valuable opportunity to offer our clients proactive advice on the applicable tax treatment and the potential risks associated with the chosen criteria. Furthermore, we can provide tax controversy services to those clients facing tax assessments from one province after already having paid taxes in another province that also claims legitimacy to tax the same income. This also applies to taxes at a federal level or even a municipal level.
Colombia
Colombia is facing its own set of challenges regarding the taxation of the digital economy. Recently the Ministry of Finance issued Decree 2039 of 2023 regulating the new Article 20-3 of the Tax Statute (“E.T.”), introduced by Law 2277 of 2022, which creates the taxation figure (regarding income tax) by Significant Economic Presence (“SEP”). Non-residents can establish a Significant Economic Presence (SEP) in Colombia if they (i) obtain gross income of at least 31,300 UVT (around USD$300,000) during 2023 or 2024 and (ii) interact deliberately and systematically with the Colombian market (e.g., engaging with 300,000+ customers/users in Colombia or allowing payments in COP$). Income from sales of goods and services covered from abroad by non-residents with SEP is considered national and subject to income tax in Colombia. Taxpayers with SEP can choose to (i) file an annual return and pay a 3% tax on gross income (with additional obligations, including bi-monthly advance payments at 2% of gross income) or (ii) subject their income to a 10% withholding tax (without additional formal obligations), but must still file a return if withholding does not apply.
11. How would you describe the tax authorities’ approach in your region/jurisdiction?
Mexico
Based on all the above, we expect an increase in the number of tax audits and in the type of interpretations and positions the tax authorities will discuss with the taxpayer. Also, since tax collection will remain one of the main sources of financing for this Administration, we can certainly expect the Tax Administration to increase its efforts in securing high amounts of collection in a short period of time through tax audit settlements.
Argentina
In Argentina, tax authorities usually tend to have three or four regular topics to trigger a tax assessment. The new federal government is trying to refresh the image citizens have of the federal tax authority, but at a provincial or municipal level, it is unclear whether the policy objective is being achieved. . A change to the Federal Redistribution Regime is needed, but there are no concrete projects under study by Congress.
Colombia
In Colombia, the tax authorities have adopted a proactive and increasingly stringent approach to tax compliance and enforcement. The Dirección de Impuestos y Aduanas Nacionales (DIAN) has intensified its efforts to enhance tax collection and reduce evasion, leveraging advanced technology and data analytics to identify non-compliance and conduct audits more efficiently. This includes the use of electronic invoicing and real-time reporting mechanisms to ensure greater transparency and traceability of transactions.
Additionally, DIAN has been focusing on strengthening international cooperation and information exchange with other tax authorities to combat tax evasion and avoidance on a global scale. This cooperative stance is part of Colombia's adherence to international frameworks such as the OECD's Base Erosion and Profit Shifting (BEPS) project.
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