LC y D Miguel Ángel García Piña
LC y D, MBA, MGM Jesús Aldrin Rojas M.
A latent risk for taxpayers is the classification of their transactions with related parties as simulated transactions, which may have implications, including criminal liability. This study examines the scenarios in which taxpayers may find themselves in such circumstances and provides recommendations on the matter.
Introduction
In the 2022 Fiscal Reform, Article 42-B was incorporated into the Federal Tax Code (CFF), complementing the amendment made to Article 177 of the Income Tax Law (LISR), which has been in effect since 2020. This provision establishes scenarios in which tax authorities can determine the simulation of legal acts in transactions between related parties.
These modifications must be carefully analyzed by taxpayers to avoid falling within the legal or factual situations outlined by the legislator. Tax authorities must also adhere to the specific rules stipulated in this relatively new provision.
Analysis
For the purposes of analyzing this regulation, it is essential to understand the concept of a “legal act.” From a doctrinal perspective, Professor Rafael Rojina Villegas defines it as follows: “A legal act is a manifestation of will made with the intention of producing legal consequences, which are recognized by the legal system.”
Regarding the legal consequences mentioned in the previous definition, Article 1792 of the Federal Civil Code (CCF) states:
Article 1792. An agreement is the accord between two or more persons to create, transfer, modify, or extinguish obligations.
Additionally, Article 1793 of the CCF establishes:
Article 1793. Agreements that create or transfer obligations or rights are called contracts.
In this sense, legal acts can take the form of agreements or contracts, among others. Based on the above, Articles 42-B of the CFF and 177 of the LISR define the scenarios in which tax authorities may determine the simulation of legal acts (contracts or agreements) in transactions between related parties.
When related parties within a corporate group enter into a contract (whether implicit or explicit), they become subject to potential review by tax authorities. That is, the mere act of agreeing to obligations or rights between related parties, under this new provision, could trigger an assessment of whether the transaction constitutes a simulated act to the detriment of tax collection in the country.
Regarding what constitutes simulation, Article 2180 of the CCF states:
Article 2180. A simulated act is one in which the parties falsely declare or confess to something that has not actually occurred or was not agreed upon.
It is important to clarify that there are two types of simulation, as outlined in Article 2181 of the CCF:
- Absolute simulation occurs when the simulated act is entirely fictitious.
- Relative simulation occurs when a legal act is given a false appearance that conceals its true nature.
To illustrate, consider the following scenarios:
- The mere establishment of obligations and acquisition of rights at a contractual level implies that contracting parties must engage in specific activities (functions), use resources (assets), or assume risks associated with the transaction.
- If parties acquire obligations and rights through a contract but fail to execute the associated functions, use the necessary assets, or assume the expected risks, either completely or partially, this may lead to a scenario of either absolute or relative simulation.
For example, suppose a company undergoes a corporate restructuring, but its organizational structure remains unchanged afterward, despite a significant reduction in its taxable base. Would this constitute relative simulation, as the restructuring was contractually agreed upon but did not result in actual changes in functions, assets, or risks?
Similarly, what if a taxpayer is required to pay royalties for the alleged use of intangible assets, but the licensor has no prior record of research and development expenses, and the licensee cannot provide evidence that the royalty payment has increased its revenue or provided any benefit? Would this be an absolute simulation, even though the licensor registered the intangible asset but, in reality, no such asset exists?
Another case could involve administrative services that do not align with the contractual obligations yet require full payment of compensation, reducing the taxable base of the service recipient. Would this be an absolute or relative simulation?
To prevent falling into such scenarios, contracts governing transactions between related parties must specify factual circumstances, clearly outlining obligations, rights, and the allocation of assets, functions, risks, and compensation assumed by each party. Additionally, these elements must be traceable to the costs, expenses, and subsequent deductions they generate.
Furthermore, for tax authorities to determine that a legal act is simulated, they must do so within their verification powers and issue a resolution that is duly substantiated and reasoned, which must include:
- Identifying the simulated act and the actual transaction.
- Quantifying the tax benefit obtained through the simulation.
- Indicating the elements used to determine the existence of simulation, including the parties’ intent to simulate the act.
Unfortunately, the third-to-last paragraph of Article 42-B of the CFF states that tax authorities may rely on presumptive elements, among others. Therefore, close attention must be paid to how these elements are substantiated and justified.
Additionally, it is essential to consider that if tax authorities determine the existence of simulation, this will be initially treated as a fiscal matter. However, simulating a legal act is also a criminal offense equivalent to tax fraud, as stipulated in Article 109, Section IV, of the CFF. This raises the question: How could an official refrain from reporting such acts if they may constitute a crime, given that they are obligated to do so under the second paragraph of Article 222 of the National Code of Criminal Procedure (CNPP)?
Final Comment
In summary, following the 2022 Fiscal Reform, special attention must be paid to contracts governing transactions between related parties.
It is necessary to ensure that the contract is the appropriate legal instrument, explicitly stating the assets, functions, risks, and compensation that each party will assume. This way, when tax authorities review the contracts within their verification powers, they will have no doubts that these are legitimate transactions and not simulated ones, as specified in Article 42-B of the CFF in relation to Article 177 of the LISR.
Failure to do so could place taxpayers operating under transfer pricing regulations in an extremely high-risk situation or even jeopardize their ability to conduct business.
