Interview with Mauricio Martínez D´Meza Violante, Spanish-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?

There have been some political changes in various countries in the region, which have resulted in a new view of tax policies moving towards higher taxation of high-income individuals/entities and the creation of subsidies to less favored sectors of the population.

2. What has been the most significant impact of that change?

Public spending is being channelled to new government programs, and there are fewer subsidies for medium to large taxpayers.

Tax collection derived from tax audits is also on the rise to support public spending that is not necessarily funded by existing levels of tax collection.

3. How do you anticipate that change impacting your work and the market moving forwards?

Since governments will require improved tax collection to fund their policies, tax audits are increasing both in number and depth.

For professional services providers, this leads to an increase in engagements to advise on handling tax audits and other administrative processes, i.e., tax refunds, the negotiation process, and, in some cases, eventually, litigation.

4. How has this changed the way you offer tax advice?

Tax authorities in the region are shifting more to a substance-over-form approach and are highlighting concepts like materiality and business reasons in their challenges to taxpayers’ positions, in addition to increasing the pursuit of tax fraud charges. As a result, tax advice needs to be centered on making sure the outcome is fully supported and documented so that a defense file including all relevant documents and information is readily available to demonstrate, for example, that business operations have substance, deductions claimed have a direct link to the taxpayer´s trade or business, and cannot be construed as tax fraud.

5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?

There is always the possibility of taxing other forms of income, i.e., estate taxes. Also, tax authorities are always trying to shift some level of burden to tax advisers, so we can expect these trends to continue.

Furthermore, we can expect legislation to strengthen the tax authorities´ powers further in terms of audits and voluntary disclosure or taxpayer self-correction requirements.

Finally, some countries are looking at tax fraud considerations.

6. What are the potential outcomes that might occur if those changes are implemented?

Taxpayers will continue searching for valid and tax-effective estate and patrimony arrangements.

Tax advisers will continue to evolve in terms of how they deliver responsible and sound advice and manage their own exposure to the increasing expectations placed on them by tax authorities.

Finally, taxpayers may either strengthen their in-house tax departments and/or be more likely to engage outside counsel/advisers earlier in a tax audit process or a more in-depth inquiry.

7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?

Definitely. We expect clients to engage tax controversy specialists more and for these types of services to become both more relevant and to add much more value to the client.

8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?

We believe it is imperative to strengthen the Courts independence from the Executive Branch and also for countries to promote the creation of tax ombudsperson offices throughout the region to support the taxpayers´ pursuit of amicable and fair closure of tax matters with their tax authorities.

Also, further communication channels between the tax authorities and taxpayers should be promoted, for example, ruling processes, negotiation processes, and self-correction programs, which should both boost fair tax collection and a better, more efficient relationship between taxpayers and their governments.

9. How do you believe those changes would help improve the tax landscape in your market?

It should foster a more responsible approach by taxpayers vis-à-vis their obligations and make the tax authorities more mindful of the appropriate use of their collection powers. This would focus efforts on solving real and valid tax discrepancies rather than overwhelming both the tax authorities and the Courts with unnecessary tax controversy cases.

In theory, the fairer a tax system is, and the fairer the tax authorities treat taxpayers, the less inclined taxpayers will be to underpay tax or pursue aggressive tax planning.

Also, a more independent Court system creates more certainty, both for taxpayers and Tax Administrations, that a valid position will be upheld, which results in a more efficient tax auditing system.

10. How are issues surrounding the taxation of the digital economy affecting your work?

It varies from country to country depending on the level of sophistication of the applicable tax legislation, but, in any event, it is changing the way taxpayers and authorities view concepts such as supporting documentation, materiality, source of income, and taxation rights, among others.

It is fair to believe that this might be the single most influential element in the taxpayer-tax authority relationship in the near future.

11. How would you describe the tax authorities’ approach in your region/jurisdiction?

In general, the tax authorities´ approach in the LATAM region is aggressive and focused on specific trending issues in terms of their audit programming criteria. A concerning trend is the huge assessments being issued to pressure the taxpayer to make a settlement.

Also, since most countries do not have a permanent civil service in many parts of their Tax Administrations, regular changes in personnel and policies are common, which results in the taxpayer having to adjust constantly to the current Tax Administration changes in focus/policies/operation.



This document has been prepared solely for the purpose of publishing in the
2024 ITR World Tax Guide and may not be used for any other purpose. This
document and its contents may not be reproduced, redistributed or passed
on, directly or indirectly, to any other person in whole or in part without
Deloitte’s prior written consent.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited
(“DTTL”), its global network of member firms, and their related
entities (collectively, the “Deloitte organization”). DTTL (also referred
to as “Deloitte Global”) and each of its member firms and related
entities are legally separate and independent entities, which cannot
obligate or bind each other in respect of third parties. DTTL and each
DTTL member firm and related entity is liable only for its own acts
and omissions, and not those of each other. DTTL does not provide
services to clients. Please see www.deloitte.com/about to learn more.

Deloitte provides industry-leading audit and assurance, tax and legal,
consulting, financial advisory, and risk advisory services to nearly 90% of the
Fortune Global 500® and thousands of private companies. Our people deliver
measurable and lasting results that help reinforce public trust in capital
markets, enable clients to transform and thrive, and lead the way toward a
stronger economy, a more equitable society, and a sustainable world. Building
on its 175-plus year history, Deloitte spans more than 150 countries and
territories. Learn how Deloitte’s approximately 457,000 people worldwide
make an impact that matters at www.deloitte.com.

This communication contains general information only, and none of
Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of
member firms or their related entities (collectively, the “Deloitte
organization”) is, by means of this communication, rendering
professional advice or services. Before making any decision or taking
any action that may affect your finances or your business, you should
consult a qualified professional adviser.

No representations, warranties or undertakings (express or implied)
are given as to the accuracy or completeness of the information in
this communication, and none of DTTL, its member firms, related
entities, employees or agents shall be liable or responsible for any
loss or damage whatsoever arising directly or indirectly in connection
with any person relying on this communication. DTTL and each of its
member firms, and their related entities, are legally separate and
independent entities.

© 2023. For information, contact Deloitte Global.