The views expressed in this article are those of the authors and do not constitute legal advice. Readers should consult qualified tax and M&A counsel in connection with specific transactions.
Abstract
Mexico’s Federal Tax Code (Código Fiscal de la Federación, or CFF) provides for a tax liability of an acquirer in an acquisition of a going concern (adquisición de negociación) for taxes attributable to the activities carried out in the business when it belonged the transferor.
Mexico's 2022 tax reform introduced a rebuttable presumption into the CFF enabling the tax authorities to treat certain asset transfers as acquisitions of a going concern. When triggered, the presumption exposes the acquirer to liability for taxes owed by the transferor in connection with the prior operations of the transferred business. . While the reform was designed to combat tax evasion schemes involving informal transfers of ongoing businesses to newly formed entities, its broadly drafted criteria (nine factual indicators ranging from shared suppliers to overlapping employees) risk capturing bona fide asset purchase transactions routinely used in mergers and acquisitions. This article examines the legislative history behind the presumption, analyzes each of the nine statutory triggers, and offers practical guidance for structuring asset deals in an attempt to mitigate the exposure for acquirers.
I. Introduction
Asset deals are a cornerstone of M&A practice in Mexico. A buyer may acquire specific assets (e.g., equipment, real estate, intellectual property, or inventory) rather than shares for reasons that include isolating legacy liabilities, avoiding dealing with minority shareholders, achieving a stepped-up tax basis, or complying with antitrust remedies. However, since January 1, 2022, any such transaction must be evaluated against a new rebuttable presumption in the CFF, which establishes that a transfer of assets may be deemed an acquisition of a going concern, thereby triggering liability for the acquirer with respect to the taxes attributable to the business operations when they belonged to the seller.
The significance of this provision for M&A practitioners cannot be overstated. Under the CFF, liability attaches to the acquirer of a going concern for taxes that accrued while the business was in the hands of the seller, capped at the value of the business itself. The 2022 reform did not modify this longstanding rule; rather, it added a new evidentiary mechanism, a statutory presumption, that allows the Mexican Tax Administration Service (Servicio de Administración Tributaria, or SAT) to assert that a given transaction constitutes the acquisition of a going concern based on circumstantial evidence, even absent a formal title or instrument documenting the transfer of a business as a whole.
With no statutory safe harbor rules upon which acquirers can rely to eliminate the tax risk, their aspirational goal should be obtaining a defensible level of comfort concerning their tax exposure, which will vary depending on the factual specifics of each case.
This article proceeds in three parts. Part II reviews the legislative history of the reform, identifying the policy objectives that motivated the presumption and assessing whether the legislature intended it to apply to ordinary M&A transactions. Part III analyzes each of the nine factual triggers and discusses how asset deals can be structured to mitigate the risk of presumption. Part IV offers practical recommendations for transactional counsel.
II. Legislative History and Policy Rationale
A. The Federal Executive's Initiative
On September 8, 2021, the Federal Executive submitted to the Mexican Congress an omnibus tax reform initiative as part of the 2022 Economic Package. The initiative's explanatory memorandum (exposición de motivos) identified a specific practice that the tax authority had detected in the field: certain taxpayers were incorporating new entities for the purpose of transferring an ongoing business without any title or instrument documenting the acquisition. The Executive explained that this practice had as its purpose the evasion of tax obligations and restrictions imposed by the tax authorities, while allowing the business to continue operating under a different legal entity.
Critically, the initiative noted that a going concern (negociación) is comprised of "a set of elements of diverse nature, reducible to capital or labor, dynamically organized to produce goods or services for the market," including intangible assets such as industrial or intellectual property rights, movable and immovable property constituting fixed assets, and infrastructure, among others. The Executive further clarified that establishing the existence of an acquisition of a going concern did not require the succession of all personal and material elements; rather, it sufficed that some of them be transferred in a manner that permitted the conclusion that the business continued its operations through a different person.
On this basis, the initiative proposed adding a second paragraph to Section IV of Article 26 of the CFF, setting forth nine factual circumstances under which the tax authority could presume the existence of an acquisition of a going concern, absent evidence to the contrary.
B. Committee Reports; Floor Debates
The committees of both chambers responsible for preparing reports (dictámenes) on the bill endorsed the Executive's proposal. . The committees’ report reproduced the rationale of the explanatory memorandum, without introducing any significant modifications to the bill or adding any substantive arguments to the discussion.
Both the Chamber of Representatives and the Senate devoted their plenary debates primarily to other components of the 2022 tax reform package. No specific debates on the floor of either chamber addressed the addition concerning the presumption of acquisition of a going concern.
The absence of floor debate on this provision is notable. While it does not necessarily indicate that legislators regarded the presumption as uncontroversial, it does suggest that the reform was viewed primarily as a targeted anti-evasion measure rather than a structural change to the rules governing asset acquisitions in M&A.
C. Implications for M&A Transactions
Four key conclusions emerge from the legislative history:
First, the reform was conceived as a targeted response to a specific tax-evasion pattern: the informal transfer of ongoing businesses to newly formed entities in order to circumvent tax obligations and enforcement actions. The nine statutory triggers were intended to identify circumstances indicative of such transfers.
Second, the statutory language is nevertheless broad. The nine triggers are not limited to fraudulent or simulated transactions, and the presumption arises whenever the tax authority "detects" that the transferor and the acquirer meet any one of the listed criteria. This means that a properly documented, commercially motivated asset deal could fall within the scope of the presumption.
Third, the inclusion of the phrase "subject to evidence to the contrary" (salvo prueba en contrario) is a critical safeguard. While the presumption shifts the burden of proof to the acquirer, it does not preclude rebuttal. This allows the acquirer to demonstrate that the transaction was not, in substance, an acquisition of a going concern. This is a key component of any defense file, as we will see later on in this paper.
Fourth, the legislative history's emphasis on "business purpose" (razón de negocios) as a broader theme of the 2022 reforms, provides a useful interpretive framework. The reform package as a whole was animated by a concern that corporate restructuring mechanisms were being exploited for tax avoidance; demonstrating genuine business purpose is therefore a powerful tool for distinguishing legitimate asset purchases from the evasion schemes the legislature sought to target.
III. The Nine Statutory Triggers: Analysis and Mitigation Strategies
The 2022 reforms establish that a rebuttable presumption of acquisition of a going concern arises when the tax authority detects that the transferor and the acquirer fall within any of the following nine circumstances.
(a) Partial or total transfer, through any legal act, of assets or liabilities between the parties
This trigger is inherently problematic for asset deals, as every asset purchase necessarily involves the transfer of assets from the seller to the buyer. The “partial or total” qualifier further deepens the problem, as it would in principle capture transfers of any assets, regardless of their relevance. Therefore, this trigger merits devoting the more substantial part of our analysis.
A tool that could help rebut this trigger lies in demonstrating that the assets acquired do not, as an ensemble, constitute a going concern organized for the production of goods or services. Transactional counsel should ensure that the asset purchase agreement identifies each asset individually which should also be reflected in the corresponding tax invoices, avoids references to the transfer of a "business unit" or "going concern," structures the transaction so that the seller's liabilities are not assumed (or, if assumed, are limited to those inherent to the acquired assets), and avoids the transfer of the entirety of the seller's productive assets comprising a complete line of business. More critically, the seller should be in a position to continue operating the original going concern even without the transferred assets.
Some of the guiding indications of deviation from the legal hypothesis include:
● Acquirer’s pre-closing business and seller’s preclosing business are substantially different;
● Acquirer is incorporating the assets to its own pre-closing business;
● Acquirer’s pre-closing business does not fundamentally change as a result of the incorporation of the acquired assets;
● The transferred assets, in themselves, when taken together, do not constitute a business line or a going concern;
● The transferred assets are not all or substantially all the assets of seller; and
● Seller is in a position to carry out its business post-closing in a substantially similar fashion as it did pre-closing.
While none of the above indicators (or even all of them) are conclusive, the more these indicators are met, the likelihood of rebutting the legal presumption increases.
(b) Partial or total identity of the persons comprising the governing body, as well as shareholders or stockholders with effective control
This trigger is activated when there is an overlap in the governing bodies or equityholders with effective control of both entities.
In arm's-length transactions between independent parties, this trigger will generally not be activated. However, it is essential to document the independence of the acquirer's governing body from that of the seller and to maintain clear corporate records establishing the shareholder composition and governance structure of both entities.
(c) Partial or total identity of legal representatives
The presumption is triggered when both entities share legal representatives.
The acquirer should designate legal representatives who are distinct from those of the seller. If transitional powers of attorney are required during a transition period, any such appointments should be temporary, clearly documented as such, and promptly revoked following completion of the transition period.
(d) Partial or total identity of suppliers
This trigger is activated when both entities share suppliers.
In practice, it is common for companies operating in the same industry or geographic region to share suppliers. To mitigate this risk, the acquirer should maintain contemporaneous documentation demonstrating that its supplier selection resulted from independent procurement processes, execute new supply agreements on its own commercial terms, and demonstrate that any overlap in suppliers is attributable to market conditions rather than operational continuity of the seller's business.
(e) Identity of tax domicile; location of branches, facilities, factories, or warehouses; or places of delivery or receipt of goods
The presumption arises when the acquirer uses the same tax domicile or facilities as the seller.
If the transaction includes the acquisition of real property that served as the seller's tax domicile or operational facilities, the acquirer should register a tax domicile change with the SAT and document that its occupancy of the premises derives from a specific commercial transaction (purchase or lease) rather than the absorption of a going concern.
Using the acquired premises for the same or a similar business to the one previously operated by the seller makes it more difficult to rebut the legal presumption.
(f) Partial or total identity of workers enrolled with the IMSS
This trigger is activated when workers previously enrolled by the seller with the Mexican Social Security Institute (Instituto Mexicano del Seguro Social, or IMSS) become part of the acquirer's workforce.
The hiring of the seller's former employees is one of the highest-risk factors under the presumption. To mitigate this risk, the acquirer should avoid hiring the entirety or a substantial majority of the seller's employees, avoid carrying out employer substitution (sustitución patronal) arrangements , conduct independent hiring processes, execute new individual employment agreements, and document that any employees hired from the seller were recruited based on their specialized technical qualifications and through open-market processes rather than as part of a business continuity arrangement.
(g) Identity of trademarks, patents, copyrights, or trade notices under which goods are manufactured or services are provided
The presumption is triggered when both entities use the same trademarks, patents, copyrights, or trade notices.
If the asset deal includes the acquisition of intellectual property, the acquirer should formally document the assignment or licensing of intellectual property rights through the appropriate legal instruments, including registration with regulators, and demonstrate that its use of the seller's trademarks or patents derives from a specific, arm's-length transaction rather than the informal absorption of a going concern.
(h) Identity of industrial property rights enabling the conduct of business activities
This trigger complements subsection (g) and refers specifically to industrial property rights that enable both entities to carry out their activities.
In addition to the measures described under subsection (g), the acquirer should seek to obtain its own licenses, permits, and regulatory authorizations rather than relying on the transfer or assignment of those previously held by the seller.
(i) Partial or total identity of fixed assets, facilities, or infrastructure used to carry out business activities
This trigger arises when the acquirer uses the same fixed assets, facilities, or infrastructure that the seller used for its operations.
To mitigate the risk of this presumption being triggered through the continued use of the seller's operational infrastructure (eg, by leasing the same facilities from the same owner) the acquirer should ensure that the contractual basis for use is strictly negotiated on arm's-length terms, under different conditions (eg, tenor, early termination, payment terms, etc.). More importantly, the acquirer should immediately establish a separate tax domicile and, whenever commercially viable, transition operations to distinct facilities to break the operational continuity link with the seller.
IV. Practical Recommendations for Transactional Counsel
A. Structuring the Transaction
The primary defensive strategy is to minimize the number of statutory triggers that are simultaneously activated. The concurrent activation of multiple triggers significantly strengthens the SAT's position. In keeping with the legislative intent, which targeted the informal transfer of entire ongoing businesses, the fewer operational elements shared between the transferor and the acquirer, the more difficult it becomes for the tax authority to sustain the presumption.
To this end, counsel should consider the following structural measures:
● The asset purchase agreement should precisely identify and individualize each asset being acquired. References to the transfer of a "business unit," "going concern," or "universality of assets" should be avoided, as they may inadvertently support the characterization that the legislature sought to address.
The acquirer should establish independent operational infrastructure, including its own tax domicile, management team, legal representatives, supplier relationships, and employee base, to the greatest extent commercially practicable.
● To the extent possible, document seller’s ability, as a representation in the asset purchase agreement together with any supporting documentation, to continue carrying out its business post-closing in a substantially similar fashion as it did pre-closing as well as a representation that the transferred assets are not all or substantially all the assets of seller;
● The acquirer should document the business rationale (razón de negocios) for the asset purchase, demonstrating that the transaction serves a legitimate commercial purpose distinct from the mere continuation of the seller's business. Business plans, market studies, board resolutions, and investment committee memoranda are valuable evidence in this regard.
B. Due Diligence
A comprehensive fiscal due diligence process is essential to identify potential sources of pre-closing tax liability attributable to the seller. However, careful consideration should be given to prima facie evidence of compliance (eg, to the SAT’s Opinion on Tax Obligations (Opinión de Cumplimiento de Obligaciones Fiscales)) since it could give rise to a false sense of complacency. A practical consideration is that the tax law is silent with respect to the allocation of tax contingencies in case a company has various business lines and just one is being transferred.
C. Contractual and Other Protections
The asset purchase agreement should include robust contractual protections tailored to the specific risks posed by the presumption of acquisition of a going concern, including those for the provision of the relevant tax and accounting documentation to the buyer in case it is audited as joint and several liable.
These protections are no different than the general protections of any other M&A deal (representations, indemnities, escrows, etc.) which are not worth delving into here, and may result insufficient to mitigate the tax liability risk.
Subject to their availability and affordability, non-traditional arrangements, like tax insurance, may provide additional protection against these situations.
D. Burden of Proof and Evidence Preservation
Because the presumption is rebuttable, the acquirer should assemble and preserve a comprehensive evidentiary file from the earliest stages of the transaction. Key elements of this file should include:
● the asset purchase agreement with detailed asset schedules and individualized valuations;
● independent appraisals of the acquired assets;
● a tax due diligence report prepared by independent tax advisors, although subject to its shortcomings;
● corporate documentation (board minutes, shareholder resolutions) evidencing the business rationale for the acquisition;
● the acquirer's own business plan demonstrating an autonomous business project;
● seller’s post-closing projections and business plans evidencing sufficiency of remaining assets to continue its pre-closing operations;
● employment records demonstrating independent hiring processes; and
● evidence of licenses and permits obtained independently by the acquirer.
V. Conclusion
The 2022 reforms to the CFF represent a significant development in Mexico's tax enforcement landscape.
While the legislative history makes clear that the presumption was designed to target a specific evasion practice (ie, the undocumented transfer of ongoing businesses to newly formed entities to evade tax obligations) the breadth of the nine statutory triggers means that any asset purchase transaction could come within its scope.
For M&A practitioners, the key takeaway is that asset deals in Mexico now require heightened structuring and record-keeping discipline. The rebuttable nature of the presumption provides a meaningful safeguard, but only if the acquirer proactively prepares and preserves the evidence necessary to demonstrate that the transaction was a purchase of individualized assets and rather than the acquisition of a going concern, thereby enabling the acquirer to rebut the statutory presumption.
