Digital collection will depend on companies’ good faith

Wednesday, October 9, 2019

According to specialists, if we continue with the series of initiatives that are discussed in different instances, consumers would be the main affected from inspecting platforms such as Netflix, Spotify or Uber, along with the challenge that the Government of Mexico faces when taxing this type of companies, since not even the great economic powers have achieved it completely.

The country has 3 initiatives in different instances to tax the digital economy, or part of it; however, the goal is the same: that companies operating on the Internet pay taxes through two existing means: Value Added Tax (VAT) and Income Tax.

The President of the Fiscal Commission 3 of the School of Public Accountants of Mexico, Rodrigo Ramírez, stated:

“Imposing taxes on the digital economy will achieve an important income for the Mexican tax office, since millions of people in the country use services such as Uber or Netflix”.

The incorporation of VAT will be important because everyone uses this type of platform; however, it is a fact that the rates will increase 16%, given that in the case of this tax it is the consumer who pays it and not the applications.

“The digital economy is a big challenge for tax havens around the world because the platforms that make it up are not located in the countries where they generate profits, but often do so in tax havens. Faced with this scenario, Mexico has a great challenge ahead and will depend a lot on the good faith of companies to register with the Tax Office,” said the specialist from the School of Accountants.

The proposal included in the Revenue Law is divided into two: companies that provide services directly to the user, such as video and music download platforms (Netflix, Amazon Prime, HBO Go, Spotify, Deezer, etc.) and those that function as intermediaries, i.e., that connect whoever offers a service with whoever needs it, such as Uber, Cabify and Rappi.

In the first case, the document prepared by the Secretariat of Finance states that platforms that offer music and video services, without physical establishment in Mexico, must be registered in the Tax Administration Service, charged VAT and pay monthly and report their number of customers.

In the case of intermediaries, it is proposed that the platforms retain the owners of the service the income tax and half of the VAT. That is to say, in the case of Uber, the drivers or owners of the unit will have to pay these taxes, but it will be the intermediary company in charge of the withholding (half in the case of VAT). It is expected that the income tax withholding rate to be applied to private transportation, lodging, or home delivery service providers will be 2 to 8 percent.

The sanctions proposed in the bill propose, for example, to order Internet provider companies to suspend the connection of these sites and, if they do not comply with the request, they will be the creditors of fines ranging from $500,000 to $1 million pesos per month elapsed.