Although this title may read like the like a title to a thriller novel or at least a pretty good campaign soundbite, it comes very close to the actual name of a recently published executive decree in Mexico.
Tax amnesties, or legally implemented tax pardons, have been a tool for the past three administrations. President Fox in 2001, President Calderon in 2006 and President Peña in 2012 all enacted, in one way or another, a form of pardon to qualifying taxpayers which resulted in large corporate groups getting huge deals that allowed them to clean the slate from a tax perspective.
All of these pardons were enacted by way of a legislative amendment to either the Federal Fiscal Code (2000), or to the Federal Revenue Law (2007 & 2013). All of them included clear and general requirements and were believed to be generally absent of abuse or corruption, but not necessarily absent of controversy.
The discussion stems from the belief that all of these amnesties were the result of high-level negotiations between the Executive Branch and large corporate groups seeking to get out of 'questionable' tax planning structures and operations in exchange for a low settlement.
Indeed, these amnesties did allow for a large cancellation of a tax liability, including fines and interest, while only requiring the taxpayer to pay a rather small percentage of the original liability.
While there isn't a general feeling that these processes were marred by corruption, it is largely believed that they were tailor-made to benefit specific large taxpayers. It is important to bear in mind that, in all instances, a significant amount of taxpayers, (small, medium and large) benefited from these amnesties, although the large write-offs came from so-called blue chip companies.
These amnesties are generally considered to be a perverse motivation for taxpayers to engage in aggressive tax planning, knowing that they will be eventually bailed out by the federal government. Fully compliant taxpayers have been very vocal in condemning these practices inasmuch as they create an uneven playing field since aggressive tax planning is believed to be available mainly to large taxpayers.
The decree
Given this background, it was to no one's surprise that, at the beginning of May, President López gave a presentation, as part of one of its daily press conferences, centered on the alleged millions of pesos that have been lost due to these amnesties in the past.
A couple of weeks after, the Executive Branch issued, on May 20 2019, a decree by which it was informed to the general public that the administration would (a) not issue any more such tax amnesties, and (b) cancel any decrees which pardoned tax liabilities to any taxpayers.
At first glance, this would seem like a natural closure to the whole "tax amnesties are bad" discussion.
The problem is that this decree raises more questions than it answers. For example, is it legally necessary to include in a decree a vow to not issue amnesties, or was it only necessary for the president to abstain from issuing the said tax benefits and to instruct the Congress, controlled by the president's party (MORENA) not to enact such amnesties (more so since all of the past tax amnesties had a limited life span which has long elapsed by now)?
Furthermore, by cancelling all decrees which pardon tax liabilities (there are two exceptions), the president actually creates a very real confusion pertaining to current decrees that include not only a cancellation of tax liabilities, but also other tax benefits such as tax credits.
Tax provisions included in the Federal Fiscal Code and in the Taxpayers' Rights Law include procedures by which fines may be reduced or even cancelled, and that are pivotal to everyday settlements. Stopping the issuance of these rulings could seriously hinder the abilities of taxpayers (regardless their size) to resolve their tax exposure without having to go to court.
High-ranking tax officials have stated adamantly that the intention of the decree is only to cancel amnesties as those described at the start of this article. The "considerations" section of the decree actually makes direct reference to the three amnesties we've addressed, but the actual articles of the decree are in no way clear.
Unfortunately, until an actual formal guideline is issued, one cannot foresee how the local and central administrations will end up interpreting this decree which feels, by any measure, unnecessary.
