Alternatives To Consider in Tax Procedures Following the Judicial Reform in Mexico

Note: On Sept. 15, 2024, the “Decree amending, adding, and repealing various provisions of the Constitution of the United Mexican States on the Federal Judiciary” (the “judicial reform” or “reform”) was published in the Federal Register. This reform introduces significant changes to the structure and functioning of the judicial system.

The judicial reform establishes, among other things, the election by popular vote of more than 1,600 judicial positions, including justices, council members, judges, and magistrates. This modification allows the Government to nominate candidates, which will have a significant influence on the resolution of cases and disputes in various areas, including administrative/tax matters. This may undermine the system of checks and balances, compromising the impartiality of the Judiciary.

Additionally, the reform reduces the number of Supreme Court justices from 11 to 9 and establishes a rotation of the Court’s president every two years. Elected justices will serve terms of 8, 11, or 14 years, depending on the votes received, while judges and magistrates will have a 9-year tenure, with the possibility of reelection.

In 2025, elections will be held to elect the justices of the Supreme Court, as well as the judges of the new Judicial Discipline Tribunal and the Administrative Body, in addition to half of the district and circuit judges. The other half will be elected in 2027.

Moreover, a maximum period of six months is established for ruling upon tax matters. This timeframe may pose challenges due to the complexity of the issues and the workload of the courts, potentially leading judges to make hasty decisions without thorough analysis—such as confirming challenged resolutions from the tax authority—simply to meet deadlines and avoid penalties. This represents a risk for taxpayers, who could face arbitrary decisions without proper examination.

Thus, there is a need to explore alternatives for resolving disputes. The reform, by changing the structure and selection of judicial positions, may influence how tax litigation is handled, making it crucial to be aware of the alternatives and mechanisms available to taxpayers to efficiently and effectively prevent or address tax controversies.

At the domestic level, a letter ruling serves as a preventive mechanism that provides clarity on the interpretation of tax regulations, allowing taxpayers to act with certainty and minimize the risk of future conflicts.

Internationally, Advance Pricing Agreements (“APA”) present a similar option to the letter ruling for anticipating and resolving tax disputes. These tools not only facilitate dispute resolution but also promote a more collaborative environment between tax authorities and taxpayers, strengthening trust in the tax system.

On the reactive side, alternative dispute resolution methods, as outlined in the recently published General Law of Alternative Dispute Resolution Mechanisms before the Federal Court of Tax and Administrative Justice, can be considered as an alternative for resolving conflicts with tax authorities.

It is also important to consider settlements as an alternative means that allows taxpayers to seek the mediation of the Taxpayers Ombudsman (“PRODECON”) to reach favorable resolutions after discussions with the tax authority, without the need to resort to the courts, fostering constructive dialogue and conciliation.

Finally, Mutual Agreement Procedures (“MAP”) offer an effective avenue for addressing and reconciling tax disputes.

Clark Hill PLC attorneys are available to assist you with any of these matters. Please contact the Clark Hill PLC attorney you regularly work with or any of the following attorneys for assistance.

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