Nonbinding Criterion 44/ISR/NV: Requirements for the Deductibility of Expenses In Exchange for Provision of Services

On Oct. 11, the incorporation of the referenced criterion into Annex 3 was published in the Federal Register, regarding the requirements that expenses for the provision of services must meet in order to be deductible.

This criterion establishes that expenses for services rendered by a Mexican resident or foreign resident will not be deductible unless it is demonstrated that the service was effectively received.

It is insufficient to have tax invoices supporting the transaction only. Therefore, taxpayers must provide additional documentation evidencing the effective provision of the service

Consequently, the criterion considers an undue tax practice to claim the deduction of payment of services if there are no elements proving the receipt of the relevant service, despite a tax invoice being available.

Of course, nonbinding criteria such as this are not mandatory for taxpayers. However, they clearly reflect the position of the tax authority, making it advisable to heed them. Unfortunately, this specific criterion does not provide any guidance regarding which elements might be useful to demonstrate the effective provision of services. Thus, it is up to taxpayers to gather the evidence they deem sufficient to demonstrate this in specific situations so that it can later be evaluated by the authority in case of an audit.

Furthermore, this criterion is of greater relevance, as the draft tax reform, which we referred to in previous communications, contains modifications consistent with it.

The attorneys at Clark Hill PLC are available to help you ensure you have the necessary documents to demonstrate the strict indispensability of transactions for the provision of services in order for the deduction to be valid. Please contact the attorney at Clark Hill PLC with whom you regularly work or any of the following attorneys for assistance.

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