Undoubtedly, one of Mexican taxpayers’ most important instrumental obligations is to maintain accounting records. This is because, in exercising its audit powers, the authorities can assess whether the taxpayer correctly self-assessed their contributions and, therefore, contributed to public spending in accordance with their tax capacity and accordance with tax regulations.
This is because accounting is the record of the economic effects suffered by the taxpayer’s assets and, for the tax authority, is essential for assessing whether or not the taxpayer correctly applied the rates, subsidies, incentives, and other tax provisions contemplated in tax legislation. Hence, its extraordinary importance.
Therefore, in this post, I will explain what constitutes accounting records for tax purposes, what to do in the event of their loss, destruction, or unusability, and various related obligations, such as the retention period, registration, etc. Without further ado, let’s begin:
List of Contents
- Translation
- 1) What Constitutes Tax Accounting in Mexico?
- A) Special Integration
- B) Volumetric Controls
- 2) Characteristics of Accounting Entries
- 3) Electronic Accounting
- 4) Accounting Retention and Other Obligations
- A) Preservation of Special Records
- B) Documentation Regarding Tax Losses
- C) Duty to Display Tax Identification Card
- D) Provision of Electronic Accounting
- 5) Loss or Destruction of Accounting Records
Translation
This is a translation of my entry La contabilidad fiscal en México.
1) What Constitutes Tax Accounting in Mexico?
Although the science of accounting can be divided into several branches, such as financial, administrative, cost accounting, etc., what interests us is knowing what the tax legislator considers accounting. In this sense, for tax purposes, accounting is comprised of:
I.- Accounting books, systems, and records, working papers, account statements, special accounts, corporate books and records, inventory control and valuation methods, disks and tapes or any other processable data storage medium, electronic tax record equipment or systems and their respective records, in addition to supporting documentation for the respective entries, as well as all documentation and information related to compliance with tax provisions, that which proves income and deductions, and that required by other laws.
II.- Auxiliary accounting records or entries, including the chart of accounts used for such purposes and the policies for said records and entries.
III.- Notices or applications for registration with the Federal Taxpayer Registry and their supporting documentation. If you’d like to know the aforementioned registry notices, I invite you to read the entry The Federal Taxpayer Registry in Mexico.
IV.- Annual, informative, provisional, monthly, bimonthly, quarterly, or final payment returns.
V.- Bank account statements and reconciliations of deposits and withdrawals against accounting records, including statements for investments and credit, debit, or service cards of the taxpayer, as well as electronic wallets used to pay for fuel and for granting food vouchers, if applicable, to the taxpayer’s employees.
VI.- Shares, corporate interests, and negotiable instruments in which the taxpayer is a party.
VII.- Documentation related to hiring individuals who provide subordinate personal services, as well as documentation related to their registration and record, or notifications made regarding social security and their contributions.
VIII.- Documentation related to imports and exports in customs or foreign trade matters.
IX.- Documentation and information from the records of all transactions, acts, or activities, which the necessary internal control and verification systems must record.
X.- Other declarations required under applicable tax provisions.
A) Special Integration
In the case of persons who manufacture, produce, process, transport, store (including storage for their own use), distribute, or sell any type of hydrocarbon or petroleum product, in addition to the aforementioned, they must have the equipment and software to carry out volumetric controls and certificates attesting their correct operation and functioning, as well as reports issued by a testing laboratory, determining the type of hydrocarbon or petroleum product in question, the calorific value of natural gas, and the octane rating in the case of gasoline.
In this sense, volumetric controls of products are understood to be the volume records for their operations, including their inventories, which will be part of the taxpayer’s accounting records. Furthermore, these taxpayers must ensure that the equipment and software for carrying out volumetric controls operate correctly at all times.
B) Volumetric Controls
Taxpayers associated with the oil and hydrocarbon industry must generate daily and monthly volumetric control information reports containing:
I.- Volume records from receiving, delivery, and inventory control operations obtained from the equipment installed at the points where hydrocarbons or petroleum products are received, delivered, and stored.
II.- Data from tax receipts or customs declarations associated with acquiring and selling hydrocarbons or petroleum products or, where applicable, the services provided for such products.
III.- The information contained in the reports that determine the type of hydrocarbon or petroleum product, as well as in the certificates that prove the correct operation and functioning of the equipment and computer programs for carrying out volumetric controls in accordance with the general rules and technical specifications issued for this purpose by the Tax Administration Service.
2) Characteristics of Accounting Entries
Accounting records or entries must:
I.- Be analytical and be made in the month in which the transactions, acts, or activities to which they refer are carried out, no later than within 5 business days following the completion of the transaction, act, or activity.
II.- All transactions, acts, or activities must be descriptively recorded in the journal, following the chronological order in which they are carried out, indicating the corresponding debit or credit entry for each, as well as the names of the accounting accounts, their balance at the end of the immediately preceding recording period, the total debit or credit entry for each account in the period, and their ending balance.
In this regard, journals and general ledgers may be kept by establishment or branch, by type of activity, or by any other classification, but in all cases, journals and general ledgers must exist in which all the taxpayer’s transactions are concentrated.
III.- Allow the identification of each transaction, act, or activity and its characteristics, relating them to the folios assigned to the tax receipts or supporting documentation, so that the payment method, the various contributions, rates, and fees, including those transactions, acts, or activities for which contributions are not payable, can be identified, according to the transaction, act, or activity in question.
IV.- Allow the identification of investments made by relating them to the supporting documentation or tax receipts so that the date of acquisition of the asset or the date the investment was made, its description, the original amount of the investment, the percentage and amount of its annual deduction, if applicable, as well as the start date of its deduction, can be determined.
V.- Relate each transaction, act, or activity to the balances that result in the final account figures.
VI.- Prepare the statements of financial position, income statements, changes in shareholders’ equity, source and application of resources, and trial balances, including memorandum accounts and notes to these statements.
VII.- Relate the statements of financial position to the accounts of each transaction.
VIII.- Identify contributions that must be paid or returned based on refunds received and discounts or bonuses granted by tax regulations.
IX.- Verify compliance with the requirements for granting tax incentives and subsidies.
X.- Identify assets, distinguishing between those acquired or produced, those corresponding to raw materials and finished or semi-finished products, those sold, as well as those intended for donation or, where appropriate, destruction.
XI.- Be prepared in Spanish and report the values in local currency.
When the information on tax receipts or the data and documentation comprising the accounting records is in a language other than Spanish, or the amounts are recorded in a foreign currency, they must be accompanied by the corresponding translation and indicate the exchange rate used for each transaction.
XII.-. Establish a cost center, identifying each branch’s operations, acts, or activities, including those located abroad.
XIII.- Indicate the date of the transaction, act, or activity, its description or concept, the amount or unit of measurement, if applicable, and the method of payment for the transaction, act, or activity, specifying whether it was cash, credit, installment, or installment, and the method of payment or settlement of said obligation, as appropriate.
In the case of credit, installment, or installment transactions, for each payment or credit received or made, including the down payment or down payment, as appropriate. In addition, they must record the payment amount, specifying whether it is made in cash, by interbank funds transfer, a personal check for account deposit, a debit, credit, or service card, an electronic wallet, or any other means.
Finally, when payment is made in kind or by barter, the type of good or service provided as consideration and its value must be indicated.
XIV.- Allow for identifying deposits and withdrawals in bank accounts opened in the taxpayer’s name and reconciling them with the transactions carried out and their supporting documentation, such as account statements issued by financial institutions.
XV.- Inventory records of merchandise, raw materials, and products in process and finished goods, which will be used to control them, allowing for the identification of each unit, type of merchandise or product in the process, and the date of acquisition or disposal, as applicable, as well as the increase or decrease in said inventories and stock at the beginning and end of each month and at the close of the fiscal year, specifying the date of delivery or receipt, as well as whether it is a return, donation, or destruction when these conditions apply.
For the purposes of the preceding paragraph, inventory control must identify the valuation method used and the date from which it is applied, whether it is the first-in, first-out, last-in, first-out, identified cost, average cost, or retail cost, as appropriate.
XVI.- Records related to the option to defer the accrual of taxes in accordance with tax provisions in the event that financial leasing contracts are entered into. These records must allow for identifying the corresponding portion of the transactions in each fiscal year, including through memorandum accounts.
XVII.- Control of donations of goods received by authorized donees under the Income Tax Law, which must allow for the identification of donors, the goods received, the goods delivered to their beneficiaries, the recovery fees they obtain for the goods received as donations, and the record of the destruction or donation of the merchandise or goods in the fiscal year in which they are made.
XVIII.- Record the value-added tax transferred to the taxpayer and the value-added tax paid on imports, corresponding to the portion of their expenses and investments, according to the following legal hypotheses:
A) The acquisition of goods, services, and the temporary use or enjoyment of goods used exclusively to carry out their activities for which they must pay the tax.
B) The acquisition of goods, services, and the temporary use or enjoyment of assets, used exclusively to carry out activities for which the tax is not payable.
C) The acquisition of goods, services, and the temporary use or enjoyment of assets are used interchangeably to carry out activities for which the tax is payable and those for which the taxpayer is not required to pay it.
3) Electronic Accounting
Generally, the records or entries that comprise the accounting system will be kept electronically. However, the supporting documentation for said records or entries must be available at the taxpayer’s tax domicile. Furthermore, the information must be entered monthly through the Tax Administration Service’s website.
For the above purposes, the taxpayer must retain and store, as an integral part of their accounting system, all documentation related to the design of the electronic system where they store and process their accounting data, as well as its diagrams. The taxpayer must make the equipment and its operators available to the tax authorities to assist them when they exercise their audit powers. Where appropriate, the taxpayer must comply with the corresponding Mexican official standards related to generating and maintaining electronic documents.
4) Accounting Retention and Other Obligations
Accounting and all its contents must be retained for a period of 5 years, counting from the date on which the related tax returns were filed or should have been filed. However, in the case of accounting and documentation corresponding to acts with long-term tax effects, the reference period will begin to run from the day on which the tax return for the last fiscal year in which such effects occurred is filed.
On the other hand, if documentation corresponds to items for which an appeal or lawsuit has been filed, the retention period will run from the date on which the resolution terminating the tax return becomes final.
A) Preservation of Special Records
The following cases shall have a special retention obligation, regardless of whether or not they are included in the accounting records:
I.- In the case of articles of incorporation of legal entities, joint venture agreements, minutes recording increases or decreases in share capital, mergers, or spin-offs of companies, certificates issued or received by legal entities under the Income Tax Law when distributing dividends or profits, documentation and information necessary to determine the adjustments referred to in Articles 22 and 23 of the aforementioned law, information, and documentation necessary to implement agreements reached as a result of dispute resolution procedures contained in treaties to avoid double taxation, as well as provisional and fiscal year payment declarations for federal contributions, such documentation must be retained for as long as the company or contract in question subsists.
II.- In the case of share capital increase minutes, the bank statements issued by financial institutions must also be kept, in cases where the capital increase was in cash, or the corresponding appraisals referred to in Article 116 of the General Law on Commercial Companies, in cases where the capital increase was in kind or due to a surplus derived from the revaluation of fixed assets.
III.- In the case of increases due to the capitalization of reserves or dividends, the meeting minutes in which these acts are recorded and the corresponding accounting records must also be kept.
IV.- In the case of increases due to the capitalization of liabilities, the meeting minutes in which these acts are recorded, as well as the document certifying the accounting existence of the liability and its corresponding value, must also be kept.
V.- In the case of minutes recording the reduction in share capital through reimbursement to shareholders, the account statements issued by financial institutions evidencing this situation must also be kept. In the case of minutes recording the reduction in share capital through a release granted to shareholders, the shares’ subscription, release, and cancellation records must be kept, as applicable.
VI.- In the case of minutes recording the merger or spin-off of companies, the statements of financial position, statements of changes in shareholders’ equity, and the working papers for determining the net taxable profit account and the capital contribution account, corresponding to the fiscal year immediately preceding and following the year in which the merger or spin-off took place, must also be kept.
VII.- In the case of certificates issued or received by legal entities under the Income Tax Law when distributing dividends or profits, the account statements issued by financial institutions evidencing this situation must also be retained.
VIII.- The information and documentation referred to in Articles 32-B, Section V, and 32-B Bis of the Federal Tax Code must be retained for a period of six years from the date on which the respective information and documentation was or should have been generated, or from the date on which the related returns were or should have been filed, as applicable.
B) Documentation Regarding Tax Losses
If the tax authority is exercising audit powers regarding fiscal years in which tax losses from prior fiscal years are reduced, dividends or profits are distributed or paid, capital is reduced, or capital is repaid or remitted by the Income Tax Law, or amounts are received from loans granted or received, regardless of the type of contract used, taxpayers must provide documentation proving the origin and source of the tax loss, such as:
I.- Documentation supporting the loan.
II.- Documentation and information supporting the original balance and movements in the net taxable profit account, the capital contribution account, or any other tax or accounting account involved in the aforementioned acts, regardless of the fiscal year in which the loss, loan, or the movements in the net taxable profit account, the capital contribution account, or any other tax or accounting account involved arose. The foregoing shall also apply in the case of debt incurred with creditors or for recovering debtors’ credits.
The taxpayer shall not be required to provide the aforementioned documentation when, prior to exercising the audit powers, the tax authority has exercised said powers in the fiscal year in which the tax losses for which the audit is requested were generated, unless the facts have not been reviewed.
Finally, the information provided by the taxpayer may only be used by the tax authorities if the determination of tax losses does not match the facts stated in the tax returns filed for such purposes.
C) Duty to Display Tax Identification Card
Taxpayers with establishments, branches, premises, fixed or semi-fixed stalls on public roads must have available to the tax authorities in those locations and, where applicable, in the place where they store the merchandise, their tax identification card issued by the Tax Administration Service or the application for registration in the federal taxpayer registry or a certified copy of any of these documents, as well as any supporting documents that prove legal possession or ownership of the merchandise they have in those locations.
D) Provision of Electronic Accounting
Taxpayers who maintain all or part of their accounting records using electronic records must provide the tax authorities, upon request, using the processable media they use, with information on their customers and suppliers, as well as information related to their accounting records, that they maintain in such media. However, taxpayers who only conduct transactions with the general public will only be required to provide information on their suppliers and information related to their accounting records.
5) Loss or Destruction of Accounting Records
When the taxpayer’s books or other accounting records become partially unusable, illegible entries from the previous fiscal year must be replaced, which may be done by consolidation. When the books or other accounting records are destroyed or completely unusable, the taxpayer must record in the new books or accounting records in question the entries relating to the fiscal year in which the unusability, destruction, loss, or theft occurred, which may be done by consolidation.
By Omar Gómez
Partner
Visit my website ogomezabogado.com