Tax Reform: Controlling Beneficiaries

February 13, 2022

I. DEFINITIONS

MT: 2022 Miscellaneous Tax Resolution.

CB: Individuals who constitute the controlling beneficiaries of a Legal Vehicle as defined below.

FTC: Federal Tax Code.

Joint Obligors: Related parties such as shareholders/partners, members of the board of directors, special delegates for the notarization of corporate resolutions, legal representatives of shareholders/partners and accounting teams with whom legal acts are carried out, notaries and public brokers.

SAT: The Spanish acronym for the Tax Administrative Service.

Legal Vehicle: Legal entities, fiduciaries, settlors/trustees, as well as contracting parties in any other legal form.

II. PREAMBLE

The tax reform that went into effect as of January 1st, 2022, contemplates additions to articles 32-B Ter, 32-B Quáter and 32-B Quinquies of the FTC, in addition to the content of rules 2.8.1.20, 2.8.1.21, 2.8.1.22 and 2.8.1.23 of the MT for the year 2022.

II. SUMMARY

The purpose of the CB regulation is to prevent money laundering activities and funds of illicit origin. This will imply a greater requirement of information from the Mexican authorities, as well as from notaries and/or public brokers.

The tax reform generates new burdens, not only for the CB of the Legal Vehicles, but also for the Joint Obligors. In case of non-compliance with the tax obligations contained in the following paragraphs, the authorities have the attribution to impose fines, criminal penalties, seizures, among others, against Legal Vehicles and their Joint Obligors.

The tax reform grants greater power to Mexican authorities in the event that they make a request for information to the obligated people under this reform.

Although it is true that, as provided by both the FTC and the MT, public notaries and brokers are bound to collect the information in question corresponding to the CB’s Joint Obligors, and other people considered by the legislation as CB, it is also true that such information will not be provided to the SAT, until the authority itself makes the request of information, complying with all the formalities stipulated by the law in force.

This tax reform generates new burdens, not only for the CB of the Legal Vehicles, but also for the Joint Obligors.

IV. ADDITIONS SUBJECT TO THE TAX REFORM

1. Art 32-B Ter. of FTC

Legal Vehicles are required to obtain and keep, as part of their accounting, reliable, complete, and updated information of their CB, in the form and terms required by the SAT through general rules.

The public notaries and brokers that intervene in the formation or conclusion of legal acts that give rise to the incorporation of a Legal Vehicle will be obliged on the occasion of their intervention to obtain the information to identify the CB and adopt reasonable measures in order to verify their identity, in order to provide it to the SAT when required.

2. Art 32-B Quater. of FTC. 

Controlling Beneficiary (CB) is an individual or group of people who:

I. Directly or through other or any legal act, obtain or obtains the benefit derived from its participation in a Legal Vehicle, or is who ultimately exercises the rights of use, exercise, enjoyment, use, or disposal of property or service or on whose behalf a transaction is carried out, even if it is done in a contingent manner.

II. Directly, indirectly, or contingently, exercise control of a Legal Vehicle.

It is understood that a person or group of people “exercise control” when, through the ownership of securities, by agreement or by any other legal act, they can or may:

a) Directly or indirectly impose decisions at general meetings of shareholders, partners, or equivalent bodies, or appoint or remove the majority of the directors, administrators, or their equivalent.

b) Maintain the ownership of the rights that allow, directly or indirectly, the exercise of voting rights with regard to more than 15% of the capital stock or assets.

c) Direct, directly, or indirectly, the management, strategy, or main policies of a Legal Vehicle.

3. Art 32-B Quinquies. of FTC

Legal Vehicles must keep the information regarding the CB referred in Article 32-B Ter of the FTC up to date. In case of modifications to the identity or participation of the CB.

Rule 2.8.1.20. of the MT of 2022. Criteria for determining the CB status of legal entities.

In the identification of the CB, the Legal Vehicles must comply with article 32-B Quater of the previously mentioned FTC, sections I and II, paragraphs a), b) and c), successively, as criteria for their determination.

When section I has been applied, but the CB has not been identified, section II, paragraphs a), b) and c) must be applied.

To obtain the information provided for by Article 32-B Ter. of the FTC, legal entities must identify, verify, and validate the information on the CB, indicating the percentages of participation in the capital of the legal entity, including information regarding the Title Chain, in cases where the CB is indirectly owned by the legal entity.

  • “Title Chain” is the case in which indirect ownership is held through other legal entities.

Likewise, legal entities must identify, verify, and validate the information related to the Control Chain, in cases where the CB is by means other than ownership.

  • “Control Chain” means control is held indirectly, through other legal entities, trusts, or any other legal figure.

When no individual is identified under the criteria established in this rule, according to article 32-B Quater of the FTC, the individual who holds the position of sole director/manager of the legal entity or equivalent, will be considered the CB. If the legal entity has a board of directors or an equivalent body, each member of such board will be considered the CB of the legal entity.

Rule 2.8.1.21. of the MT of 2022. Mechanisms to identify, obtain and keep updated information on the CB.

Legal Vehicles, as well as the public notaries and brokers involved in the formation or conclusion of legal acts that give rise to the incorporation of Legal Vehicles, must implement internal control procedures duly documented. These procedures shall be all those that are reasonable and necessary to obtain and keep the information on the identification of the CB and shall be considered part of the information the SAT may require.

To obtain and keep information on the identification of the CB with respect to Legal Vehicles, the public notaries and brokers involved in the formation or execution of legal acts that give rise to the incorporation of Legal Vehicles, shall at least:

I. Properly identify, verify, and validate the CB of the Legal Vehicles. For purposes of the foregoing, the Legal Vehicles will require the people that may be considered as CB, according to the provisions of Article 32-B Quater of the FTC, to disclose their identity, and provide the information detailed in rule 2.8.1.22 of the MT.

II. Obtain, keep and maintain the reliable, complete, adequate, accurate and updated information about the data of the identity of the CB and other data established in rule 2.8.1.22 available, for which the Legal Vehicles must establish procedures so that the person (people) that may be considered CB, provide(s) them with updated information of their status as such, as well as inform them of any change in their status, in order to be able to comply with the provisions of Article 32-B Quinquies, first paragraph of the FTC.

III. Keep the information of the CB, the chain of title and the chain of control, the documentation that serves as support for it, as well as the supporting documentation of the internal control procedures referred to in the first paragraph of this rule, during the term established in Article 30 of the FTC.

IV. Provide timely access to the mexican tax authorities, and grant them all the facilities to access the information, records, data, and documents related to the CB.

Rule 2.8.1.22. of the MT of 2022. Information to be kept by legal entities, fiduciaries, settlors, or trustees, in the case of trusts, as well as the contracting parties or members, in the case of any other legal entity, on their CB.

For purposes of the first paragraph of Article 32-B Ter, of the FTC, Legal Vehicles must integrate as part of their accounting information, the following with respect to each CB:

I. Full names and surnames, which must correspond with the official document with which the identity has been accredited.

II. Alias.

III. Birth date. When applicable, date of death.

IV. Sex.

V. Country of origin and nationality. If more than one, identify all of them.

VI. CURP or its equivalent, in the case of other countries or jurisdictions.

VII. Country or jurisdiction of residence for tax purposes.

VIII. Type and number or code of official identification.

IX. RFC code or tax identification number, or its equivalent, in case of being a resident abroad, for tax purposes.

X. Marital status, with identification of the spouse and patrimonial regime, or identification of the concubine or concubinary, if applicable.

XI. Contact information: e-mail and cellphone numbers.

XII. Home address and tax domicile.

XIII. Relationship with the legal entity or capacity held in the trust or legal entity, as applicable.

XIV. Degree of participation in the legal entity or in the trust or legal entity, which allows it to exercise the rights of use, enjoyment, or disposition of a good or service or to carry out a transaction.

XV. Description of the form of participation or control (direct or indirect).

XVI. Number of shares, equity quotas, participations, rights, or equivalents; series, class, and nominal value of the same, in the capital of the legal entity.

XVII. Place where the shares, partnership interests, participations or other equivalent rights are deposited or in custody.

XVIII. Date determined from which the individual acquired the status of CB of the legal entity, trust, or any other legal figure.

XIX.  If applicable, provide the data mentioned in the preceding sections with respect to the person or people holding the position of sole administrator of the legal entity or equivalent. If the legal entity has a board of directors or equivalent body, of each member of such board.

XX. Date on which there has been a modification in the participation or control in the legal entity, trust, or any other legal figure.

XXI. Type of modification of the participation or control in the legal entity, trust, or any other legal figure.

XXII. Date of termination of the participation or control in the legal entity, trust, or any other legal figure.

In the cases of chain of title or chain of control referred to in rule 2.8.1.20 of the MT, the following information must also be provided:

I. Name, denomination or corporate name of the legal entities, trusts, or legal figures that have participation or control over the legal entity, trusts, or legal figure.

II. Country or jurisdiction of creation, incorporation, or registration.

III. Country or jurisdiction of residence for tax purposes.

IV. RFC code or tax identification number, or its equivalent, in case of being a resident abroad, for tax purposes.

V. Tax domicile.

Rule 2.8.1.23. of the MT of 2022. Information to be kept by public notaries, brokers and any other person considered a CB.

For the purposes of the third paragraph on Article 32-B Ter, of the FTC, public notaries, brokers, and any other person involved in the formation or execution of agreements or legal acts that give rise to the incorporation of Legal Vehicles, shall be required to obtain, and keep, in addition to the information indicated in rule 2.8.1.22, sections I to XII, the following information:

I. Identification data of the notary, brokerage, office, as well as of the person in charge of them before whom formalized the agreement or legal act that incorporated the Legal Vehicles.

II. Date of incorporation or execution, according to the deed, policy, minute, similar or equivalent that supports the incorporation of the Legal Vehicle.

III. The full name of those who constitute, integrate or are part of the Legal Vehicle.

IV. Amount of the capital stock or equity of the Legal Vehicle.

V. If, with its intervention, the Legal Vehicle makes modifications to the fixed or variable capital or to the equity, as the case may be, the information supporting the amount and the acts or agreements necessary for such purpose.

VI. Name of the sole administrator or equivalent, if applicable, members of the board of directors or equivalent body.

VII.  Registration data, if applicable, before the public registries or equivalent.


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