FEDERAL COURT OF ADMINISTRATIVE JUSTICE
UPPER ROOM - SECOND SECTION ATTRACTION
TRIAL:
15378/16-17-09-2/1484/18-S2-08-04.
ACTOR:
******** ********** ********** **** ******
REQUESTED AUTHORITY: ADMINISTRATOR
CENTRAL FOR DISPUTES INVOLVING LARGE
TAXPAYERS IN THE TAX ADMINISTRATION SERVICE.
REPORTING JUDGE:
VÍCTOR MARTÍN ORDUÑA MUÑOZ
AGREEMENT SECRETARIAT:
ALIN PAULINA GUTIÉRREZ VERDEJA
Mexico City, 11 April 2019
IN VIEW OF resolving, the instruction of
the contentious administrative trial to the mentioned item; and
RESULTING IN
1. In writing, submitted on 10 June 2016 to
the Office of the Common Counsel for the Metropolitan Regional Chambers, the C.
***** ******* ** **** **********, in legal representation of ******************
********** **** ** ***** filed a contentious-administrative lawsuit against the
resolution contained in official letter number 900-09-2016-2276 of 28 March
2016, issued by the Central Administration of Large Taxpayers' Litigation of
the Tax Administration Service, by which it resolved the appeal for revocation
240/15, filed against the different resolution contained in the official letter
number 900-07-04-2015-55504 dated 19 October 2015, through which the
International Control Administrator "4", determined a tax profit in
the amount of
$3'082'309,114.00, for income tax
corresponding to the fiscal year from January 1 to December 31, 2008.
The case was filed in the Ninth Regional
Metropolitan Court, under case number 15378/16-17-09- 2.
2. By means of a writ of 14 June 2016, the
Court took cognisance of the document presented at the Common Office of the
Metropolitan Regional Chambers of this Court on 10 June 2016, by which the
plaintiff filed the present nullity suit against the resolution contained in
writ number 900-09-2016-2276 of 28 March 2016, issued by the Central
Administration of Large Taxpayers' Litigation of the Tax Administration
Service, specified in Result 1 of this ruling. The Examining Magistrate
therefore admitted the claim, considering that the evidence contained in the
corresponding chapter had been offered and exhibited, except for the documents
identified with numbers 6 to 24, since the plaintiff did not exhibit them, and
therefore requested it for this purpose, with the warning of the law in case of
non-compliance.
Likewise, in relation to the expert
evidence in matters of advertising, publicity and marketing, the Examining
Magistrate requested the plaintiff to indicate the name and address of the
expert appointed and to exhibit the duly signed questionnaire on the basis of
which said evidence would be taken, with the warning of the law in case of
non-compliance.
On the other hand, it requested the
defendant authority to submit, at the latest at the time of answering the
complaint, a certified copy of the administrative files from which the
contested and appealed decisions were derived, with the warning of law in case
of non-compliance.
Finally, the defendant authority was
ordered to respond to the complaint within the time limit established by law
for that purpose, with a warning of law in case of non-compliance.
3. By an order issued on 1 July 2016, the
Presiding Judge of this Court was ordered to be informed that in this case the
competence of the High Court was updated, by virtue of the amount of the case,
in order to exercise its power of attraction.
4. On August 29, 2016, the Court took note
of the briefs presented to the Office of the Common Counsel for the Regional
Metropolitan Chambers on August 5 and 8, 2016, by which the plaintiff complied
with the order of 14 June 2016, exhibiting in the first of them the evidence
identified under numbers 6 to 13 and 16 to 25 of the corresponding chapter. It
also indicated the name and address of the expert appointed and exhibited the
questionnaire to be submitted in relation to the expert evidence on
advertising, publicity and marketing; and in the second brief, he showed the
documentaries identified with numbers 14 and 15 of the evidence chapter. By
virtue of this, the warning decreed in the agreement of 14 June 2016 was left
without effect, the evidence referred to being admitted.
On the other hand, in relation to the
expert evidence in matters of propaganda, advertising, and marketing, the
expert appointed by the plaintiff was the C. **** ****** ********* ***** and
because he had submitted the questionnaire on which the evidence would be
based, the defendant authority was requested to appoint an expert on its
behalf, to indicate its address and, if necessary, to make any additions it
considered relevant to the questionnaire submitted by the plaintiff, with the
legal warning in the event of non-compliance.
Finally, the Examining Magistrate ordered
that the pleadings be sent to the defendant authority so that it could express
what it considered appropriate.
5. By agreement of 3 October 2016, official
letter number 2aS-ATR-227/16 was filed with the Office of Common Pleas for the
Metropolitan Regional Chambers of this Court on 27 September 2016, by which the
Assistant Secretary for Agreements of the Second Section of the Superior
Chamber of this Court informed that it exercised the power of attraction with
respect to the present trial, indicating that once the investigation of the
trial was closed, it should be referred to the aforementioned Second Section
for resolution.
6. On October 18, 2016, the official letter
presented at the Common Office of the Metropolitan Regional Chambers of this
Court on the 13th of the same month and year, by means of which the defendant
authority filed a claim against the order dated August 29, 2016, through which
the expert evidence on advertising, propaganda and marketing offered by the
plaintiff was admitted. The appeal was therefore deemed to have been lodged and
an order was made that it be forwarded to the plaintiff so that she could make
known what was legally required of her, within the period laid down by law for
that purpose, stating that after that period had elapsed the proceedings would
be referred to the Chamber for the corresponding decision.
By a different agreement dated 18 October
2016, the Examining Magistrate issued a report to the Office of the Common
Counsel for the Metropolitan Regional Chambers on 6 October 2016, through which
the defendant authority presented its response to the complaint. In this
regard, it considered the complaint to have been answered and sent in person to
the Secretary of Finance and Public Credit, in terms of Article 3, Section II,
paragraphs a) and c), second paragraph of the Federal Law on Administrative
Litigation Procedure.
It also considered the evidence offered in
the corresponding chapter to be admitted, with the exception of the evidence
consisting of the "Declaration of the Exercise of Legal Entities of
General Regime F18", and therefore requested the defendant to submit it
within five days, with the warning of the law in case of non-compliance.
Furthermore, since the defendant exhibited
the administrative files from which the contested decision was issued, as well
as the respondent, it considered that the requirement made in the order of 14
June 2016 had been fulfilled.
Similarly, the expert appointed by the
defendant authority in the field of advertising, publicity and marketing was
the C ***** ***** **** *********, so that the warning issued in the order of 29
August 2016 was not upheld and the questionnaire on which the expert evidence
offered by the applicant was to be based was considered to have been extended.
Finally, the Examining Magistrate indicated
that she reserved the right to grant a period of time for the parties to
present their experts to prove that they met the requirements of the law,
accept the position and protest their legal performance, since the appeal filed
by the defendant authority against the order of August 29, 2016 was pending.
The Court also reserved the right to transfer the defence to the plaintiff
until such time as the authority complied with the request made in the order of
merit or, where appropriate, the time limit for doing so.
8. On January 2, 2017, the Court heard the
document presented at the Office of the Common Counsel for the Regional
Metropolitan Chambers on November 11, 2016, by which the plaintiff defended the
hearing given to it in relation to the complaint filed by the defendant,
considering that these statements had been made.
9. By judgment of 2 January 2017, the Ninth
Metropolitan Regional Chamber ruled that the defendant's appeal against the
order of 29 August 2016 was admissible but unfounded, and therefore confirmed
it in all its terms.
10. On January 5, 2017, since the appeal
filed by the defendant against the order of August 29, 2016, which admitted the
expert evidence on advertising, publicity and marketing offered by the
plaintiff, was decided as unfounded, the parties were warned to present their
experts within ten days, so that they could prove that they met the legal
requirements, accept the position and protest their legal performance, with the
corresponding legal warning.
11. By a different
agreement dated January 5, 2017, the Office of the Common Counsel for the Metropolitan
Regional Chambers of this Tribunal issued a document on November 4, 2016, by
which the defendant authority complied with the requirement formulated in the
order of October 18, 2016, exhibiting for such purpose the "Declaration of
the Exercise of the Legal Entities of General Regime F18". In view of
this, the request was deemed to have been complied with, the warning was
rescinded, and the evidence was deemed to have been admitted, for which reason
the plaintiff was ordered to be transferred so that she could make known what
was necessary for her right.
12. On February 24, 2017,
Mr. **** ****** ********* ***** appeared before the Ninth Regional Metropolitan
Court as an expert in Communication Sciences, appointed by the plaintiff in
relation to the expert evidence in matters of propaganda, advertising and
marketing, for the purpose of accrediting that he complied with the legal
requirements for accepting the position and protesting his legal performance.
Consequently, he was considered to have
presented himself to the expert, accrediting that he met the corresponding
requirements, accepting the position and protesting against his legal
performance, for which reason he was granted a period of fifteen days to
present his report, with the corresponding legal warning.
13. By means of an
agreement dated 1 March 2017, the Office of the Common Expert for the
Metropolitan Regional Chambers of this Court was notified on 27 February 2017,
through which the defendant authority requested the replacement of the expert
in matters of advertising and propaganda indicated in the case file and the new
expert appointed by the C. ****** ***** ******. By virtue of this, the
aforementioned person was taken as the authority's expert, requiring the
defendant to present its expert within ten days to prove that it meets the
legal requirements, accept the position and protest its legal performance, with
the warning of the law in the event of non-compliance.
14. On April 5, 2017, it
was informed of the brief presented at the Common Office of the Metropolitan
Regional Chambers on March 21, 2017, by which the plaintiff requested the
extension of the term granted to its expert to render his opinion, by virtue of
the complexity of certain aspects and information related to the expert evidence
in matters of propaganda, advertising and marketing. Therefore, it was granted
a period of fifteen days for the effect that the expert rendered the respective
report, reiterating that if it did not comply with the requirements in the form
and within the time indicated, it would be considered only the report rendered
within the period of law.
15. On May 2, 2017, Ms.
****** ***** ******, the expert appointed by the defendant, appeared before the
Ninth Regional Metropolitan Court in relation to the expert evidence on
advertising, publicity and marketing offered by the plaintiff, in order to
prove that she met the corresponding requirements, accept the position and
protest her legal performance. By virtue of this, the expert was deemed to have
been presented for the aforementioned purposes, and was given a period of
fifteen days to issue his report with a legal warning in the event of
non-compliance.
16. By agreement of May
26, 2017, the Examining Magistrate took into account the briefs presented at
the Common Office of the Metropolitan Regional Chambers of this Court on May 12
and 24, 2017, through which the experts of the parties rendered their expert
reports on advertising, publicity and marketing, considering them as submitted,
reserving themselves to consider and evaluate them at the appropriate
procedural moment.
17. By agreement of 26 May
2017, since it was noted that the expert reports rendered by the parties'
experts were not consistent, it was ordered that the head of the Experts' Unit
of this Court be requested to assist the examining Chamber by providing the
name and address of a professional who protested the position of third party expert in advertising, publicity and marketing.
18. By agreement of 16
June 2017, the Instructing Magistrate issued official letter number
2aS-ATR-149/17 of 29 May 2017, presented at the Common Office of the
Metropolitan Regional Chambers of this Court on 6 June 2017, by which the
Assistant Secretary for Agreements of the Second Section of the High Chamber of
this Court requested to be informed of the procedural status of this nullity
trial or, if appropriate, to refer it to the Second Section for the relevant legal
effects. By virtue of this, it ordered that by means of an official letter to
be sent to the Assistant Secretary of Agreements of the Second Section, it was
made known to him that by means of the documents presented on May 12 and 24,
2017, the experts of the parties rendered their respective reports on matters
of propaganda, publicity and marketing, which were not in accordance with each
other. Therefore, it requested the head of the Experts Unit of this Court to
assist the examining Chamber by providing the name and address of a
professional who could act as a third expert; It was therefore unable to send
the file to that court.
19. By agreement of August
8, 2017, the official letter number JGA-SA-UP-641/17, presented at the Common
Office of the Metropolitan Regional Chambers of this Tribunal on July 11, 2017,
through which the head of the Experts' Unit of the Auxiliary Secretariat of the
Governing Body and Administration of this Tribunal, informed that the expert
registered before this Jurisdictional Body in matters of foreign trade, Ing. Lic. ****** *********** ****** stated that she had
knowledge of advertising, publicity and marketing and provided her curriculum
vitae. By virtue of this, the expert was appointed to act as a third expert in
this trial in matters of advertising, publicity and marketing, requiring her to
appear before the Ninth Regional Metropolitan Court within ten days to accept
and protest the position conferred, as well as to be given the questionnaires
and other elements required to formulate her report. Finally, it was ordered
that the parties be informed of the order of account for the corresponding
legal effects.
20. On September 5, 2017,
the C. ************ ****** ******, third expert, appeared before the Ninth
Metropolitan Regional Chamber to prove that he met the corresponding
requirements, to accept the position and to protest his legal performance.
Therefore, he was considered to have been presented for the specified purposes,
and was granted a period of fifteen days to submit his report.
21. By agreement of 11 October 2017, she
was informed of the brief submitted to the Office of the Common Counsel for the
Regional Metropolitan Chambers on 4 October 2017, by which the third expert in
the field of propaganda, advertising and marketing requested an extension of
the period allowed for the delivery of her opinion, on account of the
complexity of the case. She was therefore given a single opportunity to submit
her opinion within 15 days.
22. On January 3, 2018,
the Court took note of the documents filed with the Office of the Common
Counsel for the Metropolitan Regional Chambers of this Court on December 5,
2017, through which the third party expert in dispute:
1) requested the release of the expert in order to be able to collect his fees
and 2) rendered his expert opinion in the area of advertising, publicity and
marketing. Consequently, the necessary steps were ordered for her to collect
the corresponding fees.
23. On April 30, 2018, the
parties were granted the term of law to file pleadings. This right was
exercised by both parties.
24. By means of a different agreement dated
30 April 2018, the investigation of the trial was declared closed, and it was
ordered that the necessary steps be taken, by virtue of the fact that in the
trial the exercise of the power of attraction of the High Court of this Court
had been requested.
25. By agreement of April 30, 2018, it was
ordered that the trial proceedings be sent to the Superior Chamber of this
Court for their final resolution.
26. On June 1, 2018, the then President of
the Second Section of the Superior Chamber, Judge Víctor Martín Orduña Muñoz, issued official letter number 17-9-2-24326/18
dated April 30, 2018, received by the Office of the Parties of the Superior
Chamber on May 31, 2010. By virtue of this, she filed the trial in said Section
and ordered that the proceedings be sent to her Office.
CONSIDERING
FIRST. This Second Section of the Superior
Chamber of the Federal Court of Administrative Justice is competent to resolve
the contentious-administrative lawsuit that is before us, in accordance with
the provisions of Article 23, Section II of the Organic Law of the Federal
Court of Fiscal and Administrative Justice, - in force before 18 July 2016 - in
accordance with the provisions of the fifth transitional article, sixth
paragraph, of the Decree issuing the General Law of the National
Anti-Corruption System; the General Law on Administrative Responsibilities and
the Organic Law of the Federal Court of Administrative Justice; and Article 48,
paragraph I, subparagraph a) and paragraph II, subparagraph a) of the Federal
Law on Contentious Administrative Proceedings, in force before 13 June 2016, in
accordance with the Second Transitory Article of the Decree amending, adding
and repealing several provisions of the aforementioned law - since this is a
lawsuit with special characteristics by virtue of its amount, since the total
value of the business is $3,082,309,114. 00.
The legal precepts referred to are as
follows:
ORGANIC LAW OF THE FEDERAL COURT OF FISCAL
AND ADMINISTRATIVE JUSTICE
"ARTICLE 23.- The powers of the
Sections are the following: (…)
II. Resolving trials with special
characteristics, in terms of the applicable provisions
(…)”
FEDERAL LAW ON CONTENTIOUS-ADMINISTRATIVE
PROCEDURE
"The Plenary or the Sections of the
Court may resolve trials with special characteristics.
I. Trials
with special characteristics are those in which
a) Due to their subject matter, concepts of
challenge or amount are considered of interest and importance.
II. For
the exercise of the power of attraction, the following rules shall apply
a) The request, if any, made by the
Regional Chambers, the Examining Magistrate or the authorities must be
presented before the closure of the proceedings.
(…)”
SECOND: The existence of the challenged
resolution, as well as of the originally appealed one, was duly evidenced in
the proceedings, in accordance with the provisions of articles 46, section I of
the Federal Law of Contentious Administrative Procedures; 129 and 202 of the
Federal Code of Civil Procedures of supplementary application in the matter, in
view of the presentation made by the plaintiff, together with the express
acknowledgement made by the authority in that sense when answering the
complaint.
THIRD. A first aspect that is important to
highlight in this ruling is the fact that the resolution that is being challenged,
that is, the resolution contained in official letter number 900-09-2016-2276 of
28 March 2016, issued by the Central Administration of Large Taxpayers of the
Tax Administration Service, corresponds to the one who resolved the appeal for
revocation and confirmed the various official letter number
900-07-04-2015-55504 dated October 19, 2015, through which the International
Control Administrator "4 , determined a tax profit in the amount of
$3'082'309,114. 00, for income tax corresponding to the fiscal year from
January 1 to December 31, 2008. Therefore, it is necessary to specify the scope
of the "open litigation" principle provided for in articles 1 and 50
of the Federal Law on Contentious Administrative Procedures, which literally
provide the following:
FEDERAL LAW ON CONTENTIOUS-ADMINISTRATIVE
PROCEDURE
"ARTICLE 1.
When the resolution of an administrative
appeal does not satisfy the legal interest of the appellant, and the appellant
disputes it in the federal administrative trial, it will be understood that the
appellant simultaneously challenges the resolution appealed against in the part
that continues to affect him, being able to assert concepts of challenge not
raised in the appeal.
Likewise, when the resolution of an
administrative appeal declares that it has not been filed or rejects it as
inadmissible, provided that the competent Regional Chamber determines that the
appeal is admissible, the contentious-administrative proceedings shall proceed
against the resolution which is the subject of the appeal, and in any case may
assert concepts of objection not raised in the appeal".
"ARTICLE 50.- (...)
In the case of judgments ruling on the
legality of the decision given in an administrative appeal, if there is
sufficient evidence to do so, the Court will rule on the legality of the
decision appealed against, in so far as it does not satisfy the legal interest
of the applicant. Acts of the administrative authorities which are not
expressly challenged in the application may not be annulled or altered.
(…)
From the systematic interpretation of the
transcribed precepts, it can be concluded that they institute what in judicial
practice has been called the "principle of open litigation", which
has its immediate precedent in the corresponding parts of articles 197 and 237
of the Federal Tax Code, in force until the entry into force of the Federal Law
on Contentious Administrative Procedure.
Thus, the open Litis implies that, in the
case of a challenge to the resolution that decided an administrative appeal,
the act of the authority appealed against in the administrative headquarters is
understood to be simultaneously controversial in the part that did not satisfy
the legal interest of the plaintiff, which allows the plaintiff to reiterate in
the concepts of challenge, the grievances that were exposed in the means of
defence in the administrative headquarters, in addition to allowing the
formulation of even new arguments.
For these reasons, and given that in the
present contentious-administrative trial the resolution that resolves the
appeal of revocation filed by the plaintiff is controlled, under the terms of the
Federal Law of Contentious-Administrative Procedure it is appropriate to analyze the legality of the act of authority originally
appealed against, in the framework of the concepts of contestation put forward
by the plaintiff, whether they are reiterative of those put forward in the
administrative instance, or novel, in accordance with the principles of
congruence, exhaustiveness and greater benefit that govern the final judgments
in the trial that we are dealing with.
Jurisprudence VI-J-2aS-6 issued by the
Second Section of the Superior Chamber of this Court, published in the Magazine
edited by this Court, number 11, Sixth Period, Year I, November 2008, page 78,
is applicable, which is of the following literal tenor
CONTENTIOUS-ADMINISTRATIVE TRIAL. THE
PRINCIPLE OF OPEN LITIGATION CONTAINED IN THE FEDERAL LAW OF
CONTENTIOUS-ADMINISTRATIVE PROCEDURE, ALLOWS THE PLAINTIFF TO USE NOVEL OR
REITERATIVE CONCEPTS OF ANNULMENT REFERRED TO THE RESOLUTION APPEALED AGAINST,
WHICH MUST BE
STUDIED BY THE COURT. In accordance with
the provisions of articles 1, second paragraph, and 50, penultimate paragraph,
of the Federal Law of Contentious Administrative Procedure, published in the
Official Gazette on December 1, 2005, in force as of January 1, 2006, the
contentious administrative trial is based on the principle of "open
litigation", according to which in the judgment of the Federal Court of
Tax and Administrative Justice when the decision is challenged in an
administrative appeal, not only must the grievances which seek to challenge the
legality of the contested decision be resolved, but also those which challenge
the contested decision, and the new arguments raised, which may include the
reasoning relating to the contested decision, and those which seek to challenge
the new decision, must be analysed; as well as those reasons or grounds that
reproduce grievances raised in the administrative appeal against the original
resolution. Therefore, all of these arguments, whether new or repetitive of the
administrative body, constitute the concepts of annulment inherent in the tax
complaint, which implies that they are used to combat both the contested
decision and the contested decision in the part that affects the legal interest
of the plaintiff, and therefore this Court is obliged to study them. (9)
FOURTH - Before studying the concepts of
challenge put forward by the plaintiff, the Court considers it appropriate to
specify that in this ruling only the exceptional arguments put forward by the
authority at the time of answering the application, relating to the substance
of the case, as well as the concepts of challenge put forward by the plaintiff
in its application, will be transcribed in order to satisfy the principles of
consistency and completeness in the judgments.
By analogy, the thesis of jurisprudence
2a./J. 58/2010, supported by the Second Chamber of the Supreme Court of Justice
of the Nation, Ninth Period, published in the Semanario
Judicial de la Federación y su
Gaceta, Volume XXXI, May 2010, page 830:
CONCEPTS OF VIOLATION OR GRIEVANCE. TO
COMPLY WITH THE PRINCIPLES OF CONGRUENCE AND COMPLETENESS IN THE AMPARO
JUDGMENTS IS
IT WOULD BE UNNECESSARY TO TRANSCRIBE IT.
Of the precepts that make up Chapter X "On Sentences", of the first
title "General Rules", of the first book "On Amparo in
General", of the Amparo Law, it is not noted as an obligation for the
judge to transcribe the concepts of violation or, where appropriate, the
grievances, in order to comply with the principles of consistency and completeness
in the sentences, These principles are satisfied when it specifies the points
under discussion, arising from the application for protection or the statement
of grievances, studies them and responds to them, which must be linked to and
correspond to the approaches to legality or constitutionality actually set out
in the relevant specification, without introducing aspects other than those
which make up the dispute. However, there is no prohibition against making such
a transcript, and it is up to the judge to decide whether to do so, taking into
account the special characteristics of the case, without detriment to the fact
that, in order to satisfy the principles of completeness and consistency, the
claims of legality or unconstitutionality that have been asserted are studied.
FIFTH - Prior to the study of the concepts
of challenge, in order to contextualise the present case, it is necessary to
specify the following background information, which is derived from the
settlement decision:
1. The
petitioner is a company incorporated under Mexican law and belongs to the beer
industry, as part of ***** ********** *********.
2. The
main activity of the acting company ******** ********** ********** **** ** ****
is to distribute the beer it produces ********** ********** **** ** **** (now
*************** ********** **** ** ****, also a 99.99% subsidiary of**********
********* ******** **** ** ****) and that the five main brands used in the
products it distributes are "***********", "***",
"******", "********", "** *****", among others.
3. Until January 2003, **********
********** ************** ** ****, was the owner of the brands used in the beer
distributed by the acting company.
4. In February 2003, ********** **********
************** ** ****, was spun off, surviving in its capacity as a spun-off
company, and the entity known as ************* **** ** *****, resident in Mexico,
to which it transferred, among others, intangible assets such as brands,
notices and trade names.
5. As a result, on 1 March 2003, the acting
company and ********** ********** ********** **** ** ****, entered into a
non-exclusive licence agreement with ********* **** **** ** **** to use and
exploit intangible assets known as trademarks, commercial notices and other
industrial property rights, and were obliged to pay royalties for the use of
such industrial property in December of each year.
6. On
October 20, 2003, ********** ***************** **** ** **** (formerly *****
********* **** ** ****) incorporated in Mexico a *** ************** **** **
****, a company belonging to ***** ********** ********* and which on December
15, 2003, changed its tax domicile to Switzerland, cancelling from that moment
its federal registry of taxpayers in Mexico.
7. On 18 December 2003, ********* ****
****** merged with *** ************** **** ** ****, an entity resident in
Switzerland, the latter surviving, thereby holding the intangible assets such
as brands, advertisements and trade names that were owned by ********* ****
**** ** ****
8. Once *** ************** **** ** ****,
acquired the ownership of the brands, notices and commercial names mentioned
above, these were contributed to the Company **** *** ****, constituted on 17
June 2004, thus becoming a 100% shareholder of the latter.
9. As from 2004, the company *** *** ****, which
is resident for tax purposes in Switzerland, began to benefit from the granting
of the use and exploitation of the trademarks, commercial notices and other
industrial property rights originally developed in Mexico by **********
********** ********** **** ** ****, with the related parties resident in Mexico
being obliged to pay this consideration in their capacity as marketers of the
products related to these trademarks, as is the case with the claimant.
10. By means of the
restructuring described above, the group to which ******** **********
********** **** ** **** belongs, placed in Switzerland the profits from the
granting of the use or enjoyment of the trademarks, advertisements and trade
names developed in Mexico, which are held by the products marketed mostly in
the Mexican market, generating a tax deduction in Mexico for the expenditure on
royalties for the use or enjoyment of the trademarks, advertisements and trade
names transmitted to *** *** ****
11. However, on 1 August
2013, the C.P.R. ****** was notified, in its capacity as the external auditor
of the plaintiff company, of letter number 900 07-04-2013-40346 of 24 July
2013, issued by the International Auditing Authority "4" through
which it was summoned to deal with matters related to the review of the opinion
of the financial statements of the plaintiff, corresponding to the fiscal year
2008.
12. As a result of the
procedure referred to in the previous point, the auditing authority considered
that the information and documentation provided by the Registered Public
Accountant was insufficient to observe the tax situation of the claimant
company, and therefore decided to initiate its powers of verification directly
with the latter, for the purpose of reviewing compliance with its income tax
obligations for the 2008 tax year.
13. On 29 October 2013 the
claimant was notified of official letter number 900-07-04-2013-48000, issued on
14 October 2013 by the International Taxation Administration "4" of
the Tax Administration Service, requesting various information and documents in
order to verify the correct compliance with the tax provisions as a direct
subject of income tax for the 2008 tax year.
14. On October 23, 2015,
it was notified of the resolution contained in official letter number 900 07
04-2015-55504 of the 19th of the same month and year, by which the
International Taxation Administration "4" of the Tax Administration
Service determined the following:
a) The deductions for "propaganda and
publicity" expenses, marketing expenses and uncollectible credits, made by
the plaintiff in the total amount of $1'856,517,431.00, for income tax,
corresponding to the period from January 1 to December 31, 2008, were not
applicable.
b) As a result of the foregoing, it ordered
the parent company ******* ********* ********* ***** ** ****, to file a
supplementary tax return for the 2008 fiscal year, in which it would determine
its tax result in accordance with the change in the plaintiff's taxable income
and, if applicable, determine the tax to be charged with the attachments to the
law.
15. On December 8, 2015,
the plaintiff filed an appeal for annulment of the contents of official letter
number 900 07 04-2015-55504 dated October 19, 2015.
16. On 6 April 2016 the
plaintiff was notified of official letter number 900-09-2016-2276 of 28 March
2016 (which constitutes the resolution challenged in the trial), by which the
Central Administration of Large Taxpayers' Litigation of the Tax Administration
Service resolved the appeal for revocation filed by the plaintiff, in the sense
of confirming the resolution contained in official letter number 900 07
04-2015-55504 of 19 October 2015.
SIXTH. Based on the provisions of Article
50 of the Federal Law on Contentious Administrative Procedure, this Section
shall analyse the SIXTH concept of challenge, in which the plaintiff checks the
legality of the notification of official letter 900-07-04- 2013-48000 of 14
October 2013, with which the powers of inspection were initiated, of official
letter of observations number 900-07-04-2015-22431 of 14 April 2015, and of the
settlement resolution contained in official letter 900-07-04-2015-55504 of 19
October 2015.
In this concept of challenge, the plaintiff
refers to the following:
(See transcript)
SUMMARY OF THE GROUNDS FOR CHALLENGE
In accordance with the above, the plaintiff
states that the notifications of the official letter 900-07-04-2013-48000 of 14
October 2013 with which the powers of inspection began, of the official letter
of observations number 900-07-04-2015-22431 of 14 April 2015 and of the
settlement resolution contained in official letter 900-07-04-2015-55504 of 19
October 2015, met with a number of third parties, who stated that they worked
for an undertaking which provides services to the applicant, without it being
stated in the respective minutes of notification, in a detailed and duly
detailed manner which undertaking they belong to and the link which they have
with the applicant.
It is clear from the foregoing that the
acts of notification were addressed to uncertain and unspecified persons.
That the authority cannot assume that a
person who is circumstantially or accidentally in the domicile of a taxpayer is
apt to inform about the whereabouts of the same or of his legal representative,
nor much less, to receive the summons or minutes of notification for the
practice of the diligence.
That the status of third party cannot be
attributed to any person, but only to those who, due to their relationship with
the taxpayer, offer some guarantee that they will inform the addressee of the
document.
That for the above reasons, the notifier
must ensure that the person at the domicile is not there due to accidental
circumstances, so that it is necessary for the notifier to enter data that
objectively allows the conclusion that the diligence was carried out at the
indicated domicile, that his representative was sought and that in the absence
of these the diligence was understood with the person at the domicile, ensuring
the relationship of the same with the taxpayer.
That in this sense, it is the obligation of
the notifier to record in the respective minutes or summonses, the data that
undoubtedly lead to the certainty that the third party is a person who will
give notice to the interested party both of the search and of the date and time
in which the respective notification will be made, that is, objective data that
lead to the conclusion that in the absence of the interested party, the
diligence was understood with someone suitable for such purpose.
This is so because the summons and the
respective notification act bind the interested party or his legal
representative to wait for the diligence at the set time, with the warning
that, if he does not do so, he will have to bear the consequence, consisting of
the diligence being carried out with the person present or with a neighbour.
That the notification of those acts was
carried out with various third parties, in their capacity as employees of an
undertaking which provides services to the plaintiff, without indicating in the
same act of notification, in a detailed and duly detailed manner, the
connection which those persons had with the plaintiff.
That the notifier did not record in the
respective minutes the factual circumstances which he took into account in
order to understand the procedure with a third party, since the information
which would give certainty that he was acting with a third party who would
notify the taxpayer of the respective duty was not indicated.
That the notifier did not record the manner
in which he ensured that the person with whom he understood each of the
proceedings presented a certain guarantee that he would inform the claimant of
the said acts, inasmuch as he did not record the data and circumstances that
would allow him to ascertain the nature of the third party with whom the
proceedings were understood.
That the voting credentials exhibited by
the third parties with whom the notification was made do not prove their
relationship with the plaintiff, so that the alleged relationship between the
company in which those third parties work cannot in any way be considered
sufficient for the actuary to have understood the proceedings with them, since
he had to ensure that they were not at home due to accidental circumstances, which
did not occur.
That in order to comply with the
requirement of circumstance in terms of article 137 of the Federal Fiscal Code,
the notifier must state the objective data that the person who receives the
summons is not accidentally at the domicile of the taxpayer and that he will
inform the latter about the diligence, because otherwise the indispensable
budget for the legal warning to be effective could not be considered satisfied.
That when the official in charge of the
notification of the official duty drew up the report, he had to record the
circumstances that he had taken into account to consider that the third party
with whom the notification was made would actually comply with the purpose of
the report, that is, to give notice and to inform the person to whom the
official duty is addressed.
That omitting the above, as occurred in the
case, leads to the extreme that the third party's assertion is a unilateral
statement made by the notifier, which is not corroborated by the statement of
any person who was at the domicile and who effectively informed the notifier
that the legal representative was absent.
Consequently, the review on the basis of
which the defendant authority determined the tax credit to be borne by the
claimant has become ineffective and, consequently, the contested tax assessment
procedure is flawed.
That it is not an impediment to the above
that section 51(2)(d) of the Ley Federal de Procedimeinto
Contencioso Administrativo
provides that the defences of the individual are not affected and do not
transcend the meaning of the judgment, among others, irregularities in the
notifications of the requests for data, reports or documents, or in the
requests themselves, provided that the individual complies with them,
exhibiting the requested information and documentation in a timely manner.
That the above is so, because the
observations office, as well as the settlement office, are not simple requests
for documentation or information, and therefore the assumption referred to in
the legal precept in question is not updated, since through the former the
taxpayer is informed of the facts or omissions detected by the tax authority in
the financial year under review and through the latter, the contributions
omitted by the taxpayer are determined.
That the fact that the claimant has
responded in a precautionary manner to the notice of assessment and has filed
an appeal for reversal of the notice of assessment does not in any way imply
that the claimant has formally taken cognisance of it in the legal form and
time, since the truth is that as can be seen from the minutes of notification
of those notices, The proceedings were carried out with a third party who
claimed to be an employee of a company which provides services to the
applicant, so that it is not certain that the plaintiff was aware of the exact
date on which the minutes of notification were issued and that the plaintiff
was given the full period of time within which it was entitled to exercise its
rights.
SUMMARY OF THE EXCEPTIONAL ARGUMENTS
In its reply, the defendant authority
stated that the applicant's arguments were ineffective, and validated the
contested notifications, while the applicant requested an extension of time to
comply with the request made by letter 900-07-04-2013-48000 of 14 October 2013,
It also replied to the observations contained in official letter
900-07-04-2015-22431 of 14 April 2015 and duly filed an appeal for annulment of
the settlement decision contained in official letter 900-07-04-2015-55504 of 19
October 2015.
The defendant states that the notifications
of the acts referred to were carried out in accordance with the law, since the
law does not require that the notifiers ensure the character of the persons
with whom the proceedings are to be carried out.
ESTABLISHMENT OF THE DISPUTE
The dispute consists of determining whether
the notification minutes of the official letter 900-07-04-2013-48000 of 14
October 2013 with which the powers of inspection were initiated, of the
official letter of observations number 900-07-04-2015-22431 of 14 April 2015
and of the settlement resolution contained in official letter
900-07-04-2015-55504 of 19 October 2015, are duly detailed with regard to the
information of the third party with whom each of the aforementioned proceedings
was carried out.
RESOLUTION OF THE SECOND SECTION OF THE
SUPERIOR COURT
In order to resolve the dispute in this
Recital, it is necessary to know what is established in Article 137 of the
Federal Fiscal Code in this respect:
Article 137.- When the notification is made
in person and the notifier does not find the person to be notified, he shall
leave a summons at the domicile, either to wait at a fixed time on the
following working day or to go and notify himself, within a period of six days,
at the offices of the fiscal authorities.
In the case of acts relating to the
administrative procedure of execution, the summons will always be for the wait
indicated above and, if the person summoned or his legal representative does
not wait, the procedure will be carried out with the person at home or, failing
that, with a neighbour. If the latter refuses to receive the notification, it
will be made by means of an instruction which will be fixed in a visible place
of that address, and the notifier will have to give a reason for that
circumstance in order to inform the head of the executing office.
If the notifications refer to summonses for
the fulfilment of obligations not satisfied within the legal deadlines, the
fees established in the regulations of this Code will be charged to the person
who committed the breach.
From the precept transcribed, it is clear
that when the notification is made in person and the notifier cannot find the
person to be notified, he will leave a summons at the address, either to wait
at a fixed time on the following working day or to go and notify the offices of
the tax authorities within six days.
Likewise, it provides that if the person
cited or his legal representative does not wait on the date and time indicated
in the summons, the procedure will be carried out with whoever is at the
domicile or, failing that, with a neighbour.
However, on this last point, the Judicial
Power of the Federation has interpreted article 137 of the Federal Fiscal Code,
indicating that in order to circumstance the notification act it is necessary
that the notifier enters objective data that allows to conclude that
a) the diligence was carried out in the
indicated domicile;
b) the taxpayer or its representative was
sought; and
(c) in their absence, it was understood
that the procedure was carried out with the person at the domicile
In the latter case, the third party is
required to identify himself, provide his name and express the reason why he is
at the place or the relationship he has with the interested party, without it
being necessary for the notifier or visitor to obtain the documents which prove
the link between the third party and the taxpayer, since the latter is not
obliged to justify the reason why he is at the place or his relationship with
the interested party and, therefore, to provide documentation referring to that
circumstance.
The above was established in case law
2a./J. 85/2014 (10a.), Décima Época,
supported by the Second Chamber of the Supreme Court of Justice of the Nation,
published in the Gaceta del Semanario
Judicial de la Federación, Book 10, September 2014,
Volume I, page 746:
PERSONAL NOTIFICATION IN TAX MATTERS. TO
CIRCUMSTANCE THE RECORD OF THE DILIGENCE UNDERSTOOD WITH A THIRD PARTY, IT IS
UNNECESSARY FOR THE NOTIFIER TO COLLECT DOCUMENTS OR UNDOUBTED ELEMENTS THAT
DEMONSTRATE THE NEXUS HE CLAIMS TO HAVE WITH THE TAXPAYER. From the
interpretation of Article 137 of the Federal Fiscal Code and in congruence with
the criteria of this Second Chamber of the Supreme Court of Justice of the
Nation, contained in the jurisprudence 2a./J. 15/2001 (*), 2a./J. 60/2007 (**),
2a./J.101 /2007 (***) and 2a./J. 82/2009 (****), it should be noted that in
order to substantiate the notification act it is necessary for the notifier to
provide objective data that allow the conclusion that: a) the procedure was
carried out at the indicated address; b) the taxpayer or its representative was
sought; and c) in their absence the procedure was carried out with the person
at the address. In the latter case, if the third party fails to provide his
name, does not identify himself, and/or does not express the reason why he is
in the place or the relationship he has with the interested party, the notifier
shall be required to enter data that objectively lead to the conclusion that
the proceeding was carried out at the domicile, such as the characteristics of
the property; if the third party was inside or other data that reasonably prove
that the proceeding was carried out in the correct place and with whom he will
notify the interested party both of the search and of the date and time when
the respective proceeding will be carried out. Hence, the omission of only one
of the data to be provided by the third party is sufficient for the notifier,
for the purpose of safeguarding the legality of his action, to be obliged to
record the indicated data in detail.
Pursuant to the foregoing, in cases where
the third party fails to provide his name, does not identify himself, and/or
does not express the reason why he is in the place or the relationship he has
with the data subject, the data setter will be required to record data that
objectively lead to the conclusion that the procedure was carried out at the
domicile, such as the characteristics of the property; if the third party was
in the interior or other data that, reasonably, proves that he is acting in the
correct place and with whom he will give notice to the data subject both of the
search and of the date and time at which the respective notification diligence
will be carried out.
However, in the present case, the
notification of the official letter 900-07-04-2013-48000 of 14 October 2013
with which the powers of inspection began, the official letter of observations
number 900-07-04-2015-22431 of 14 April 2015, and the settlement resolution
contained in official letter 900-07-04-2015-55504 of 19 October 2015, were
carried out in the following terms
(See transcript)
The following is noted from the digitized
notification records:
NOTIFICATION RECORDS OF THE LETTER
900-07-04-2013-48000 OF 14 OCTOBER 2013.
That on 28 October 2013, the notifier
attached to the Central Administration of International Taxation, of the
General Administration of Large Taxpayers of the Tax Administration Service,
was constituted at the tax domicile of the acting company, for the purpose of
notifying it of the official letter 900-07-04-2013-48000 of 14 October 2013;
for which reason it required the presence of its legal representative; however,
the latter was not at the domicile, so it left a summons for the following day
with the C. *************** ********* *******, in his capacity as a third
party, who claimed to be an employee of a company that provided services to the
applicant, identified himself with a voting card and stated that he was at home
because he worked there. The notifier also stated that if the legal
representative of the plaintiff did not wait at the time and on the day
indicated in the summons, the procedure would be carried out with whoever was
at the domicile.
That on 29 October 2013, the notifier
attached to the Central Administration of International Taxation, of the
General Administration of Large Taxpayers of the Tax Administration Service,
was constituted at the tax domicile of the plaintiff, for the purpose of
notifying him of the letter 900-07-04-2013-48000 of 14 October 2013, for which
he required the presence of his legal representative, to which the C. *********
****** *******, who attended the proceedings, expressly replied that the latter
was not present.
That by virtue of the foregoing, the
notifier carried out the diligence with the C. ********* ****** *********
*******, in his capacity as a third party, who identified himself with a
credential to vote and stated that he worked in a company that provided
services to the plaintiff.
NOTIFICATION RECORDS OF THE LETTER OF
OBSERVATIONS NUMBER 900-07-04-2015-22431 OF 14 APRIL 2015
That on 23 April 2015, the notifier
attached to the Central Administration of International Taxation, of the
General Administration of Large Taxpayers of the Tax Administration Service,
was constituted at the fiscal domicile of the petitioner company, for the
purpose of notifying it of the letter 900-07-04-2015-22431 of 14 April 2015;
for which reason it required the presence of its legal representative; however,
the latter was not at the domicile, and therefore left a summons for the
following day with the C. ***** *********** ******, in his capacity as a third
party, who claimed to be an employee of a company that provided services to the
applicant, identified himself with a voting card and stated that he was at home
because he worked as an accountant in the tax area. The notifier also stated
that in the event that the legal representative of the plaintiff did not wait
at the time and on the day indicated in the summons, he would be diligent with
whoever was at the domicile.
That on 24 April 2015, the notifier
attached to the Central Administration of International Taxation, of the
General Administration of Large Taxpayers of the Tax Administration Service,
was constituted at the tax domicile of the plaintiff company, for the purpose
of notifying him of the letter 900-07-04-2015-22431 of 14 April 2015, for which
he required the presence of his legal representative, to which the C. *****
******* **** ******, who attended the proceedings, expressly replied that this
was not contravened.
That by virtue of the foregoing, the
notifier carried out the diligence with the C. ***** ******* **** ******, in
its third party character, who identified himself with
a credential to vote and stated that he worked in a company that provides
services to the plaintiff.
NOTIFICATION RECORDS OF THE LETTER
900-07-04-2015-55504 OF 19 OCTOBER 2015.
That on 22 October 2015, the notifier
attached to the Central Administration of International Taxation, of the
General Administration of Large Taxpayers of the Tax Administration Service,
was constituted at the fiscal domicile of the petitioner company, for the
purpose of notifying him of the official letter 900-07-04-2015-55504 of 19
October 2015; for which he required the presence of his legal representative;
however, the latter was not at the domicile, and therefore left a summons for
the following day with the C. ***** *********** ******, in his capacity as a
third party, who claimed to be an employee of a company that provided services
to the applicant, identified himself with a voting card and stated that he was
at home because he worked there every day. The notifier also stated that if the
legal representative of the plaintiff did not wait at the time and on the day
indicated in the summons, the procedure would be carried out with whoever was
at the home.
That on 23 October 2015, the notifier
attached to the Central Administration of International Taxation, of the
General Administration of Large Taxpayers of the Tax Administration Service,
was constituted at the tax domicile of the plaintiff company, for the purpose
of notifying him of the letter 900-07-04-2015-55504 of 19 October 2015, for
which he required the presence of his legal representative, to which the C.
***** ******* **** ******, who attended the proceedings, expressly replied that
this was not contravened.
That by virtue of the foregoing, the
notifier carried out the diligence with the C. ***** ******* **** ******, in
its third party character, who identified himself with
a credential to vote and stated that he worked in a company that provides
services to the plaintiff.
As we can see, in the three cases, the
notifiers were constituted at the fiscal domicile of the plaintiff company in
order to notify it of the above mentioned duties;
however, since the legal representative of the plaintiff was not at that
domicile, he was given notice for the following day, as established in Article
137 of the Federal Fiscal Code.
Notwithstanding the above, the legal
representative of the plaintiff did not attend the summonses dated October 28,
2013, April 23, 2015, and October 22, 2015, so the respective proceedings were
carried out with the persons who were at the domicile at that time, who
provided their name and address, identified themselves with a credential to
vote, and stated "they are employees of a company that provides services
to the plaintiff.
By virtue of the foregoing, this Court
considers that the notifications of the official letter 900-07-04-2013-48000 of
14 October 2013 with which the powers of inspection were initiated, the
official letter of observations number 900-07-04-2015-22431 of 14 April 2015
and the liquidation resolution contained in the official letter 900-07-04-2015-
55504 of 19 October 2015, were carried out legally, that is, in terms of
Article 137 of the Federal Fiscal Code.
The above is said because the notifiers
recorded objective data that allows us to conclude that the diligence was
carried out at the indicated address; that the taxpayer or its representative
was sought; and that in their absence the diligence was understood with the
person who was at the address.
In addition to the fact that the third
parties with whom the proceedings were conducted identified themselves,
provided their names and expressed their relationship with the plaintiff, the
notifiers also sought the documents which would prove the link between the
third parties and the taxpayer, since they are not obliged to justify the
reason why the third parties were in the place or their relationship with the
interested party, nor, therefore, to provide documentation relating to that
circumstance.
On the contrary, the data recorded by the
notifiers in relation to the third parties who attended the aforementioned
proceedings are sufficient to estimate that they would make the legal
representative of the shareholder aware of the letter 900-07-04-2013-48000 of 14
October 2013, with which the powers of inspection began, the letter of
observations number 900-07-04-2015-22431 of 14 April 2015, and the settlement
resolution contained in letter 900-07-04-2015-55504 of 19 October 2015.
The conclusions reached are supported by
the jurisprudence 2a./J. 82/2009, of the Second Chamber of the Supreme Court of
Justice of the Nation, Ninth Period, published in the Semanario
Judicial de la Federación y su
Gaceta, Volume XXX, July 2009, page 404:
PERSONAL NOTIFICATION PRACTICED IN TERMS OF
ARTICLE 137 OF THE FEDERAL FISCAL CODE. DATA THAT THE NOTIFIER MUST RECORD IN
THE MINUTES OF DELIVERY OF THE SUMMONS AND SUBSEQUENT NOTIFICATION TO COMPLY
WITH THE REQUIREMENT OF CIRCUMSTANCE, WHEN THE RELATIVE DILIGENCE IS UNDERSTOOD
WITH A THIRD PARTY. In order to comply with the requirement of circumstance, it
is necessary that the notifier records in the minutes information that
objectively allows the conclusion that he carried out the service at the
indicated address, that he sought the taxpayer or his representative and that
in their absence he understood the service with the third party, understood as
the person who, due to his relationship with the taxpayer, provide some guarantee that the document will
be disclosed to the addressee. To this end, the notifier must ensure that the
third party is not at the address due to accidental circumstances, ranging from
persons who live in the address (family members or domestic servants) to those
who are normally, temporarily or permanently there (workers or tenants, for
example). Furthermore, if the third party does not provide his or her name,
does not identify himself or herself, or does not indicate the reason why he or
she is in the place or his or her relationship with the interested party, the
diligence officer must specify the characteristics of the property or office,
that the third party was inside, that he or she opened the door or that he or
she is attending to the office, or other diverse data that undoubtedly lead to
the certainty that he or she is acting in the correct place and with a person
who will give notice to the interested party both of the search and of the date
and time in which the respective notification diligence will be carried out.
As well as the thesis VII-CASR-2OC-13,
published in the Journal edited by this Tribunal, Séptima
Época, Year V, No. 43, February 2015, page 179:
PERSONAL NOTIFICATION. ARTICLE 137 OF THE
FISCAL CODE OF THE FEDERATION DOES NOT FORESEE AS A REQUIREMENT OF VALIDITY
THAT THE NOTIFIER SHOULD ASCERTAIN WITH A SUITABLE DOCUMENT THE CHARACTER OF
THE THIRD PARTY ATTENDING TO THE DILIGENCE. From the interpretation of the
aforementioned legal provision it is noted that in order to safeguard the
guarantee of legal certainty for taxpayers, it is the obligation of the
notifiers to draw up minutes in which the facts relating to the notification
are stated, such as that it was constituted at the respective domicile; that it
was requested by the presence of the addressee of the act or his legal
representative, and that because he was not present he left a summons at the
domicile to wait at a fixed time on the following working day; that it was
constituted again at the domicile; that it was requested by the presence of the
aforementioned person or his legal representative, and that because they did
not wait for him at the time and on the day fixed in the summons, the diligence
was carried out with the person who was at the domicile or in his absence with
a neighbour; Consequently, if during the service of the document the third
party who is dealing with it states that he has an employment relationship with
the addressee, that relationship is sufficient to ensure that the document to
be served could be delivered, without the notifier being obliged to require a
suitable document to prove the existence of the employment relationship, since
there is no legal provision which obliges the notifier to ascertain the
truthfulness of the third party's statement, since the notary must merely
specify the circumstances which occurred during the service.
Enforcement of Judgment issued in the
Contentious Administrative Proceedings No. 2890/11-07-02-1.- Resolved by the
Second Western Regional Chamber of the Federal Court of Fiscal and
Administrative Justice, on 21 March 2014.
The Court notes that the plaintiff duly
attended to the above-mentioned documents, while it issued a ruling in relation
to the requirement of 14 October 2013, with which the powers of inspection
began, by requesting an extension in writing received by the General
Administration of Large Taxpayers on 20 November 2013 (pages 124 and 123 of
administrative file CCM010710UU1, VOLUME 1 OF 1); Likewise, by means of the
document submitted to the authority on 27 May 2015, the applicant replied to
the letter of observations of 14 April 2015 (pages 299 to 261 of administrative
file CCM010710UU1, VOLUME 1 OF 1); and finally, on 8 December 2015, it filed an
appeal for annulment of the settlement decision of 19 October 2015 (pages 265
to 275 of administrative file R. R. 240/15), which strengthens the
considerations of this Court in the sense that the respective proceedings were
carried out legally, since the third parties who attended them did inform the
plaintiff of the acts in question.
Consequently, the SIXTH concept of
objection to the claim is UNPROPERLY founded.
SEVENTH. Based on the provisions of the
second paragraph of Article 50 of the Federal Law on Contentious Administrative
Procedure, this Section will analyse the concept of challenge FIFTH of the
lawsuit, in which the plaintiff disputes the legality of the official letter
number 900-07-04-2013-48000 of 14 October 2013 through which the International
Tax Administration Service "4" requested various information and
documents in order to verify the correct compliance with the tax provisions as
a direct subject of income tax for the 2008 fiscal year.
(See transcript)
SUMMARY OF THE GROUNDS FOR CHALLENGE
The plaintiff argued that the settlement
document is illegal because it is the result of a flawed procedure, since the
defendant authority did not properly substantiate or motivate document number
900-07-04-2015-55504 dated 19 October 2015, in relation to the object of the
review.
That, in its letter No 900-07-04-2013-4800
of 14 October 2013, the defendant failed to provide a proper statement of
reasons for the purpose of the review which gave rise to the contested
decision, in so far as that purpose was limited to verifying solely and
exclusively compliance with the applicant's tax obligations 'in order to verify
correct compliance with the tax provisions to which it is subject (i) as the direct subject of the next federal contribution:
income tax, for income subject to preferential tax regimes, and (ii) as a
withholder and jointly and severally liable for the following federal
contribution: income tax, caused by transactions with residents abroad; for the
tax year from 1 January 2008 to 31 December 2008'.
That the review order from which the tax
assessment was derived is not duly founded and reasoned, given that in said
resolution the authority modified the taxable income of the claimant company
derived from the rejection of the deductions made for "propaganda and
advertising" and "marketing expenses", as well as for
"uncollectible accounts", all these expenses incurred in national
territory, given that said concepts do not correspond to its character of i) direct subject for income from REFIPRES, nor ii) as
withholder or jointly and severally liable on the occasion of operations
carried out with residents abroad.
That the deductions rejected by the
defendant are not income subject to REFIPRES, but precisely outlays that were
made in national territory and not in REFIPRES.
That the deductions made by the plaintiff
do not derive from her failure to withhold or improperly withholding tax on
transactions with residents abroad during 2008.
That from the analysis made of the outlays,
as well as the object of the review, it will be noted that the expenses for
said concepts do not correspond to income from REFIPRES as a direct subject,
nor do they correspond to withholdings not made for payments made abroad, since
the outlays were made within national territory.
That the principles of foundation and
motivation cannot be circumvented by the auditing authorities when issuing
review orders, since the purpose of such principles is, firstly, that the
person reviewed has precise knowledge of the obligations to be reviewed and,
secondly, that the review is strictly in accordance with the verification of
the lines established in the official letter with which the exercise of the
powers of verification is initiated.
That the fact that the review order
establishes clearly, precisely and specifically which taxes or concepts will be
the object of the audit by the reviewing authority, takes into account the fact
that the taxpayer reviewed may have full knowledge of the obligations under his
charge, the object of the review and that the auditors are committed to
reviewing only and exclusively the compliance with the obligations that really
correspond to them, in order to safeguard the principle of legal certainty.
That if the documents by means of which the
tax authorities require the taxpayers to provide various information and
accounting documentation do not contain the object of such request or do not
specify exactly each of the concepts that will be reviewed or settled, it is
evident that the settlements derived from the review of those documents and
information are the result of an act that is vitiated by illegality.
All review orders must comply with the
legal requirements for their issuance, that is to say, they must be duly
founded and reasoned. To this end, it is strictly necessary that the tax
authority clearly specifies in said order not only the documentation required,
but also the category attributed to the governed to whom it is addressed, the
power exercised, the denomination of the contributions and the period to be
reviewed, in order to give full security and certainty to the taxpayer and to
avoid the undue or excessive exercise of the review attribution, to the
detriment of individuals.
That in the event that an audit procedure
is carried out for an item or contribution that has not been expressly
indicated as subject to review in the respective order, the result would be
that the settlement from which it derives would be illegal.
That in this case, having determined that
the company is responsible for rejecting deductions for operations carried out
with residents in national territory, under a different concept to that
specified in the official letter 900-07-04-2013-48000 dated
14 October 2013, makes such a determination
illegal, since the official letter through which the review was initiated lacks
the necessary foundation and motivation.
That the tax authority, in its official
statement of assessment, establishes and reiterates that the decision refers
only to the contribution to which the applicant is subject as a direct subject
of income tax for the 2008 tax year, without including compliance with the obligations
arising from transactions resulting from the obtaining of income from sources
of wealth located in national territory.
That the tax authority, when issuing the
tax assessment notice, states that it was issued on the basis of a purpose
other than that of its determination, since the deductions rejected for
'advertising and publicity' and 'marketing expenses', as well as for
uncollectible accounts, were made with parties
resident in national territory.
By virtue of the foregoing, the plaintiff
was left in a state of complete legal uncertainty when it was determined to
reject deductions which were not the subject of the review which was carried
out.
SUMMARY OF THE EXCEPTIONAL ARGUMENTS
For its part, the defendant authority in
answering the complaint, stated that the plaintiff loses sight of the fact that
the letter 900-07- 04-2015-55504 dated October 19, 2015 comes from a sequential
procedure carried out with the public accountant, according to Article 52-A of
the Federal Fiscal Code, so the review order must observe the provisions of
Article 38 of that law, without further details.
That the power referred to in Article 52-A
of the Federal Fiscal Code should not be confused with that established in
Article 42 of said Tax Code.
That the purpose of the letter
900-07-04-2015-55504 dated 19 October 2015 is duly defined, since it specified
that compliance with the tax provisions to which the plaintiff was subject
would be verified: 1) as a direct subject in matters of income tax, 2) for
income subject to preferential tax regimes, 3) as a withholder and jointly and
severally liable in matters of income tax, and 4) operations carried out with
residents abroad.
DETERMINATION OF THE DISPUTE
The dispute in this recital consists of
determining whether the provisions of the settlement resolution contained in
official letter 900-07-04-2015-55504 dated 19 October 2015 are in accordance
with the purpose specified in official letter number 900-07-04-2013-48000,
dated 14 October 2013, by which the authority began its powers of verification.
DECISION OF THE SECOND SECTION OF THE
SUPERIOR CHAMBER
First of all, it is necessary to impose on
us the content of the trade 900-07-04-2013-48000 of 14 October 2013:
(See transcript)
In accordance with the foregoing, the
International Supervisory Authority "4" exercised the powers of
verification provided for in Articles 42, section II and 52-A, first paragraph,
section II of the Federal Fiscal Code, since it did not have sufficient information
and documentation to verify the fiscal situation of the plaintiff and in order
to continue with the procedure provided for in Article 52-A of the
aforementioned legal system.
By virtue of the foregoing, said authority
determined to require various information, data and documents from the taxpayer
who is now the plaintiff, since in the procedure carried out with the Public
Accountant who ruled on the financial statements of the plaintiff, it did not
obtain sufficient information and documentation to verify its fiscal situation.
It also stated that the information and
documents required were considered necessary for the exercise of the
authority's powers of tax verification, in order to verify the correct
compliance with the tax provisions to which it was subject as a direct subject,
in matters of income tax, for the income subject to preferential tax regimes,
as well as withholder and jointly and severally liable in matters of income
tax, caused by the operations carried out with residents abroad, for the tax
year from 1 January 2008 to 31 December 2008.
Similarly, the authority indicated that the
audit power exercised would not include the review and verification of
compliance with the obligations arising from the conclusion of transactions
with related parties, which are considered as such under the terms of the
Income Tax Law, considering the prices and amounts of consideration used with
or between independent parties in comparable transactions; those derived from
the tax consolidation regime to which the claimant was subject; and those
relating to the origin of goods, as well as their entry and exit to national
territory.
Once the above is specified, the content of
Articles 42, Section II and 52-A, first paragraph, Section II of the Federal
Fiscal Code, on the basis of which the authority began its powers of
verification with the plaintiff, shall be analyzed
first:
Article 42.- The tax authorities shall be
empowered to verify that the taxpayers, jointly and severally liable parties,
or third parties related to them, have complied with the tax provisions and, if
applicable, to determine the omitted contributions or tax credits, as well as
to verify the commission of tax crimes and to provide information to other tax
authorities:
(…)
II. To require the taxpayers, jointly and
severally liable or third parties related to them, to exhibit in their homes,
establishments or in the offices of the authorities themselves, for the purpose
of carrying out their review, the accounts, as well as to provide the data,
other documents or reports required of them.
Article 52-A.- When the tax authorities, in
the exercise of their powers of verification, review the report and other
information referred to in this Article and the Regulations of this Code, they
shall be
(…)
II. The public accountant who issued the
opinion having been requested to provide the information and documents referred
to in the previous section, after having received them or if they are not
sufficient in the opinion of the tax authorities to ascertain the taxpayer's
tax situation, or if they are not submitted within the time limits laid down in
Article 53-A of this Code, or if such information and documents are incomplete,
the said authorities may, in their opinion, exercise their powers of verification
directly with the taxpayer.
It follows from the provisions transcribed
above that the tax authorities, in order to verify that taxpayers, jointly and
severally liable persons or third parties related to them have complied with
the tax provisions and, where appropriate, to establish the contributions
omitted or the tax credits, as well as to verify the commission of tax offences
and to provide information to other tax authorities, are empowered, inter alia,
to require taxpayers, jointly and severally liable persons or third parties
related to them, to produce at their residence
establishments or in the offices of the
authorities themselves, for the purpose of carrying out their review, the
accounts, as well as providing the data, other documents or reports required of
them.
That when the tax authorities, in the
exercise of their powers of verification, review the report and other
information referred to in Article 52-A and the Regulation of the Code, they
must observe the rules established therein.
That having been requested from the public
accountant who prepared the opinion, the information and documents relating to
the financial statements of the taxpayers, after having received them or if
they are not sufficient in the opinion of the tax authorities to ascertain the
tax situation of the taxpayer, or if they are not submitted within the time
limits laid down in Article 53-A of the Code, or if such information and
documents are incomplete, those authorities may, in their opinion, exercise
their powers of verification directly with the taxpayer.
In this regard, we have that the tax
authority, began its faculties of verification directly with the plaintiff,
specifically that established in Article 42, Section II of the Federal Fiscal
Code, by virtue of which it considered that the information and documentation
provided by the Public Accountant was not sufficient to know its tax status.
In other words, the defendant acted in
accordance with Article 52-A of the Federal Fiscal Code, which provides for the
possibility that once the review procedure with the Public Accountant has been
exhausted, the tax authorities may initiate their verification powers directly
with the taxpayers, in the cases referred to therein; However, contrary to the
defendant's argument, when answering the complaint, the auditor did exercise
the power of verification consisting of the review of the accounting or cabinet
review, in terms of Article 42, Section II of the law, being obliged to
indicate in the order or requirement: The documentation required, the category
attributed to the governed party to whom it is addressed, the power exercised,
the denomination of the contributions, and the period to be reviewed, in order
to give full security and certainty to the taxpayer and to avoid the undue or
excessive exercise of the review power.
The foregoing, in order to satisfy the
requirements of substantiation and motivation of the administrative acts, in
accordance with article 38, section III of the Federal Fiscal Code, as derived
from the jurisprudence 2a./J. 68/2000, of the Second Chamber of the Supreme
Court of Justice of the Nation, Ninth Period, published in the Judicial Weekly
of the Federation and its Gazette, Volume XII, August 2000, page 261:
DESK OR CABINET REVIEW. THE RELATIVE ORDER,
WHICH IS GOVERNED BY ARTICLE 16, FIRST PARAGRAPH, OF THE CONSTITUTION, MUST
INDICATE NOT ONLY THE DOCUMENTATION REQUIRED, BUT ALSO THE CATEGORY OF THE
SUBJECT (TAXPAYER, JOINT AND SEVERAL OR THIRD PARTY), THE CAUSE OF THE REQUEST
AND, IF APPLICABLE, THE TAXES TO BE VERIFIED. This Supreme Court of Justice of
the Nation has already established that the desk or cabinet review order has
its basis in the first paragraph of article 16 of the Constitution; Therefore,
the issuance of an order of this nature must comply with the provisions of that
precept of the Supreme Law, which in tax matters details article 38, section
III, of the Federal Tax Code, that is, it must comply with the principle of
foundation and motivation, concepts that the previous integration of the Second
Chamber of this High Court, in the thesis of jurisprudence 260, visible on page
175, of Volume VI of the Appendix to the Judicial Weekly of the Federation
1917-1995, under the heading "FOUNDATION AND MOTIVATION. "In the case
of the former, it was defined as the expression of the legal or regulatory
precept applicable to the case, and in the case of the latter, the precise
indication of the special circumstances, particular reasons or causes that have
been taken into consideration for the issuance of the act, and there must be an
adaptation between the reasons given and the applicable norms. Therefore, if
according to Article 42, Section II of the Federal Fiscal Code, the power of
desktop review may refer to three types of subjects, which are the direct
cause, the jointly liable and the third related to them, and its exercise may
derive from different reasons, namely I. To verify compliance with tax
provisions; II. To determine omitted taxes; III. Determining tax credits; IV.
To verify the commission of tax offences; and, V. Providing information to
various tax authorities; it must be concluded that the order for review issued
in this regard must be contained in a written order from a competent authority,
duly founded and reasoned, which implies that it not only expresses the
documentation required, but also the category attributed to the governed to
whom it is addressed, the power exercised, the denomination of the
contributions and the period to be reviewed, in order to give full security and
certainty to the taxpayer and to avoid the undue or excessive exercise of the
power of review, to the detriment of individuals.
However, it is necessary to know the
content of the official letter 900-07-04-2015-55504 dated 19 October 2015,
through which the tax authority determined the tax situation of the acting
company:
(See transcript)
It follows that the audit authority, in
relation to payments made by the claimant in 2008 for advertising and publicity
and for
The
Court of First Instance found that they were not strictly indispensable, on the
ground that the brands of the products it markets are not its property and that
it is therefore not its responsibility to exploit them.
Consequently, in its annual income tax
return for the financial year 2008, the claimant wrongly deducted the amounts
in the amount of $526,660,963.00 and $1,304,856,468.00 for advertising and publicity
and marketing expenses, respectively, for which reason the auditor considered
that the plaintiff should adjust its tax result for the determination of income
tax for the year in question, considering such concepts as non-deductible and
pay the corresponding tax.
With respect to the deduction of
uncollectible accounts in the amount of $25,000,000, the authority determined
that some of these accounts exceeded the limit established in paragraph a),
section XVI of article 31 of the Income Tax Law; likewise, it warned that the
age of the balances referred to, exceeds the year of maturity, that is, that
the plaintiff company allowed its debtors to increase the uncollectible account
without filing any arbitration procedure that would allow it to demonstrate the
notorious practical impossibility of collection against its creditors.
Similarly, the authority learned that the
legal representative of the plaintiff failed to submit during the audit process
information statement or, if appropriate, the document submitted to the Tax
Administration Service, in accordance with the second paragraph of Article 18
of the Federal Fiscal Code in force in 2008, reporting the uncollectible
receivables it intended to deduct.
In view of the above, the tax authority
considered that the claimant did not provide the documentation with which it
could prove that it had complied with the requirements referred to in article
31 of the Income Tax Law, for which reason it rejected the income tax deduction
for uncollectible accounts in the amount of $25'000,000.00.
That the authority determined that of the
total authorized deductions in the amount of $31'954,849,360.00 those related
to the concepts of advertising and publicity in the amount of $526'660,963.00,
marketing expenses in the amount of $1'304,856,468.00 and for the concept of
uncollectible accounts in the amount of $25'000,000.00, whose sum of such
amounts is $1'856,517,431.00, were undue, and therefore this modified its tax
result.
Once the authorized deductions that the
plaintiff should have considered were determined, with respect to the non-consolidable part, it was determined that the tax profit
corresponded to the amount of $3'082'309,114.00.
Considering that the tax authority
determined a difference in the tax result of the plaintiff, in the amount of
$1'856,517,431.00, the part of such difference that corresponds to its
controlling company ******* ********* **** ** ****, while the plaintiff determines
its consolidated tax result, amounts to $1'856,517,431, corresponding to 100%
of the tax profit determined related to the consolidable
participation.
Consequently, considering that the
controlling company's participation in the plaintiff's tax result was 100% and
that the plaintiff determined a tax profit in the amount of $3'082'309,114.00,
which resulted to be greater than the tax profit in the amount of
$1'856'517,431. 00, derived from the non-deductible items, ******* *********
********* **** ** ***** had to file a complementary declaration for income tax
correction, modifying the tax profit declared by the taxpayer for the purpose
of reflecting the profit in the amount of $3'082'309,114, determined by the
auditing company.
That the tax assessment resolution only
refers to the contributions to which the plaintiff was subject as a direct
income tax payer for the 2008 fiscal year, not including compliance with
obligations derived from entering into transactions with related parties,
considered as such under the terms of the Income Tax Law, considering the
prices and amounts of consideration that would have been used with or between
independent parties in comparable transactions, resulting from obtaining income
from sources of wealth located in Mexico, those derived from the tax
consolidation regime to which the plaintiff was subject; nor those relating to
the origin of goods, as well as their entry into and exit from national
territory.
In the light of the foregoing, the Court
considers that the applicant is not justified in maintaining that the findings
of the audit authority in the tax assessment decision do not comply with the
purpose of the review carried out on the applicant, since, as is apparent from
the content of document 900-07-04-2013-48000, of 14 October 2013, by which the
defendant began its powers of verification with the applicant, it was noted
that the information and documentation required was considered necessary for
the exercise of the authority's tax audit powers, in order to verify the
correct compliance with the tax provisions to which it was subject, inter alia,
as a direct subject, in the field of income tax, for the tax year from 1 January
2008 to 31 December 2008.
Therefore, the audit authority determined
that the plaintiff unduly deducted advertising and publicity expenses in the
amount of $526,660,963.00, marketing expenses in the amount of
$1,304,856,468.00 and the concept of uncollectible accounts in the amount of
$25,000. 000.00, with respect to income tax for the 2008 fiscal year, so it is
incontestable that these concepts are included within the object of the review
specified in official letter 900-07-04-2013-48000, dated 14 October 2013.
That is so because the applicant made the
abovementioned deductions in its annual income tax return; however, the review
carried out by the auditor, whose purpose was precisely the obligations to
which the applicant was subject as a direct subject of income tax for the 2008
tax year, found that those deductions were improper.
Nor is the applicant correct in that the
subject of the review was only the income subject to preferential tax regimes,
as well as that derived from transactions with residents abroad, in respect of
income tax, for the tax year from 1 January 2008 to 31 December 2008, since
those items were identified in the notice 900-07-04-2013-48000, of 14 October
2013, as part of the review, as the authority indicated that it would review
the obligations to which the claimant was subject in its capacity as a direct
subject of income tax, in respect of the 2008 tax year, and in addition, the
items referred to above, i.e. it was not limited to income subject to
preferential tax regimes, nor to income derived from transactions with
residents abroad.
Consequently, the fifth concept of
challenge asserted by the plaintiff in the lawsuit is UNFOUNDED, since the
review carried out by the tax authority is in line with the purpose indicated
in the official letter 900-07-04-2013-48000, of 14 October 2013.
EIGHTH: Based on the provisions of Article
50, second and third paragraphs of the Federal Law on Administrative Litigation
Procedure, this Section will analyze the concepts of
challenge FIRST and SECOND of the lawsuit, in which the plaintiff disputes the
legality of the settlement decision in terms of deductions for marketing and
advertising expenses.
(See transcript)
SUMMARY OF THE GROUNDS FOR CHALLENGE
The plaintiff argues that the contested
resolutions are illegal, since the authority, not knowing the nature of the
expenses for "marketing expenses" in the amount of $1,304,856,468.00,
concluded that they were equal to the expenses made by the plaintiff for
"propaganda and publicity", and therefore rejected the deduction.
That the marketing expenses are not equal
to the outlays made for "propaganda and publicity" and, therefore,
their deduction cannot be rejected for the same reasons.
The authority considered that the marketing
costs are the same as those incurred for "advertising and publicity"
and therefore rejected them for the same reasons, so that the only thing that
has to be proved is that these costs do not share the same nature, in order to
demonstrate the illegality of the rejection.
That the authority maintains that the
marketing costs and the 'advertising and publicity' costs increased the value
of the brands, but does not support that assertion.
That the authority does not establish how
much the brand was worth before and after these expenditures were made, nor
does it indicate the type of study or research it conducted to conclude that
the marketing and "advertising and publicity" expenses increased the
value of the brand.
It offers as evidence what the authority
claims in the contested decisions, in so far as it expressly acknowledges that
the marketing costs and the costs of 'advertising and publicity' represent a
subsidiary benefit for the applicant, consisting of the value of its sales.
That the increase in the applicant's sales
is sufficient for those expenses to be regarded as strictly indispensable, even
if the auditor classifies them as subsidiary.
The authorities maintain that the expenses
under analysis resulted in an increase in the value of the trademark, and even
in the decision on the appeal for revocation they describe in doctrine the
types of values that a trademark can have; however, they do not support the
alleged increase in the value of the trademarks held by the products marketed
by the plaintiff with any information or documentation, such as valuations by
certified experts in the field, public information taken from national or
international sources, contracts, among others.
That under the legal principle of the
burden of proof, "he who claims is obliged to prove", if the
defendants intended to reject the deductions made by the plaintiff, it was
appropriate that they should support their claim with the corresponding
information and documentation.
That the authorities made an incorrect
assessment of the facts leading to the refusal to pay marketing costs, since
they confused the object and purpose and nature of those costs with advertising
and publicity costs.
That the expenditure on advertising and
publicity is that incurred for the purpose of advertising, through various
media, the products which the applicant distributes and markets.
That the expenses for marketing are those
incurred for the purpose of placing on the market, in an efficient and orderly
manner, the products distributed and marketed by the company, creating a link
between the consumer and the product at the specific moment of consumption.
The purpose and nature of the marketing
expenditure is different from that of advertising and publicity and in no way
can it be considered to increase the value of the brand or its presence in the
market, since such expenditure is aimed directly at placing the products
marketed by the company on the market through promotions and commercial
strategies.
That the main items for which the applicant
made expenditure under the heading of 'marketing costs' correspond to 1)
promotional items, in which the name, logo or insignia of the company is
generally printed (commemorative cups, personalized ice-boxes, chairs or
various types of furniture, calendars, cup holders, personalized thermoses,
cork stoppers, T-shirts, among others); 2) consumer promotions (direct
discounts, added products, crosses with other categories, added value items,
illusion promotions with prizes; 3) ice (in-kind support); 4) sponsorships; 5)
fairs.
That the marketing expenses constitute
expenditures made by the company with the aim of encouraging consumption and,
consequently, achieving penetration in a certain territory or specific and
strategic area for the placement of the products it sells.
That these expenses are related to
different aspects, such as the territoriality, areas, markets where it is
sought to have a margin of penetration or greater participation with respect to
the products that it distributes and markets, likewise, they seek to establish
a link with the final consumer.
That marketing expenditure is incurred in
order to intensify support for a certain position or have a presence in a
certain market, regardless of whether the brand under which it is marketed is
recognized globally.
In contrast, advertising and publicity
expenses have as their object or purpose the transmission of information to
consumers through mass media such as television, radio, newspapers, magazines,
direct mail, mass transportation vehicles and exhibitors
information on the products it markets and
distributes as a predominant activity.
That those expenses are reflected at the
specific moment of consumption and not, through advertising, whose impact is
received by the consumer regardless of whether he is purchasing the product.
It is clear that marketing costs are not
related to advertising and publicity costs, but rather that these are a support
at the time of consumption in strategic areas, territories or markets, and that
at that time advertising and publicity does not take place.
By virtue of the foregoing, the fact that
the authorities refuse to deduct the marketing costs which are necessary for
the applicant, using for that purpose the same arguments as those used to
refuse to deduct the costs of advertising and publicity, is wholly illegal,
since those costs are not of the same nature.
That in the event that the expenditure on
advertising and publicity is not comparable to the payment of royalties and
therefore not deductible, this is not the case with regard to marketing
expenditure, since the purpose of this is to encourage consumption and in no
way leads to an increase in the value of the brand.
That the concept of indispensability
derives from the fact or the need or obligation to do or carry out something
that is forced or unavoidable to achieve a certain end.
That a deduction can be considered strictly
indispensable when it is obligatory or necessary to achieve a specific end.
That the Supreme Court of Justice of the
Nation has considered that the character of indispensability is linked to the
achievement of the corporate purpose of the company, that is, it must be a
necessary expense for the full completion of its activities, so that if it is
not done, these would have to be reduced or suspended.
That the marketing expenses are directly
related to the activity of the company, since the concepts that make up these
expenses (promotional items, ice, sponsorship, etc.) are intended to encourage
consumption, creating a link between the consumer and the product that is
distributed and marketed.
That the activity carried out by the
acquiring company consists in the distribution and marketing of the beers
"***** ******"* "***"* "******"*
"********"* "** *****", among others, and the promotional
items are fundamental to encourage consumption.
That the object of the claimant is itself
the power to buy, sell, distribute and market in general, beer, ice and all
kinds of similar and related items, and also to perform the acts, enter into
the contracts and carry out the other operations that are necessary or
conducive to the main object of the company.
That the marketing expenses are necessary
to achieve the purposes of its activity, since its purpose is to distribute and
market beer, and therefore, like any other company engaged in the same
activity, it needs to implement measures such as promotions, distributing
promotional items, providing support in kind consisting of ice, among others.
That if the applicant did not incur the
costs of marketing, the purpose of which is to encourage consumption by
providing articles or implementing dynamics which act as a link between the
consumer and the products which the applicant markets (beer), its main activity
could be affected and its normal operation or development hindered, which would
reduce its sales and, consequently, its income, since it would not be able to
compete with the other undertakings in the same sector which do incur such
costs.
That if the aforementioned expenses were
not incurred, the activities of the applicant could be affected and it could
even be forced to suspend certain operations.
That the marketing expenses translate into
a benefit or advantage for the plaintiff with respect to its operational sales,
since there is a relationship of consumption and the products that it obtains
through those expenditures to be subsequently delivered to the final consumer,
which encourages it to obtain the product.
That the expenditure incurred is in
proportion to the applicant's operations, since in 2008 it marketed and
distributed a total of 260,700 crates of beer; in that regard, the marketing
expenditure is necessary for the attainment of its objective
That does not preclude those expenses from
representing a gain or obtaining a direct profit, since the justification for
the deductibility of an expense must necessarily be based on an objective
reason relating to the purposes of the taxpayer's activity, so that its
realisation may bring him a profit, without that necessarily meaning that a
profit must be obtained in the business in question, but rather the expectation
of obtaining such a profit.
That the audit authority should have
conducted a proper study of the evidence provided to ensure proper compliance
with applicable rules, and the defenses that
correspond to the plaintiff, according to law, which was not met, since the
documents provided were not analyzed properly.
During the audit procedure and in the action
for annulment, the applicant provided sufficient evidence to prove the
appropriateness of the deduction of marketing costs.
That the authority improperly assessed the
working paper with the integration by supplier of the expenses for marketing
expenses; invoices more representative in terms of amount, as well as bank
statements showing and verifying the expenses of each and every invoice
That the documents referred to show the
nature of the expenses incurred for this concept, as well as a detailed explanation
of the function or objective of each of the concepts that make up the marketing
expenses.
If the authority had assessed the documents
in question, and had taken account of the type of industry to which the
applicant belongs, the competition in that industry and the products which it
sells, it would have declared the deduction of marketing costs to be
appropriate, since it is clear from those documents that the nature and purpose
of the expenditure are detailed and without them it would be impossible for the
applicant to fulfil its corporate purpose.
SECOND.
The tax authorities unlawfully refused the
deduction for advertising and publicity, even though it was proved that it was
justified, since those expenses were strictly necessary for the fulfilment of
the applicant's corporate purpose and were supported by documentary evidence in
accordance with the provisions of Article 31(I) and (III) of the Income Tax
Law.
That in the contested decisions at no time
is the materiality or reality of the services or object of the payment of the
advertising and publicity expenses questioned, and therefore this cannot form
part of the dispute.
The contested decisions are unlawful
because the authorities base their argument on the fact that the marketing and
advertising costs incurred increased the value of the marks, but at no time do
they provide any information to support that finding.
The authorities do not support their
assertion, nor do they prove the value of the marks before such expenditure was
made or the value of the marks after such expenditure. Furthermore, they do not
refer to any study or research which would enable them to conclude that the
expenditure made resulted in an increase in the value of the marks held by the
products marketed by the applicant.
That the authorities do not support their
claims with any information or documentation, such as valuations by certified
experts in the field, public information taken from national or international
sources, contracts, among others.
That contrary to the claims of the
authorities, the expenses for advertising and publicity do comply with the
requirement contained in section I of Article 31 of the Income Tax Law and
therefore are deductible; likewise, the authorities made an undue assessment of
the evidence provided during the audit procedure, as well as in the appeal for
revocation.
The tax authorities start from incorrect
premises and fail to consider the existence of others, arguing that the
expenditure on advertising and publicity made by the applicant conferred a
benefit on the third party proprietor of the trade
marks under which the applicant markets its goods; however, the defendants
failed to have regard to the fact that the benefit obtained by those
expenditure was the increase in sales of those goods.
That the applicant's advertising and
publicity expenditure constitutes expenditure for the purpose of promoting the
consumption of the products it offers, consisting of the marketing of beers,
through the dissemination of ideas and information with the intention of
persuading a market to purchase the products.
That advertising constitutes an
announcement to the public with the aim of promoting the consumption of the
products, consisting of the sale of the beers "***"*
"******"* "********"* "** *****", among others,
and propaganda is the dissemination of ideas and information to induce or
intensify specific attitudes and actions with the intention of convincing an
audience to adopt the attitude or action that the acquisition of a product for
consumption represents.
That through these expenditures is intended
to influence the consumer to buy the products it sells, whose purchase action
may be motivated by the conviction promoted through advertising, as this is a
form of communication that aims to promote the consumption of goods.
That the benefit obtained by the plaintiff
when making expenditures for advertising and publicity is reflected not only in
maintaining consistency in the volume of sales of the products in question that
it distributes and markets, through the dissemination of ideas and information,
but also in convincing third parties in different markets to purchase its
products, as well as maintaining or increasing the presence of the product, its
consumption and therefore its sales.
That the increase in the amounts of
royalties is not a consequence of the expenses made for advertising and
publicity, but rather that this situation is a consequence of the increase in
sales.
That from the amending agreement dated 1
January 2005, through which the parties agreed to modify the content of Clause
Ten of the non-exclusive licence agreement for the use and exploitation of
intangible assets known as trademarks, commercial advertising and other
industrial property rights dated 1 March 2003, it is understood that the
consideration to be paid by the claimant for the use of the trademarks
"***** ******"* "******"* "********"* "**
*****", would be calculated in proportion to sales and not in accordance
with a fixed fee.
That by virtue of the foregoing, it is incorrect
for the authority to hold that the increase in the payment of royalties is a
consequence of the expenses made for "propaganda and advertising".
That the expenditure on advertising and
publicity is directly related to the activity of the claimant, since such
services provided by various entities consist of placing advertisements and
persuasive messages, in time or space, that attempt to inform and/or persuade
members of a particular target market or audiences about their products,
services, organizations or ideas, i.e. they publicize
a product or service using a medium as a vehicle to reach the individual.
That the expenditure on advertising and
publicity is directly related to the activity of the applicant, since it is
necessary in order to transmit to consumers, by means of mass media such as
television, radio, newspapers, magazines, direct mail, mass transport vehicles
and outdoor displays, information concerning the products which the applicant
markets and distributes as a predominant activity.
It is clear from the object of the
applicant itself that it has the power to enter into all kinds of contracts and
agreements which are a consequence of or in keeping with its object, and to
provide or receive services related to the promotion of its object, including
the contracting of services by way of advertising and publicity.
That the contracting of services for which
the plaintiff makes expenditures for the concept of advertising and publicity,
consisting, among others, of advertising campaigns that are transmitted through
the various media, are necessary to make the products that the plaintiff
distributes and markets reach the minds of the target consumers, so that they
remain in the taste and awareness of their potential consumers.
If the plaintiff did not incur the costs of
advertising and publicity, its main activity could be affected and its normal
operation or development, and consequently its sales and income, could be
hindered, since it could not compete with other undertakings in the same sector.
That the expenditure incurred is in
proportion to the applicant's operations, since in 2008 it marketed and
distributed a total of 260 700 crates of beer. In that regard, the expenditure
on advertising and publicity is necessary for the attainment of its objective.
As a result of the expenditure on
advertising and publicity incurred by the applicant through the various
advertising media, consisting of television, radio, billboards and other
printed media, the applicant has succeeded in placing the products it markets
in the minds of consumers, thereby increasing its sales and, consequently, its
revenue.
Advertising and publicity expenses are
deductible, as long as their indispensability is proven and the Supreme Court
of Justice has established that the origin of income tax is not conditioned to
the fact that the expenses are necessarily linked to the predominant activity
of the taxpayer, but that they are operations in which the taxpayers are
involved with the purpose of generating income.
That the contested decisions show how the
authorities recognise that the expenses referred to generate an economic benefit
for the claimant.
That it is incorrect that the authorities
consider the benefit obtained by the plaintiff to be subsidiary, since the
relationship between the expenditure on advertising and publicity, the increase
in sales and the obtaining of greater income is direct.
That the advertising of trade marks has an
ancillary character, the main operation being the advertising of the products,
since the mere fact of marketing the products under that mark leads to
advertising of the same, since the products hold it and therefore advertising
of the product and of the trade mark cannot be dissociated.
If advertising and publicity expenditure
were subsidiary and not principal, it would not affect the origin of the
deduction, since the law does not make a distinction in that regard, since it
does not limit the origin of the deduction by reason of the type of benefit
obtained.
That advertising and publicity has a great
influence on the consumer, since it is through it that the applicant succeeds
in selling large volumes of product, a situation which makes it unlawful for
the tax authorities to refuse the applicant the deduction.
That the authorities did not properly
evaluate the evidence offered, namely: the 2003 non-exclusive licence agreement
for the use and exploitation of intangible assets known as trade marks,
commercial advertisements and other industrial property rights, and its
respective amending agreement, which states that the payment of royalties will
be in proportion to the sales of the products; the working role with the
integration by supplier of the costs of advertising and publicity; Invoices
that are more representative in terms of amount, as these invoices prove that
the expenditure was made and that it was necessary to increase sales of the
products that the company markets and distributes; the working paper that shows
the financial projection or budget considered by the company to estimate
advertising and publicity expenses, by sales region for 2008, from which the
nature of these expenditures can be inferred.
That the assessment of the study through
which the impact of the expenses incurred in advertising media is analyzed was omitted.
That the payment of royalties is a
different concept from that of advertising and publicity, and derives from
different obligations and needs, and therefore cannot legally be considered to
be the same type of outlay.
That the plaintiff pays its royalties and
therefore retains 10% of such payment which it pays in full to the Federal
Treasury and 2, makes its annual income tax calculation for which it likewise
pays the aforementioned tax.
That the deductibility for advertising and
publicity is in line with market standards, according to public and comparable
information.
That if the amounts relating to advertising
and publicity expenses are added to the royalties, the resulting amount is the
amount represented by the net sales for the year.
The advertising and publicity expenses and
royalties have been shown as a whole for the purpose of determining the percentage
they represent in relation to net sales for the financial year, since they are
intrinsically related concepts in companies whose activity is closely linked to
the use of trade marks.
That royalties constitute payments of any
kind for the use or temporary enjoyment of trademarks and trade names, among
others; while advertising and publicity refers to those expenditures made with
the aim of promoting the consumption of the products offered through the
dissemination of ideas and information with the intention of convincing a
market to acquire them.
This does not preclude the economic
interest group to which the plaintiff belongs from developing the brands in
question and subsequently referring them to a company of the group of Swiss
nationality, to which it pays royalties, because there is no legal precept
preventing that business strategy.
That the authority's conclusion that the
marks were advertised and not the products marketed is illogical, since such a
determination does not take account of the business reasons, economic substance
and financial reality.
That a brand is not advertised in
isolation, but is undoubtedly associated or linked to the product or service it
covers and precisely for the purpose of obtaining consumer acceptance.
That it is false that the purpose of the
restructuring was so that the relative profits would be taxed in Switzerland
and not in Mexico, since the plaintiff, in terms of Article 200 of the Income
Tax Law, made the withholding corresponding to the payment made by way of
royalties for the exploitation of the trademarks of which it is the owner.
SUMMARY OF THE EXCEPTIONAL ARGUMENTS
For its part, the respondent authority, in
replying to the complaint, stated that it had responded punctually and legally
to the arguments put forward by the plaintiff in the administrative seat.
That the authorities did not confuse the
nature of the expenditure on marketing and on advertising and publicity, but
that both items were rejected for the same reasons because neither was
deductible for income tax purposes.
They considered that the marketing costs
and the costs of advertising and publicity are not strictly necessary for the
carrying out of the activities of the applicant, by virtue of the fact that the
latter pays for the use of the trade mark *******************, which already
has a presence and recognition on the national market, and therefore it is not
strictly necessary for it to claim an additional deduction for advertising and
publicity.
By paying royalties for the use of
intangible assets which are present on the market, it is making a payment which
is also intended to ensure its presence and recognition on the market, so that
it is possible to conclude that the applicant has made two payments for the
same purpose, so that marketing and advertising costs cannot be deducted.
Such expenses are not indispensable since
the immediate benefit is obtained by the owner of the mark, since it is he who will have intangibles with a better position in
the market, which will allow him to obtain a greater profitability by charging
royalties for the use of the same, since the greater the sales, the greater the
counter benefit he will charge for the use and enjoyment.
That the incurrence of expenditure on
marketing, advertising and publicity benefits the applicant in the alternative
and only to the extent that it actually results in a verifiable increase in
sales of the goods and services it offers.
The fact that the payments made by the
applicant for marketing, advertising and publicity are indispensable in respect
of a trade mark which it does not own is not justified, since they are not
closely linked to the achievement of the applicant's objective, since, if those
expenses were not incurred, its activities would not be suspended and would not
necessarily be significantly reduced.
That the achievement of the plaintiff's
objective does not depend solely on the purchase by the user public of the
goods which it markets, since there are various forms of income which it may
receive from its activity.
The decision to settle the case is based on
purely fiscal premises, not on the impact of advertising for a product on its
sale.
That, by making payments in respect of
royalties from a brand with a market presence, the plaintiff is making an
outlay which is also intended to benefit from the presence and recognition on
the market of the brands which use its products for sale.
That the marketing and advertising expenses
were rejected essentially because: 1) the claimant does not own the brand which
it advertises and markets, 2) the rejected expenses have the same purpose as
those incurred by way of royalties and 3) in that sense, it is not strictly
indispensable for the claimant to make such payments.
That it is not for the authority to
establish that the value of the trade mark was increased by the expenses
incurred by the applicant in respect of advertising and marketing, but that the
applicant has the burden of proving that the expenses incurred are deductible.
That the refusal of the deductions is based
primarily on the fact that the corresponding expenses are not deductible for
income tax purposes, because those expenses tend to increase the assets of the
owner of the trade marks.
That if the plaintiff did not have to make
the expenses in question, she would still be able to continue with her
business.
That an expense is strictly indispensable
when the expenditure is intended for or directly related to the activity of the
company, is necessary to achieve the purposes of its activity or the
development thereof, that if it does not occur it could affect its activities
or hinder its normal operation or development, must represent a benefit or
advantage for the company in terms of its operational goals and must be in
proportion to the operations of the taxpayer.
The applicant did not prove that the
expenses incurred were incurred in connection with activities which are
essential to the achievement of its corporate purpose, since it is apparent
from the information and documents submitted that the applicant is not the
owner of the trade marks, so that there is no evidence that the expenses are
directly linked to its corporate purpose.
That the purchase, sale, distribution and
general trading of beer, ice and all manner of articles similar or related to
the foregoing is not the sole purpose of the applicant, but has various
objects.
That the payments for marketing and
advertising are additional costs which are unrelated to the applicant's
business objective and therefore do not satisfy the condition of
indispensability
That the purposes of advertising are not
limited to attracting potential purchasers or users of the goods and services
offered, but that the ultimate aim is to confer value on the marks and to
position them on the market, thus benefiting their proprietor directly and, in
a subsidiary manner, their licensees, which is a desirable but not necessary
expense for them.
That it is not viable to estimate that the
expenses for marketing and advertising could predominantly affect the
development of the activities of the plaintiff, since the latter already pays
royalties that allow it to take advantage of the value previously acquired by
the trademark in question and the influence it generates in consumers, so that
it is not indispensable for the plaintiff to continue increasing the value of
the trademark through its advertising and marketing, since it is not the direct
beneficiary.
That the applicant does not prove that, as
a result of the costs it incurred, it had higher sales than in the previous tax
year.
The evidence offered by the applicant does
not invalidate the refusal of the above-mentioned deductions, since they are
not appropriate.
That the arguments of the claimant that it
is not an obstacle to accepting the deductibility of the costs that the
economic interest group to which the claimant belongs developed the trade marks
in question and subsequently referred them to a company of the group of Swiss
nationality are not admissible, since that is not a tort.
The Court objects to the expert evidence on
advertising, propaganda and marketing offered by the claimant, since it
reinforces the reasoning for rejecting the deductions and only highlights the
distinction between the two concepts.
ESTABLISHMENT OF THE DISPUTE
In accordance with the arguments put
forward by the parties, this Court considers that the dispute consists of
determining whether the expenses incurred by the plaintiff for "marketing
expenses" and "advertising and publicity" are strictly
indispensable for the purposes of the taxpayer's activity, and therefore, are
deductible in terms of Article 31, section I of the Income Tax Law.
DECISION OF THE SECOND SECTION OF THE
SUPERIOR COURT
In order to resolve the specified dispute,
it is necessary to impose on us the content of the settlement resolution
contained in the official letter number 900-07-04-2015-55504 dated October 19,
2015, in the part where it determined that the deductions made by the plaintiff
for the concepts of "marketing expenses" and "advertising and
publicity" are undue.
(See transcript)
From the above, it can be seen that the
authority made the following toral determination:
That as a result of the authority's powers
of verification with the acting company ******** ******************** **** **
****, it learned that during 2008, the latter made royalty payments of
$964,053,683. 00 arising from the granting of temporary use or enjoyment of the
trademarks under which it markets its products, since these trademarks are not
owned by it, but by its related party resident in Switzerland *** *** ****,
which acquired these trademarks as part of a restructuring of the group to
which they belong, in order to transfer the trademarks developed in Mexico to a
low tax country.
As a result of the exercise of the powers
of verification, it was learned that in addition to the "royalties"
of $964,053,683.00 for the use of the trademarks under which it markets its
products, it also incurred "advertising and publicity" and
"marketing expenses" of $526,660,963. 00 and $1,304,856,468,
respectively, in order to publicise the various brands of the "**********
*********" group, under which it markets its products and thereby
contribute greater presence and value to said brands, which are not its property.
That the applicant considered, in 2008,
both the costs of royalties and those of 'advertising and publicity' and
'marketing costs' to be deductible for income tax purposes
That, in order to analyse the origin of the
deductions specified, the background of the applicant company must be
considered.
That the applicant's predominant activity
is the distribution of the beer it produces ********** ********** ****** ****,
now (***** ********** ********** **** ** ****), and that the main marks used on
the goods it distributes are "***** ******"* "***"*
"******"* "********"* "** *****", among others.
That until January 2003, **********
******************** **** ** ****, was the owner of the brands used in the beer
distributed by the actor.
That in February 2003, **********
******************** **** ** ***** was spun off, surviving in its capacity as a
spun-off company, the entity ************* **** ** ****, resident in Mexico, to
which it transferred, inter alia, intangible assets such as brands, notices and
trade names.
As a result, on 1 March 2003, the claimant
and ********** ********** ********** **** ** ***** entered into a non-exclusive
licence agreement with ********* **** ***** * **** to use and exploit
intangible assets known as trademarks, trade names and other industrial
property rights.
That on October 20, 2003 **********
***************** **** ** **** (previously ***** ********* **** ** ****),
incorporated in Mexico at *** ************** **** ** ****, a company belonging
to the group and that on December 15, 2003, i.e. only two months after its
incorporation, it changed its tax domicile to Switzerland, cancelling from that
moment on its federal register of taxpayers in Mexico.
That on 18 December 2003, ********* ****
****** ****, merged with *** ************** **** ** ***** entity resident in
Switzerland, the latter subsisting, which holds the intangible assets such as
brands, notices, trade names that were owned by ********* **** **** ** ****
That once *** ************** **** ** ****,
acquired the ownership of the brands, notices and commercial names mentioned
above, these are contributed in the company **** *** ***., constituted on 17
June 2004, thus becoming a shareholder of the latter at 100%.
Consequently, as from 2004, *** *** ****,
resident for tax purposes, in Switzerland, began to benefit from the granting
of the use and exploitation of the trademarks, commercial notices and other
industrial property rights, originally developed in Mexico by **********
********** **** ** ****, with the related parties
resident in Mexico being obliged to pay this consideration in their capacity as
marketers of the products related to these trademarks.
By means of the restructuring described
above, the group to which the plaintiff belongs migrated to Switzerland the
profits from the granting of the use or enjoyment of the trademarks,
advertisements and trade names developed in Mexico, which are held by the
products marketed mostly in the Mexican market, generating a tax deduction in
Mexico, for the expenses for the concept of royalties for the use or enjoyment
of the intangible assets transmitted to *** *** ****, so that it is appreciated
that the apparent sole purpose was that the relative profits were taxed in
Switzerland and not in Mexico.
That there is inconsistency with respect to
the expenses that increase the value of the trademark "**********
*********", because while the expenses for advertising and marketing
expenses were absorbed by the plaintiff, who obtains the benefit of them is the
owner of the trademark, as its value increases.
That the marks are designed with the
purpose of identifying a good or service of another and denote quality or
belonging, therefore, under this definition there is no doubt that the mark
"********** ********** **** ** ****, identifies the products it sells, denote
their quality and belonging and in this sense, advertising is intended, to
disseminate, convey, publicize, make known, advertise, some good or service in
order to penetrate the market and cause the sale of these, making known the
benefits, quality and characteristics of the goods or services.
In this case, what is advertised are the
brands used by the company to manufacture and market its products, since it is
precisely these brands that distinguish it from its competitors and denote the
quality they possess.
That the advertising and marketing expenses
incurred by the plaintiff are directed to the products marketed under the
trademark "********** *********", regardless of who produces or
markets them.
That the real benefit of these expenses for
advertising and publicity is obtained directly by the brand and its owner,
since this brand already has presence in the market.
That it is clear that advertising and
publicity will increase the value of the brand, reflecting an increase in the
consideration charged to the plaintiff by the owner of the brand, caused by the
increase in sales of the products named under its name, so that in any case,
the realization of these expenditures would be indispensable only to the owner
of the brand.
That the benefit to the plaintiff of the
costs of advertising and publicity, as well as of royalties, is to have a brand
name with a presence and acceptance in the market, in order to increase its
sales volume.
That the expenses incurred in marketing and
advertising are not strictly necessary for the activities of the claimant,
since the claimant pays royalties, which include presence and recognition in
the national market, and therefore the claimant intends to make an additional
deduction.
That the nature of indispensability is
closely linked to the achievement of the taxpayer's corporate purpose; this
expense must be necessary to fully complement the taxpayer's activities, as
well as bring him a profit, and as a consequence of not doing so, those
activities would have to be suspended, or they would necessarily decrease, i.e. if the expense were not carried out, the taxpayer's
activity would no longer be stimulated, and consequently its income would be
reduced to its detriment.
That the expenses referred to in section I
of the Income Tax Law in force in 2008 are those necessary for the operation of
the company and without which its operational goals would be hindered to such
an extent that it would prevent the achievement of its corporate purpose.
That the marketing expenses, as well as
those of propaganda and publicity are routine, since they do not generate an
additional return to the marketing of products, and therefore are not strictly
indispensable.
That therefore, the plaintiff incurred
expenses in marketing and in advertising and publicity for brands which are not
its property and which it is not its duty to exploit since they are not
strictly indispensable for obtaining its income, since it also makes expenses
for royalties for the use of the brand in order to have a greater presence in
the market through a recognised brand. Therefore, it is unnecessary to pay for
both concepts at the same time.
By virtue of the foregoing, the plaintiff
unduly deducted the amounts of $526,660,963.00 and $1,304'856,468.00, for
advertising and publicity and marketing expenses, respectively, for which the
authority considered that it should adjust its tax result for the determination
of income tax for the 2008 fiscal year and pay the corresponding tax.
It is clear and evident that the taxpayer,
by making payments for advertising and publicity of products under the brand
name "********** *********", generates or maintains a certain
positioning of this brand in the market, which results in increased net sales.
In the light of the foregoing, the
applicant is considered to have made two payments for the same purpose. In
addition, the advertising and publicity costs generate or maintain the
positioning of that mark, which is not the property of the applicant, so that
it was not its responsibility to make those payments, but rather that they
should be a burden on the owner of the intangible assets.
That if the applicant did not make the
payments for "advertising and publicity" and "marketing
expenses", it would not lose the benefit of its presence and penetration
of the market, since for those purposes it already pays royalties for the use
of a mark which is widely accepted in the market and which enables it to
influence the acceptance of the products it sells under the mark
"********** *********", thereby increasing its sales and fulfilling
its corporate purpose.
The greater the positioning of the brands
in the market, the greater the sales obtained, and this is clearly enhanced by
the presence and distinction that the brand has, so that who should have the
burden of ensuring that the brands acquire greater value and perform the
activities and expenditures that this entails, is precisely the owner of the
brands.
It is therefore incongruous for the
taxpayer to seek to make an expense that is not indispensable deductible, since
it does not correspond to her, given the fact that if she were to dispense with
it, her income would not be affected.
That the payment of "advertising and
publicity" and "marketing expenses" is related to the royalties
for the use of the trademark; in this sense, by claiming these expenses, it is
the equivalent of paying twice for the same benefit.
Therefore, the observations regarding the
deductions for "advertising and publicity" and "marketing
expenses", in the amounts of $526,660,963.00 and $1,304,856,468,
respectively, are still valid, as they are not strictly necessary expenses for
the taxpayer. Therefore, the taxpayer must adjust its tax result to determine
income tax for fiscal year 2008, considering these items as non-deductible and
pay the corresponding tax.
Once the reasons for which the authority
wrongly determined the deductions made by the plaintiff for marketing expenses
and advertising and publicity are known, this Section considers that the
plaintiff is not in the right, since it states that the defendant, in issuing
the tax assessment decision, loses sight of the nature of the items in
question, since it considers them to be equal and therefore rejects their
deduction for the same reasons.
That is so because it is clear from the
content of the decision that the authority determined that both deductions are
improper because they are not strictly indispensable for the purposes of the
plaintiff's activity, but at no time did it state that those items referred to
the same expenses, or that they share the same nature, but that they do not
comply with the requirement laid down in Article 31(I) of the Income Tax Law,
since the trade marks which the plaintiff uses and exploits already have a
presence on the market. The arguments put forward by the plaintiff in that
regard are therefore unfounded.
However, in order to resolve the dispute
raised by the parties, it is necessary to analyse the provisions of Article
31(1) of the Ley del Impuesto sobre
la Renta, since, as can be seen, the authority based
its decision on the fact that the costs incurred by the applicant did not meet
the requirement of strict indispensability in order to be deductible.
The regulatory section in question provides
as follows:
Article 31. The deductions authorized in
this Title shall meet the following requirements:
I.
I. They shall be strictly indispensable for the purposes of the
taxpayer's activity, except for donations that are neither onerous nor
remunerative and that meet the requirements provided for in this Law and in
the general rules established for this
purpose by the Tax Administration Service and granted in the following cases:
(…)
It is clear from the article transcribed
that one of the requirements for deductions is that the expenses are strictly
indispensable for the purposes of the taxpayer's activity.
In this regard, the Federal Judiciary has
established what should be understood by "strictly indispensable", in
the thesis 2a. CIII/2004, Novena Época, of the Second
Chamber of the Supreme Court of Justice of the Nation, published in the Semanario Judicial de la Federación
y su Gaceta, Tomo XX,
December 2004, page 565:
RENT. INTERPRETATION OF THE TERM
"STRICTLY INDISPENSABLE" REFERRED TO IN ARTICLE 31, SECTION I, OF THE
RELATIVE TAX LAW
(LEGISLATION IN FORCE IN 2002). The
aforementioned precept establishes that the deductions authorised by Title II,
relating to legal entities, among other requirements, must be "strictly
indispensable" for the purposes of the taxpayer's activity. However, the
generic concept of that requirement is justified by the number of cases in
which that qualification may be made in each specific case; therefore, since it
is impossible to define all the possible cases or to establish general rules
for their determination, that term must be interpreted in the light of the
purposes of each company and the specific expenditure in question. In these conditions, the character of
indispensability is linked to the achievement of the company's corporate
purpose, that is to say, it must be necessary expenditure for the full
implementation of its activities, so that if it is not carried out, these would
have to be reduced or suspended; hence the legislator only allows the exclusion
of expenditure of this nature when considering the contributory capacity of the
subject, when there are legal, economic and/or social reasons that justify it.
In accordance with the above thesis, the
term "strictly indispensable" must be interpreted in the light of the
purposes of each undertaking and the specific expenditure concerned.
Therefore, the nature of indispensability
is linked to the achievement of the company's objective, that is to say, it
must be necessary expenditure for the full implementation of its activities, so
that if it is not carried out, these would have to be reduced or suspended;
therefore, the legislator only allows the exclusion of expenditure of this
nature when considering the contributory capacity of the subject, when there
are reasons of a legal, economic and/or social nature which justify it.
Likewise, the thesis with registration number
222536, Octava Época,
published in the Judicial Weekly of the Federation, Volume VII, June 1991, page
289, defines the aspects to be considered to determine whether an expense is
strictly indispensable for the purposes of the taxpayer's activity or not:
INCOME TAX, EXPENSES THAT ARE STRICTLY
INDISPENSABLE FOR THE PURPOSES OF THE COMPANY. THE DEDUCTIBILITY OF BONUSES AND
PRIZES IS ALLOWED
TO INSURANCE AGENTS. The deductible
expenses allowed by law to the taxpayers, as it is known, must comply with certain
requirements, among which are, that they are strictly indispensable for the
purposes of the business activity, the generic conception of this requirement,
which the legislator established in section I of article 24 of the Income Tax
Law, is justifiable when taking into account the amount of supposed cases, The
definition of "strictly essential" in each specific case cannot be
defined in a way that covers all possible scenarios or establishes general
rules for determining them. In this way, it is necessary to specify the
elements that we take into account to determine that in the specific case, the
bonuses and prizes paid to insurance agents are deductible. In the first place,
by expenses we mean the outlay or outflow of money or goods from a company's assets,
without recovery. Secondly, we must pay attention to the common meanings given
to us by the Dictionary of the Spanish Language, which indicates as the meaning
of strictly "precisely, in all rigor of law", and as strictly
"narrow, adjusted entirely to the need or to the law" (page 592 of
the nineteenth edition), and as far as it is necessary, it indicates three
meanings: "It is said of what is done and executed that it is obliged to
do something else, as opposed to voluntary and spontaneous" and "that
it is necessary or necessary for an end" (page 920 of the same edition).
Thus, according to the common and usual meaning of the qualifiers used by the
legislator, by strictly necessary we mean that which is wholly in keeping with
the need or the law, which must inevitably be done or adjusted to achieve a
given end. Finally, and for a better understanding of the qualifiers examined,
it is convenient to pay attention to the common elements that have been taken
into account in the doctrine, those elements are: 1) That the expense is
directly related to the activity of the company. 2) That it is necessary to
achieve the aims of its activity or the development of the same. 3) That if it
does not occur, its activities could be affected or its normal operation or development
hindered. As the elements considered are clear, it remains to explain their
application to the specific case. We will begin by saying that the business
activity of the complainant refers to the activities of an insurance
institution, having the concession to operate in life, share and illness
insurance, and in the case of damage in the branch of credit only as a
reinsurer, that is, taking on partially or totally a risk already covered by
another institution, or the remaining damage that exceeds the amount insured by
the first one. To carry out this business activity, the complainant has, among
other collaborators, insurance agents that intervene in the contracting of
insurance or reinsurance, by means of the exchange of proposals and acceptances,
and advice to conclude, maintain or modify them, according to the best
convenience of the contracting parties. However, this institution paid bonuses
and prizes to several of its insurance agents, for their intervention in the
issuing of policies and based on production volumes, portfolio conservation,
recruitment, renewal, etc., this expense is directly related to their business
activity and its development. Thus, payments consisting of bonuses, prizes or
incentives to insurance agents who have made the greatest number of contracts,
or renewals, or retained or extended clients, acts that are objectively
appropriate to the company's purposes, are true compensations, i.e. the better the agents' work results from income
obtained from insurance sales, the better the insurance company's income, and
therefore it is necessary for it to pay more to its promoters or sellers to
increase its own tax base. In addition, this payment is in turn an income of
the worker, for which he is paying his own tax. Thus, a close link can be
assumed between the outlay and the increase obtained in sales, which proves the
need for the expenditure. Moreover, with such stimuli, the progress of the
company is originated, and it becomes necessary to achieve this end, they are
thus made, obliged to maintain and preserve the unit of production and
distribution of the insurance service provided by the complainant. For a better
understanding of the case under study, it is worth asking, if the outlay is not
made, the company's activities would have to be suspended, or they would
necessarily be reduced. The answer is definitely yes, that is, if the
complaining company does not reward, stimulate or recognize through economic
remuneration the greater effort or work carried out by its insurance agents,
the latter, not receiving an incentive, will cease to fuel the company's
activity, and its production and consequently its income will necessarily be
reduced. Therefore, the expenses incurred for bonuses and prizes paid to
insurance agents are not superfluous and unnecessary expenses, but expenses
strictly indispensable for the purposes of the complaining company, since not
doing so could affect its activities or hinder its development.
From the thesis transcribed, it is clear
that in order to determine whether an expense is deductible or not, in terms of
Article 31, section I of the Income Tax Law, the qualification of
"strictly indispensable" must be interpreted, taking into account the
purposes of each company and the specific expense itself.
Likewise, it refers to the fact that
"expenditure" means the outlay or output of money or goods from a
company's assets, without recovery.
On the other hand, in accordance with the
common meanings of the Dictionary of the Spanish Language, it defines what is
strictly indispensable as that which is adjusted entirely to the need or to the
law, which inevitably has to be done or adjusted to achieve a specific end.
Similarly, it refers that in addition, the
analysis of the origin of the deduction in question must be made in light of
the common elements that have been taken into account in the doctrine, namely
a. That
the expense is directly related to the activity of the company.
b. That
it is necessary to achieve the aims of its activity or the development of the
same.
c. That
if it does not, its activities could be affected or its normal operation or
development hindered.
In this respect, to determine whether the
expenses incurred by the plaintiff for marketing and advertising are strictly
indispensable for the purposes of its activity, this Court will consider the
purpose of the activity, as well as the nature of the expense itself, in order
to establish whether such expenses are directly related to the activity of the
company, whether they are necessary to achieve the purposes of its activity or
the development thereof, and whether their non-occurrence could affect its
activities or hinder its normal operation or development.
By virtue of the above, the object of the
acting company must be taken into account, which is derived from the public
deed 12,131 of October 30, 2007, raised by Notary Public 74 in the state of
Nuevo León, which was offered as evidence by the plaintiff, which is assessed
in terms of Article 46, section I of the Federal Law of Contentious
Administrative Procedure:
(See transcript)
(…)
It is clear from the foregoing that the
applicant's main business is the purchase, sale, distribution and general trade
of beer, ice and all kinds of similar and related items.
In that regard, the Real Academia Española
states that sale, distribution and trade must be understood as
Sale.- 1. f. Action and effect of selling
Selling
1. tr. Transfer to someone for the agreed
price the property of what you own.
2. tr. Displaying or offering the goods or
merchandise to the public for those who want to buy them.
Distribution.
1.f. Action and effect of distribution.
2.f. Distributing a product to the premises
where it is to be sold.
Trade.
1.m. Buying, selling or exchanging goods or
services.
However, the claimant maintains that the
expenses incurred for the concepts of marketing and advertising are deductible
under Article 31, Section I of the Income Tax Law, since they are strictly
indispensable for the purposes of its activity, since it is engaged in the sale
of beer under the brands "***** ******", "***",
"******", "********", "** *****", among others.
Marketing costs.
First, the Court will analyse the
appropriateness of the deduction for marketing expenses, and to that end it is
necessary to know what is to be understood by "marketing".
In this regard, the Royal Spanish Academy
defines this concept as follows:
Marketing
To market.
1. tr.To
give a product conditions and distribution channels for its sale
2. tr.Putting
a product on sale. They are going to market a new brand of coffee.
In that connection, it is considered that,
if the applicant's object is the sale, distribution and general trading of
beer, which consists in displaying or offering its products to the public for
those who wish to buy them, and in distributing the product to the premises or
places where it is purchased, it is incontestable that the expenditure which it
incurs by way of marketing is strictly indispensable to the proper performance
of its activities, it being understood that it is through marketing that the
products are provided with the conditions and means of distribution for their
sale.
Accordingly, the Court considers that,
contrary to the contention of the defendant authority in the tax assessment,
the marketing costs are deductible for income tax purposes, since they are
directly related to the sale, distribution and general trading of beer, and are
also necessary to achieve the aims of the activity of the undertaking concerned
or the development of that activity, and if they do not occur, their activities
could be affected or their normal operation or development hindered.
This is so because the marketing of a
product is necessary for its sale or for its acquisition by the general public,
so that, if the applicant's objective is the sale, distribution and general
trade of beer, the expenditure incurred by it under that heading is strictly
necessary for the conduct of its business, since, otherwise, it would not be
able to make its products available to the public for purchase.
The defendant is therefore wrong to state
that the marketing costs are included in the payment of the royalty which the
applicant pays for the use and exploitation of the marks in question, since
those marks are already positioned on the international market, so that those
costs are unnecessary.
That is so because, for the purposes of
determining whether or not those costs are indispensable to the development of
the applicant's activities, it is irrelevant whether the marks have an international
reputation or whether they are widely recognised, since, as was stated, the
marketing of a product concerns the manner or means by which that product is
made available to the public for purchase; Consequently, what the defendant
should have considered was whether that expense was linked to the activities
carried out by the claimant, that is to say, whether it was in accordance with
the provisions of the Income Tax Law in that regard and not, based on
subjective assessments, since it is improper for the authority to reject the
deductions on the ground that the claimant no longer needs to incur marketing
expenses, since the brands with which it sells its products are already known.
Rather, the applicant should have analysed
the deductions made for marketing expenses in the light of the concept of
strictly indispensable expenditure, which is laid down in section I of Article
31 of the Income Tax Law.
Since it did not do so, the defendant
authority's determination that the payment of the royalty includes the
aforementioned marketing concepts is unlawful and therefore unnecessary, since
the marks whose use and exploitation the applicant has a presence and
recognition in the market.
In the same vein, the view taken by the
authority in the settlement decision that, since the applicant is not the
proprietor of the marks under which it sells its products, it does not benefit
from the marketing costs, but rather the owner of the marks who benefits from
those costs, since they increase the value of the mark, has no legal basis.
This, because it is emphasised, marketing
refers to the manner or means used to make the goods available to the public
for purchase, for example, the acts necessary for those goods to be offered for
sale in supermarkets, which is not carried out by the proprietor, but by the
acquirer, in so far as he is engaged in the sale, distribution and trade of
beer.
Therefore, the authority should have taken
into account the provisions of Article 31(I) of the Ley del Impuesto
sobre la Renta in order to
determine whether the expenses incurred by the applicant were strictly
indispensable to it for the purposes of its activity, it being immaterial
whether or not it is the owner of the trade marks, since, since it has the use
and exploitation of those trade marks for the sale, distribution and general
trade of beer, it is undeniable that it must carry out marketing activities
which generate expenses for it.
The foregoing is due to the fact that all
acts of authority must be duly founded and reasoned in terms of Article 16 of
the Constitution, and the legal precept applicable to the case must be
precisely expressed and the special circumstances, particular reasons or
immediate causes that have been taken into consideration for issuing the act
must be precisely indicated.
This is supported by the jurisprudence VI.
2o. J/248, issued by the Federal Judicial Power, Eighth Period, published in
the Gazette of the Judicial Weekly of the Federation, No. 64, April 1993, page
43:
FOUNDATION AND MOTIVATION OF THE ACTS
ADMINISTRATIVE: In accordance with article
16 of the Constitution, all acts of authority must be sufficiently founded and
reasoned, it being understood that firstly, the legal precept applicable to the
case must be expressed precisely and secondly, that the special circumstances,
particular reasons or immediate causes that have been taken into consideration
for the issue of the act must also be precisely indicated, it being necessary,
furthermore, that there be an adaptation between the reasons given and the
applicable rules, that is to say, that in the specific case the normative
hypothesis is configured. That is, when the precept in question prevents anyone
from being harassed in their person, property, or rights, except by virtue of a
written order from a competent authority that bases and motivates the legal
cause of the procedure, it requires all the authorities to comply with the law,
expressing which law it is and the precepts of it that support the relative
order. Specifically, in administrative matters, in order to consider an
authoritarian act as correctly founded, it is necessary that) - The legal
bodies and precepts which are being applied to the specific case, that is, the
normative assumptions in which the conduct of the governed party is framed so
that he is obliged to pay, which shall be indicated with all exactness,
specifying the applicable paragraphs, sub-incises, fractions and precepts, and
b) the legal bodies and precepts which grant competence or powers to the
authorities to issue the act in detriment of the governed party.
SECOND COLLEGIATE TRIBUNAL OF THE SIXTH
CIRCUIT.
In addition, we have that of the Modifying
Agreement to the Non-Exclusive License Agreement for the Use and Exploitation
of Intangibles called trademarks, commercial advertisements and other
industrial property rights, entered into between **** **** ** **** and the
plaintiff, it is not noted that the marketing costs are included in the payment
of the royalty made by the plaintiff for the use and exploitation of the
trademarks in question, as can be seen from the following reproduction:
(See transcript)
From the digitized Contract, which is
valued in terms of article 203, of the Federal Code of Civil Procedures1 , as it is a private documentary, it is noted that the
licensor grants the licensee a non-exclusive license to use and exploit the
assets, in relation to all the products or services to which they apply, under
the terms of the Contract.
1 Article 203.- The private document shall
be evidence of the facts mentioned therein only insofar as they are contrary to
the interests of its author, when the law does not provide otherwise. The
document coming from a third party only proves in favour of the party who wants
to benefit from it and against his or her co-contractor, when the latter does
not object to it. Otherwise, the truth of its content must be proven by other
evidence.
A private document containing a declaration
of truth attests to the existence of the declaration, but not to the facts
declared. The provisions of the second paragraph of Article 202 apply to the
case. […]
That for the non-exclusive use and
exploitation of the assets, the licensee will pay a percentage of the amount of
the licensee's quarterly sales to the licensor on a quarterly basis according
to the calendar year.
That said percentage will be determined in
accordance with a transfer price study that the licensee must request from a
recognised tax consultancy firm in the field, before the end of each licensee's
business year; said study must also take into account the inflation indexes of
the country where the assets are used and the variations in the exchange rate
of the corresponding currency against the US dollar, so that the consideration
corresponds to that which must be paid between independent parties in
comparable operations.
Therefore, the amount of the royalty paid
by the claimant as consideration for the use and exploitation of the trademarks
will always be based on the sales obtained by the claimant. Furthermore, this
amount will be calculated taking into consideration a transfer price study and
the inflation indexes of the country where the assets are used and the
variations in the exchange rate of the corresponding currency against the US
dollar.
The contract under analysis does not
stipulate that marketing expenses are included in the royalty payment, due to
the prestige of the brands, but rather establishes that this amount will depend
on the sales of the licensee, in this case, the claimant.
Therefore, if the purpose of marketing the
products is to make them available to the public for purchase, it is undeniable
that the expenses for this concept must be paid by the person who sells the
products, as is the case, since it is the plaintiff who directly benefits from
the increase in sales of its product.
It is not contrary to the above that the
defendant refers to the fact that the marketing costs benefit the owner of the
brands, because they increase the value of the brands, since, as has already been
said, if the purpose of the costs in question is to increase the sales of the
product, the direct benefit is for the plaintiff, since its object is the sale,
distribution and trade of beer in general.
The Court also took into account the fact
that the plaintiff considered various items of marketing expenditure without
the tax authority having analysed and verified each of them in order to
determine whether the respective deduction was appropriate.
Therefore, it is appropriate to declare the
invalidity of the settlement decision contained in Official Letter No.
900-07-04-2015-55504 dated 19 October 2015, with regard to the marketing
expenses, so that the defendant authority may issue a new document analysing,
verifying and detailing the items which were considered by the claimant for
this concept, in order to determine the origin of the respective deduction.
Advertising and publicity expenses.
However, with regard to the expenses for
the concept of "propaganda and publicity", it is considered that these
are not deductible, in terms of Article 31, section I of the Income Tax Law, as
they are not strictly indispensable for the development of the activity of the
plaintiff.
This is because, as is clear from the
Non-Exclusive Licence Agreement for the Use and Exploitation of Intangibles
known as trademarks, commercial advertisements and other industrial property
rights, entered into between **** ** **** and the plaintiff, which was
previously digitised, the latter is not the owner of the trademarks it uses to
sell its products, and therefore these expenses for "propaganda and
advertising" increase the value of the trademarks for the benefit of a
third party, i.e. the owner of the trademarks, which may even justify a higher
payment of royalties.
However, it is necessary to refer to the
definition of the Real Academia Española of the concepts
"propaganda" and "advertising":
Propaganda
From lat. mod. Congregatio
de] propaganda [fide] '[Congregation for] the propagation [of the faith]', a
congregation of the Roman curia in charge of the missions, founded by Gregory
XV in 1622.
o f. Action and effect of making something
known in order to attract followers or buyers
o f. Texts, works and media used for
propaganda.
o f. Association whose purpose is to
propagate doctrines, opinions, etc.
o f. Rel. In the Catholic Church, an
organism of the Roman Curia responsible for the propagation of the faith.
Advertising
- f. Quality or state of the public.
- f.Set
of means used to disseminate or spread the news
- of things or facts.
- f. Dissemination of news or
advertisements of a commercial nature to attract potential buyers, viewers,
users, etc.
As we can see, these concepts have
different definitions depending on the context in which they are used, so in
this case, this judge will stick to the one that is appropriate to the subject
matter at hand.
According to the above, these concepts
refer to the action and effect of making something known in order to attract
followers or buyers and to the set of means used to disseminate or spread the
news of things or facts.
On the other hand, the Federal Judiciary
defines the advertising function as a fundamental activity in the process of
marketing and implementing the maximization of profits of companies, which is
developed with the purpose of allowing the identification of brands and
awakening the impulse to buy in potential buyers, specifying that the act of
consumption is directed to the advertised brand and not to the article, as
warned in the thesis I.4 o.A.144 A (10a.), Décima Época, published in the Gaceta
del Semanario Judicial de la Federación,
Book 61, December 2018, Volume II, page 1110:
BRANDS, ORIGIN AND EFFECTS OF THEIR
ADVERTISING.
Distinctive signs are products with added
value and serve to advertise the qualities or peculiarities of the articles
that carry them; hence one of their characteristics is their
"distinctiveness". Under these conditions, if the brand does not
distinguish, it will not be able to identify the product, let alone fulfil the
function of promoting its sale. In relation to the advertising function of
brands, it is considered that, essentially, it is a fundamental activity in the
marketing process and in the implementation of profit maximization of
companies, which is developed with the purpose of allowing its identification
and awakening the impulse to buy in potential buyers, so that the act of
consumption is aimed at the advertised brand and not at the article. Thus,
advertising is the best instrument to build brands, in its intention to
convince, persuade, contribute, change or modify beliefs and, consequently,
behaviours that lead to the use or consumption of a product or service. From
the above, it follows that use of the mark not only occurs when suppliers make
the goods or services bearing the mark directly available to the consumer
public in order to produce a profit, but that the distinctive sign is also used
by means of the advertising generated for its consumption, insofar as it
implies the consumer's imminent reach to the goods for their acquisition.
FOURTH COLLEGIATE COURT IN ADMINISTRATIVE
MATTERS OF THE FIRST CIRCUIT.
In accordance with the definitions set out
above, that court considers that the costs incurred by 'advertising and
publicity' consist in making something known in order to attract followers or
buyers through the means used to disseminate or spread the news of things or
facts; however, those acts are directed at the mark being advertised and not at
the article.
Therefore, this advertising and propaganda
function favours the implementation of profit maximisation for companies, in
the case of the owner of the brands that the actor uses to sell its products,
while increasing their value, as they are intangible and are mostly recognised
in the market.
In this regard, Article 882 of the
Industrial Property Law states that a trade mark is any visible sign which
distinguishes goods or services from others of the same kind or class on the
market.
This Court has issued various criteria
aimed at establishing what should be understood by the concept of a trade mark,
such as the jurisprudence I.4o.A. J/91 and I.4o.A. J/93, relating to the
classification of trade marks and their components, respectively:
2 Article 88.- A trade mark is any sign
which is perceptible by the senses and capable of being represented in such a
way as to enable the clear and precise subject-matter of the protection to be
determined, and which distinguishes goods or services from others of the same
kind or class on the market.
TRADE MARKS. THEIR CLASSIFICATION. In
general terms, trade marks are classified into: a) Nominal, that is, those that
allow a product to be identified by means of a word or a group of words; these
must be distinguished phonetically and may consist of the names of natural persons,
which may be registered as a trademark, provided that they are not confused
with a registered or published trade name, and may be meaningless and
capricious or fanciful, have a meaning and be suggestive of the nature and
characteristics of the product or service, or even be arbitrary; b) Unnamed,
they are figures that fulfil the function of a brand and can be recognised
visually but not phonetically, since their peculiarity consists of being
symbols, designs, logos or any figurative element that is distinctive;
c) Mixed, which combine words with
figurative elements showing the mark as an element or as a distinctive whole;
and, d) Three-dimensional, those which protect the wrappers, packaging,
containers, the shape or presentation of the products themselves, if they are
distinctive from others of the same species or class.
TRADEMARKS. THEIR COMPONENTS. Trademarks
are intangible goods and their components are: a) products or services with
peculiarities, advantages or characteristics that make them valuable or famous
in the market, whose ownership is sought to be claimed for their commercial
exploitation with claims of exclusivity; b) distinctive sign that is associated
as a particular and exclusive, in relation to that product or service, which
does not necessarily have to be original or unpublished; c) a sign - word,
graphic or mixed - which requires materialisation in a packaging, product or
advertising expression, which psychologically links to an idea or concept of a
product or service and evokes in the consumer the characteristics, business
origin, level of quality or reputation; and d) a link or correlation between
the product or service and the sign which consumers perceive and retain in
their memory, which is creative, attributable to the business person and is the
subject of protection and claim. Therefore, the trade mark is the mechanism
that makes possible the identification and subsequent selection of goods or
services and an instrument that is used and contributes to the partitioning of
markets, to provide exclusivity to the trader who manages to prove the goods he
offers as protection and protection against unfair competition.
From the foregoing, it can be seen that
trademarks are not isolated ideal constructions, devoid of material content,
but are signs that distinguish goods or services from others of the same
species or class in the market. At present, the development of commercial
relations between the various economic operators and the consumer public has
meant that trade marks are no longer simply distinctive and representative
elements of goods and services, but have become intangible assets with an
intrinsic value.
In accordance with the above, the value of
a brand is made up of the following components3:
a) Marketing value: brands influence
customer behaviour. This is the component of brand value that is of most
interest to the company's commercial and marketing management.
b) Economic-financial value: brands can be
the object of economic transactions (sale, rental in the form of franchises or
licences, stock exchange quotations). The economic-financial value of the brand
consists of its potential to be the object of a sale or other type of contract
(licence or franchise), i.e. to be a negotiable
intangible asset.
c) Legal value: trademarks can be protected
and be the subject of compensation. This refers to the costs of protecting the
trademark and the quantification of the damages arising from the limitation or
illegality of its use.
The values described are closely linked.
The economic value is naturally linked to
the strategic value, while a brand will have greater economic value if more
units are sold on its market. The
legal value, on the other hand, increases as the other two components do.
3 Belío Galindo,
José Luis and Ana Sáinz Andrés, Keys to Managing
Price, Product and Brand. Cómo Afrontar
una Guerra de Precios, 1st ed., Especial Directivos/Grupo Wolters Kluwer, Spain, Madrid, 2007, p.
171.
To confer value to a brand or to increase
the value of the one it already has, strategies related to the general
communication orientations of the company that owns it can be implemented, such
as advertising and propaganda expenses, which tend primarily to confer value to
the brands, insofar as they directly or indirectly support the sales or
information activities of the company that owns it.
Therefore, the purposes of advertising and
propaganda are not limited, in the strict sense, to attracting potential buyers
or users of the goods and services offered by the economic operator, which are
normally marketed through trade marks; the ultimate aim is to confer value on
the trade marks and to position them on the market.
From the above, it can be seen that
advertising and propaganda expenses tend primarily to position brands in the
market, in order to give them notoriety, fame and recognition among the
consumer public, while the sustained implementation of that communication
strategy will seek to create and maintain a psychological climate of knowledge
and trust between the company and the public to which the brand is addressed.
The foregoing shows that the advertising of
a brand will mainly benefit its owner, since it is in his interest that it is
disseminated among the consumer public, in order to maintain its value or
increase it.
It is primarily for the proprietors of the
trade marks to maintain their value by implementing the communication
strategies which they consider appropriate, precisely because they are the main
beneficiaries of the maintenance or increase in value of the trade marks,
whereas the advertising of the trade marks will benefit any licensees in a
subsidiary manner, in so far as that strategy actually helps to increase the
volume of sales.
Therefore, the applicant's expenditure on
'advertising and publicity' is not considered to be strictly indispensable to
its activity, since it benefits only the proprietor of the marks, since the
purpose of the advertising and publicity is precisely to increase the
commercial value of the marks; Therefore, since the applicant is not the
proprietor of the trade marks with which it sells its goods, it is clear that
the advertising costs incurred by it do not satisfy the requirement of strict
indispensability referred to in Article 31(I) of the Ley del Impuesto sobre la Renta, since the maintenance of their commercial value is a
matter for the proprietor alone.
In this regard, the Second Chamber of the
Supreme Court of Justice of the Nation, in deciding the appeal in review number
1386/2004, on the issue of deductions in terms of Article 31, section I, of the
Income Tax Law, held, on the one hand, that the guiding principle is
indispensability, which is generic in nature and to determine it, it will be
necessary to take into account the number of cases that in each specific case
can be described as "strictly indispensable". "On the other
hand, that expenses are understood to be the outlays or outflows of money or
goods from a company's assets, without recovery, as noted:
PROTECTION IN REVISION 1386/2004.
COMPLAINT: **********, SOCIEDAD ANÓNIMA DE
CAPITAL VARIABLE.
RAPPORTEUR: MINISTER JUAN DÍAZ ROMERO.
SECRETARY: CÉSAR DE JESÚS MOLINA SUÁREZ.
Mexico, Federal District. Resolution of the
Second Chamber of the Supreme Court of Justice of the Nation corresponding to
November 5, 2004.
COUNTERFEIT:
VIEWS; and
RESULTING :
(…)
Thus, it follows from the content of
Articles 29 and 31, section I, of the Income Tax Law that all taxpayers under
the Income Tax Law who are in this situation have the possibility of deducting,
among other items, the expenses strictly indispensable for the purposes of the
taxpayer's activity.
Regarding the provision contained in
section I of Article 31 of the Income Tax Law, the doctrine has stated
"In tax law, particularly in a law
relating to income tax, the 'strictly necessary' criterion is the principle of
proportionality in tax matters with regard to the deductions that may be made
by the taxpayer. While every expenditure made by a person, whether or not it is
indispensable, reduces his economic capacity, because it inevitably reduces his
assets (...)".
As indicated in the paragraph above, the
guiding principle for deductions is the indispensability of these in terms of
Article 31, section I, of the law on the matter, and the deductible expenses
allowed by law to the taxpayers in question must comply with certain
requirements, among which is that they are strictly indispensable for the
purposes of the business activity; The generic conception of this requirement,
which the legislator established in the legal precept in question, is
justifiable in view of the number of cases that may be described as
"strictly indispensable" in each specific case. Therefore, since it
is impossible to provide a definition that covers all the possible cases or to
establish general rules for their determination, it is necessary to interpret
the concept of "strictly indispensable", taking into account the
purposes of each company and the specific expense in question.
Thus, expenditure is understood as the
outlay or output of money or goods from the assets of an enterprise, without
recovery.
Thus, the deductible expenses allowed by
law to the subjects of the tax in question must comply with certain
requirements, among which is that they are strictly indispensable for the
purposes of the business activity, for which it will be necessary to take into
account the particular circumstances of the taxpayer.
Consequently, taking into account the
corporate purpose of the claimant, which consists of the sale, distribution and
general trade of beer. and to the specific circumstance that it is not the
exclusive licensee of those brands, the fact that the payments it made for
advertising and publicity are indispensable in respect of brands which it does
not own are not justified, since they are not closely connected with the
achievement of its corporate purpose, Although it is true that this payment was
made in order to make the consumer public aware of the brands it offers, it is
also true that it is not a necessary expense that affects your activities as a
legal entity and that brings you a benefit, so that if you do not make it, the
company's activities would have to be suspended or they would necessarily
decrease.
In short, the payment of advertising and
propaganda regarding brands that are not owned by the company and of which it is
not the exclusive licensee, if it is not carried out, does not mean that its
activity will not be stimulated, otherwise it would be that its income would be
focused exclusively on the realization of that advertising and propaganda
activity and, for that reason, it would be required to make those expenses to
fully comply with its activities as a legal entity, bringing it some benefit.
Therefore, it is now the owner of the
trademarks who obtains an economic benefit due to their intangible value, and
not the company to which their use is licensed, so their positioning in the
market through their advertising will only be of interest to the former. Thus,
increasing the value of a trade mark through advertising and publicity
expenditure could even be detrimental to the licensee, since he might have to
pay higher royalties for its use.
This is so, because for the authorised user
of a brand, the licence constitutes the instrument through which he exploits
the strength, notoriety and market positioning of that brand, in exchange for
the payment of royalties for its use, which translates into the possibility of
marketing the products and services it offers, without the need to develop his
own brand and position it in the market, thus avoiding the technical, operational
and legal difficulties that this may imply.
Through the license agreement, the licensee
takes advantage of the economic and marketing benefits of using a strong brand
that is recognised by the consumer public.
In the case in point, the licence agreement
for the use of the trade marks granted the applicant their use in order to
market its products through them, so that the applicant is entitled to offer
the products covered by those trade marks as if it were the owner of those
marks. Thus, by means of that licence agreement, the applicant exploits the
strength, reputation and market position of the marks for which it pays
royalties.
In view of the foregoing, it must be
concluded that if the plaintiff did not incur expenses for the advertising and
publicity of the licensed brands, this would not affect its activities or
hinder its normal operation or development, since its corporate purpose is the
sale, distribution and general trading of beer and not the positioning of
brands in the market; moreover, the purpose of the license agreement was to
grant the plaintiff the rights to use and exploit the brands already positioned
in the market.
Likewise, it is considered that the
advertising and publicity of the services offered by the plaintiff is ensured
through the granting of the use of the trademarks referred to, derived from the
license agreement entered into with the holder of the trademarks, since they
are trademarks positioned in the market, so that it is sufficient for them to
be incorporated into the products and services offered by the plaintiff to
obtain the preference of the consumer public, thus being able to continue with
its activities normally, without reducing its income.
In other words, since the marks are
recognised on the market as being distinctive for the goods, thanks to the fact
that they were originally advertised by their creator and proprietor, the
dissemination of the goods offered by the applicant is ensured by the mere
incorporation of the marks into those goods.
Therefore, the costs incurred by the
applicant in respect of advertising and publicity are not strictly necessary
for the conduct of its business, in accordance with Article 31(1) of the Law on
Income Tax.
The conclusion reached by this Court is
supported by the following theses issued by the Judicial Power of the
Federation:
Thesis with registration number 248095,
Seventh Period, Collegiate Circuit Courts, published in the Judicial Weekly of
the Federation, Volume 205-216, Sixth Part, page 431:
INCOME TAX LAW, IN FORCE IN 1972, 1973 AND
1974. DEDUCTIONS OF EXPENSES FOR PROMOTION AND ADVERTISING SERVICES.
REQUIREMENTS THAT MUST BE MET BY THOSE THAT ARE FORMULATED WITH THE SUPPORT OF
THE PROVISIONS OF SECTION I OF ARTICLE 26. With regard to deductions, those
formulated with the support of the provisions of article 26, section I, of the
specific tax law in question must meet two types of requirements: The first,
implicitly considered, is to prove that the amounts deducted were actually spent
on the items declared; and the second, that said item may be qualified as
ordinary and strictly indispensable for the purposes of the business, a normal
consequence thereof and in proportion to the transactions of the taxpayer; this
is so because first the item to which an expenditure was applied must be known
with certainty, and then it must be possible to determine whether that item is
ordinary and indispensable for the business. In these terms, it is demonstrated
that it is up to the taxpayer to prove that the amounts deducted were actually
spent on the concepts declared; however, it should be noted that the legislator
did not indicate in what form such expenditures should be accredited, nor
through what evidence, so it is up to each case to determine whether such
extremes have been proven.
THIRD COLLEGIATE TRIBUNAL IN ADMINISTRATIVE
MATTERS OF THE FIRST CIRCUIT.
Precedent VII-CASR-2HM-25 of the Second
Regional Chamber Hidalgo-Mexico, published in the Magazine edited by this
Court, Séptima Época, Year
V, No. 43, February 2015, page 185:
INCOME TAX. THE EXPENSES INCURRED BY
TAXPAYERS FOR ADVERTISING ARE STRICTLY INDISPENSABLE, PROVIDED THAT THEY ARE
MADE FOR THE DEVELOPMENT OF THEIR ACTIVITY WITH THE PURPOSE OF REPORTING
PROFITS. According to the provisions of section I of Article 31 of the Income
Tax Law in force in 2008, deductions must be strictly indispensable for the
purposes of the taxpayer's activity. In relation to this, the First Chamber of
the Argentine Supreme Court of Justice, in its ruling 1a. XLVI/2009, under the
heading: "INCOME. THE ORIGIN OF THE DEDUCTIONS IN THE RELATIVE TAX IS NOT
CONDITIONED TO THE FACT THAT THE RESPECTIVE EXPENDITURES ARE NECESSARILY LINKED
TO THE PREDOMINANT ACTIVITY OF THE TAXPAYER. "The Court held that such
requirement should not be understood in the sense that each taxpayer can only
engage in one line of business, since since the
object of the tax is to obtain income, it is clear that the expenses incurred
to obtain such income must be deductible, regardless of whether the taxpayer
has more than one activity. In
accordance with the above, when taxpayers make various expenses for
advertising, seeking to develop their activity in order to report profits,
these expenses should be considered deductible for income tax purposes, since
regardless of whether they have a close link with the predominant activity of
the taxpayer, these may be aimed at positioning their product or service in the
market, which in turn would result in obtaining a profit, which in the end would
be taxed by the treatment tax. In other words, if the purpose of the tax is to
obtain income, if the taxpayers make various expenditures to promote their
activity in order to obtain a greater profit, it must be understood that those
operations are strictly indispensable, since they would result in an increase
in the taxpayer's profit and therefore also in the taxable base, and it would
be appropriate to deduct them.
By virtue of the above, this Section
considers the concepts of challenge FIRST and SECOND of the claim to be
partially FOUNDED, and therefore it is appropriate, on the one hand, to declare
the nullity of the tax assessment resolution insofar as it makes deductions for
marketing expenses in terms of Articles 51, section IV and 52, section III of
the Federal Law on Contentious Administrative Procedure, in force before July
18, 2016, for the purpose that the respondent authority issues a new resolution
in which it addresses the reasoning contained in this ruling and analyse,
verify and detail the items that were considered as marketing expenses by the
plaintiff, in order to determine the origin of the respective deduction, based
on the strict indispensability of such expenses.
And on the other hand, recognise the
validity of the settlement decision with respect to the expenses for
advertising and publicity, in accordance with Article 52, section I of the
aforementioned legal system.
This Court has not overlooked the fact that
the plaintiff offered as evidence in this trial expert evidence on advertising,
propaganda and marketing (see pages 588 to 607 and 640 to 676 of the file);
However, it is not assessed, as it is not suitable for resolving the dispute
raised by the parties, since, on the one hand, it conceptualizes and
differentiates between marketing and advertising expenses, as well as those
incurred by way of royalties and, on the other hand, it addresses the impact on
a company's sales when incurring marketing, advertising and publicity expenses,
as well as royalties and the benefits of brand positioning.
However, the point of contention in this
recital concerned whether or not marketing, advertising and publicity expenses
are strictly indispensable for the development of the applicant's activity and,
consequently, deductible in accordance with Article 31(1) of the Income Tax
Law, which was determined in the light of that part of the legislation; In
other words, in order to determine the origin of the deductions made by the
plaintiff, the interpretation of the applicable legal provisions should be
used. Therefore, the expert evidence in question is unnecessary to resolve the
dispute.
The previous determination is supported by
the thesis I.1o.A.E.45 K (10a.), issued by the Judicial Power of the
Federation, published in the Gazette of the Judicial Weekly of the Federation
Book 24, November 2015, Volume IV, page 3605:
SCIENTIFIC EXPERT EVIDENCE. ITS OBJECT AND
PURPOSE. The purpose of the expert evidence is to help in the administration of
justice, consisting of an expert in a certain science, technique or art to
provide the judge with knowledge of his or her own expertise, which the judge
lacks, because it is beyond the scope of an average person's cultural level,
and which is also essential to solve a certain controversy. Thus, the use,
primarily, of expert opinion, and with it scientific
methods, implies the use of specialized knowledge, which is indispensable to
appreciate and qualify certain facts or evidence and to be able to attribute or
deny them meaning with respect to a certain practice, hypothesis or conjecture
that is intended to be accredited. It is also useful to determine what
circumstances or evidence are necessary, according to the methodological
framework, to validly reach a certain conclusion. In this way, both the
evidence and the methods must be relevant and reliable for the result, end or
purpose that the evidence is intended to achieve. For this reason, the
specialized knowledge that can be obtained from scientific methods or expert
procedures makes the judges participate in the information that derives from
laws, theories, explanatory models, maxims of experience and skills, even from
presumptions, all corresponding to the various sciences that are governed by
different methodologies, so that the evidence they provide includes facts, behaviors, practices, states of affairs or particular
circumstances, in general, that according to a theory or method, are relevant
to the purpose or objective that the test is intended to accredit and requires
a specialized qualification.
FIRST COLLEGIATE CIRCUIT COURT IN
ADMINISTRATIVE MATTERS SPECIALISING IN ECONOMIC COMPETITION, BROADCASTING AND
TELECOMMUNICATIONS, WITH RESIDENCE IN THE FEDERAL DISTRICT AND JURISDICTION
THROUGHOUT THE REPUBLIC
As well as the thesis I.7o.A.508 A, issued
by the Federal Judicial Power, Ninth Epoch, published in the Federal Judicial
Weekly and its Gazette Volume XXV, April 2007, page 1804:
EVIDENCE IN THE FEDERAL
CONTENTIOUS-ADMINISTRATIVE TRIAL. IN THE CASE OF THOSE THAT MUST BE EVALUATED
ACCORDING TO THE HEALTHY CRITICISM, THE FEDERAL TAX AND ADMINISTRATIVE JUSTICE
COURT MUST RULE ON THEIR SUITABILITY TO PROVE THE POINTS TO BE PROVED BEFORE
EXAMINING ANY OBJECTION FROM THE BIDDER'S COUNTERPART. According to Article 230
of the Federal Fiscal Code, in force until 31 December 2005 (similarly worded
in its part leading to paragraph 40, second subparagraph of the Federal Law on
Administrative Litigation Procedure), in federal administrative litigation all
kinds of evidence are admissible, except for the confession of the authorities
by way of acquittal and the request for reports, unless the latter are limited to
facts contained in documents in the possession of the authority. For its part,
Article 234 of the same code and validity (the content of which shares the
precept 46 of the aforementioned law), provides that full proof is given by the
express confession of the parties, legal presumptions that do not admit
evidence to the contrary, and facts legally affirmed by the authority in a
public document, but if the latter contain statements of truth or declarations
of facts by individuals, the documents only fully prove that before the
authority that issued them the statements or declarations were made, without
demonstrating the truth of what was stated or manifested. The rules described
above show the existence of two systems of evaluating evidence, one assessed for
the express confession of the parties, legal presumptions that do not admit
evidence to the contrary and public documents; and the other in accordance with
healthy criticism, for testimony, expert opinion and other means of evidence.
In the latter system, the judge must rule on the suitability of the evidence
and define, first, its effectiveness in order to prove the points to be proved
and, subsequently, examine accessory aspects such as the existence of any
objection by the offeror's counterpart.
SEVENTH COLLEGIATE TRIBUNAL ON
ADMINISTRATIVE MATTERS OF THE FIRST CIRCUIT.
In addition, this Court warns of the
documents that make up the trial, as well as the administrative records from
which the resolutions challenged and appealed were derived, that the plaintiff
did not offer expert evidence on advertising, propaganda, and marketing during
the inspection procedure or in the appeal for revocation. Therefore, this Court
would not be able to assess this evidence, in accordance with the provisions of
case law 2a. /J. 73/2013 (10a.), of the Second Chamber of the Supreme Court of
Justice of the Nation, Tenth Period, published in the Judicial Weekly of the
Federation and its Gazette, Book XXII, July 2013, Volume 1, page 917:
CONTENTIOUS-ADMINISTRATIVE LAWSUIT. THE
OPEN LITIS PRINCIPLE THAT RULES IT DOES NOT IMPLY FOR THE ACTOR A NEW
OPPORTUNITY TO PROVIDE THE PROOF, WHICH, ACCORDING TO THE LAW, SHOULD BE
EXHIBITED IN THE ORIGINAL PROCEDURE OR IN THE PROCEDING ADMINISTRATIVE APPEAL,
BEING IN THE LEGAL POSSIBILITY TO DO SO [MODIFICATION OF THE JURISPRUDENCE 2a.
/This Second Chamber of the Supreme Court of Justice of the Nation modifies the
above-mentioned case law, considering that the principle of open conflict
derived from Article 1 of the Law on the Protection of Personal Data (LOPD) is
not applicable in the case of the protection of personal data. of the Federal
Law on Administrative Litigation is applicable only when the decision given in
administrative proceedings is challenged through the appropriate administrative
appeal, before going to the Federal Court of Tax and Administrative Justice,
and results in the possibility for the plaintiff to formulate concepts of
challenge not expressed in the appeal, but such prerogative does not imply the
opportunity to exhibit in court the means of evidence that, according to the
law, should have been presented in the original administrative procedure or in
the respective administrative appeal to distort the facts or omissions noticed
by the administrative authority, being in legal possibility to do so. If that
had been the intention of the legislator, it would have been expressly stated,
as it did in the case of the revocation appeal provided for in the Federal
Fiscal Code in which, by exception, the taxpayer is granted the right to offer
the evidence that for any reason was not presented before the controlling
authority, to seek the resolution of the tax disputes in the administrative
seat as quickly as possible and avoid their challenge in the jurisdictional
seat, This is because the administrative authority can exercise any of the
actions inherent in its powers of verification and supervision, such as, among
others, requesting information from third parties to verify it with that
provided by the appellant or reviewing the opinions issued by the certified
public accountants, which implies having the necessary legal competence and the
human and material elements that are specific to the public administration.
Therefore, such prerogative cannot be understood as extended to the contentious-administrative
trial, since it would not be legally valid to declare the nullity of the
challenged resolution based on the analysis of evidence that the individual did
not present in the original proceeding or in the administrative appeal, being obliged
to do so and legally able to do so, as prescribed by Article 16 of the
Political Constitution of the United Mexican States, which indicates that the
governed must keep the documentation indispensable to demonstrate compliance
with the tax provisions and to exhibit it when required by the administrative
authority in the exercise of its powers of verification. To consider the
contrary would mean to sustain that the Federal Court of Fiscal and
Administrative Justice can substitute itself in the powers of the fiscal
authority and declare the nullity of its acts by causes attributable to the
individual.
In accordance with the above criterion, the
principle of open litigation does not imply the opportunity to present in court
the evidence that, according to the law, should have been presented in the
original administrative proceeding or in the respective administrative appeal
to distort the facts or omissions noticed by the administrative authority,
being in legal possibility to do so 4.
Consequently, it is appropriate to declare
the nullity of the liquidation resolution as to the deduction for marketing
expenses, as well as the resolution challenged in the part that confirms such
determination, in terms of article 51, section IV of the Federal Law of Contentious
Administrative Procedure, in force before July 18, 2016.
4 As confirmed by the Supreme Court of
Justice of Argentina, when resolving the Contradiction of thesis 288/2018
raised between the Seventh Collegiate Court in Administrative Matters of the First
Circuit and the First Collegiate Court in Administrative Matters of the Second
Circuit.
NINTH - Based on the provisions of Article
50 of the Federal Law on Administrative Litigation Procedure, this Section
proceeds to study the concept of challenge THREE of the lawsuit, in which the
plaintiff argues the illegality of the settlement decision in terms of the
deduction for uncollectible accounts.
In that concept of challenge, the applicant
maintains the following:
(See transcript)
SUMMARY OF THE GROUNDS FOR CHALLENGE
It should be noted that the claimant argues
that it is illegal for the tax authority to reject the deduction for
uncollectible accounts since such a determination is based on an incorrect
assessment of the facts, considering that the deductions made by the claimant
do not comply with the requirement set out in section XVI of Article 31 of the
Income Tax Law.
That the aforementioned portion of the
regulations in force for 2008 provides that in the case of losses due to uncollectible
receivables, these will be deductible in the month in which the corresponding
statute of limitations expires, or earlier if the practical impossibility of
collection is known.
That by using the disjunctive conjunction
"or", the legislator expressed in that provision two normative
hypotheses which, if they occur, would result in an uncollectible account being
deductible.
That it provides for the possibility of
deduction when, on the one hand, in those cases where the limitation period
operates, meaning the updating or configuration of said limitation or loss due
to uncollectible credit in the month in which the limitation period is reached.
That as regards the notorious practical
impossibility of collection, it corresponds to the assumptions that the law
indicates in an enunciative, but not limitative way, remaining at the power of
the taxpayer, whether to take the deduction when said requirements are
fulfilled, prior to the consummation of the period of limitation.
That it must attend to different
requirements, depending if the credits are lower or higher than 30,000.00 UDI's.
That in this case it is evident that the
practical impossibility of collection is updated, insofar as it supported with
sufficient documentation the improbability and reasonability of the pr inconstestable uncollectibility
of the reference accounts, likewise, that sufficient collection and
notification procedures were carried out for each credit deducted as
uncollectible.
That does not prevent the authority from
stating that the plaintiff did not prove that it had complied with each and
every one of the aforementioned requirements, since the assumptions of Article
31, section XVI of the Income Tax Law are enunciative and not limitative.
That the practical impossibility of
collection can be accredited according to standards of probability and
reasonableness in relation to the reality and customs of our country.
That there has been an undue assessment of
evidence, namely: the promissory notes which were the source of the bad debt,
claims for which payment of the credit was demanded, letters stating that the
debtors could not be located, death certificates of the debtors, notices to the
debtors stating that the bad debt deduction would be taken, statements of
account of the debtors, rulings on uncollectibility,
certificates issued by the Public Registry of Property.
That the working paper lists those
uncollectible accounts over 30,000.00 UDI's,
specifying the name of the individual or company in its capacity as debtor, the
amount of the credit deducted, and the date and age of the balance.
That the deductions made by the claimant
are supported by the debt securities known as promissory notes, which expire in
3 years.
That the promissory notes for which the
claimant has made deductions will be payable on demand, and therefore their
maturity is 6 months from their issue, with the statute of limitations running
after 3 years.
SUMMARY OF THE EXCEPTIONAL ARGUMENTS
Articles 29 and 31 of the Income Tax Act
give rise to three presumptions, namely: (1) claims whose main purpose does not
exceed 30,000.00 UDI's, (2) the claim is considered
irrecoverable in the month in which one year has elapsed since the default
occurred, and (3) the obligation to report by 15 February of each year the
irrecoverable claims made in the immediately preceding calendar year.
That from the working paper provided with
the document dated December 5, 2013, as Annex V, by the claimant, it is noted
that all its uncollectible accounts exceed the limit established in the
aforementioned paragraph a), section XVI of Article 31 of the Income Tax Law.
That another requirement established in
subsection a), section XVI of Article 31 of the Income Tax Law is that in the
case of losses due to uncollectible receivables, these shall be deemed to have
been incurred in the month in which the corresponding statute of limitations
expires or earlier if the practical impossibility of collection is known.
In addition, the last paragraph of section
XVI of Article 31 of the Income Tax Law establishes that taxpayers who apply
the provisions of this paragraph must report by 15 February of each year the
uncollectible credits deducted under the terms of this paragraph in the
immediately preceding calendar year.
In this regard, the claimant failed to
submit during the audit process such information statement or, if applicable,
the document submitted to the Tax Administration Service in accordance with the
second paragraph of Article 18 of the Federal Tax Code in force in 2008, in
which it reported the uncollectible credits it intends to deduct.
That the tax provisions establishing
charges to individuals and those indicating exceptions to these charges, as
well as those establishing infractions and penalties, are strictly applied, in
accordance with the provisions of Article 5 of the Federal Tax Code, and
therefore it is not left to the discretion of the individual which requirements
must be met in order to take a deduction for uncollectible loans.
That the plaintiff in this lawsuit does not
demonstrate that she complied with the requirement established in paragraph a),
section XVI, last paragraph of the Income Tax Law, nor does she even refer to
it in her claim, to which she was obliged even when the credits exceeded
30,000.00 UDI's.
The dispute in this recital is limited to
determining whether the plaintiff met the requirements for making the deduction
for uncollectible claims, in accordance with Article 31, section XVI of the
Income Tax Law.
DECISION OF THE SECOND SECTION OF THE
SUPERIOR CHAMBER
First, it is necessary to know the part of
the winding-up decision in which the authority wrongly determined the
applicant's deduction for non-recoverable debts.
(See transcript)
In accordance with the above, the authority
determined that in relation to the deduction of uncollectible accounts in the
amount of $25'000,000, some of these accounts exceeded the limit established in
paragraph a), section XVI of Article 31 of the Income Tax Law; It also warned
that the age of the balances referred to exceeds the year of maturity referred
to in that portion of the regulations, i.e., that the petitioning company
allowed its debtors to increase the uncollectible account without filing any arbitration
proceedings to prove the notorious practical impossibility of collecting from
its creditors.
Similarly, the authority learned that the
legal representative of the plaintiff failed to submit during the audit
process, the information statement or, if applicable, the document submitted to
the Tax Administration Service, in accordance with articles 31, section XVI,
subsection a), last paragraph and subsection b) of the Income Tax Law and
second paragraph of article 18 of the Federal Fiscal Code in force in 2008, in
which it reported the uncollectible receivables it intended to deduct.
By virtue of the foregoing, the tax
authority considered that the claimant did not provide the documentation with
which it could prove that it had complied with the requirements referred to in
Article 31, section XVI of the Income Tax Law, and therefore rejected the
income tax deduction for uncollectible accounts in the amount of $25,000,000.
However, it is necessary to analyze the content of Article 31, section XVI, paragraphs
a) and b) of the Income Tax Law, in force in 2008:
Income Tax Law
Article 31. The deductions authorized in
this Title must meet the following requirements:
(…)
In the case of losses due to uncollectible
receivables, these are considered to have been incurred in the month in which
the limitation period expires, or earlier if the practical impossibility of
recovery is known.
For the effects of this article, it is
considered that there is a notorious practical impossibility of collection,
among others, in the following cases
a) In the case of loans whose principal
amount on the due date does not exceed thirty thousand investment units, when
within one year from the date on which the loan became due, collection has not
been achieved. In this case, they shall be deemed to be uncollectible in the
month in which the first year of default has elapsed.
When two or more credits are held with the
same individual or legal entity as those indicated in the previous paragraph,
the total of the credits granted shall be added to determine whether they do
not exceed the amount referred to in said paragraph.
The provisions of subsection a) of this
section shall be applicable in the case of loans contracted with the general
public, the main purpose of which on the due date is between five thousand
pesos and thirty thousand investment units, provided that the taxpayer, in
accordance with the general rules issued by the Tax Administration Service,
reports such loans to the credit information companies which obtain
authorization from the Ministry of Finance and Public Credit in accordance with
the Law on Credit Information Companies.
Likewise, the provisions of paragraph a) of
this section shall be applicable when the debtor of the credit in question is a
taxpayer who carries out business activities and the creditor informs the debtor in question in writing that it will make
the deduction of the uncollectible credit, so that the debtor accumulates the
income derived from the debt not covered under the terms of this Law. Taxpayers
who apply the provisions of this paragraph shall inform by 15 February of each
year of the bad debts they deducted under the terms of this paragraph in the
immediately preceding calendar year.
b) In the case of claims whose main lot on
the due date is greater than thirty thousand investment units, when the
creditor has demanded payment of the claim from the judicial authority or when
the agreed arbitration procedure for collection has been initiated and the
provisions of the final paragraph of the previous subsection are also complied
with.
c) It is proved that the debtor has been
declared bankrupt or in insolvency proceedings. In the first case, there must
be a judgment declaring the bankruptcy concluded by payment of the bankruptcy
or by lack of assets.
In the case of credit institutions, they
may only make the deductions referred to in the first paragraph of this section
when so ordered or authorized by the National Banking and Securities Commission
and provided they have not opted to make the deductions referred to in Article
53 of this Law.
For the effects of Article 46 of this Law,
the taxpayers who deduct credits for uncollectible amounts shall consider them
cancelled in the last month of the first half of the fiscal year in which they
are deducted.
In the case of accounts receivable with a
mortgage guarantee, only fifty percent of the amount shall be deductible when
the assumptions referred to in subsection b) above occur. When the debtor pays
the debt or the amount of the auction is applied to cover the debt, the
deduction shall be made from the balance of the account receivable or if
applicable the accumulation of the amount recovered.
It follows from the Article transcribed
that the deductions authorised in this Title must comply with the requirements
referred to therein.
That in the case of losses due to
uncollectible receivables, these shall be considered to have been made in the
month in which the period of limitation is reached, or earlier if the practical
impossibility of recovery is known.
That it is considered that there is a
notorious practical impossibility of collection, among others, in the following
cases
a) In the case of loans whose main purpose
on the due date does not exceed thirty thousand investment units, when within
one year from the occurrence of the delay in payment their collection has not
been achieved. In this case, they shall be deemed to be uncollectible in the
month in which the first year of default has elapsed.
That when two or more credits are held with
the same individual or company as those indicated in the previous paragraph,
the total of the credits granted must be added up to determine whether they do
not exceed the amount referred to in said paragraph.
That the provisions of subsection a) of
this section shall be applicable in the case of loans contracted with the
general public, the main purpose of which on the due date is between five
thousand pesos and thirty thousand investment units, provided that the taxpayer
in accordance with the general rules issued in this respect by the Tax Administration
Service reports such loans to the credit information companies which obtain
authorization from the Ministry of Finance and Public Credit in accordance with
the Law on Credit Information Companies.
That the provisions of subsection a) shall
also be applicable when the debtor of the credit in question is a taxpayer
engaged in business activities and the creditor informs the debtor in question
in writing that it will make the deduction of the uncollectible credit, so that
the debtor accumulates the income derived from the debt not covered under the
terms of this Law.
Taxpayers who apply the provisions of the
previous paragraph shall inform by 15 February of each year of the bad debts
they deducted under the terms of this paragraph in the immediately preceding
calendar year.
b) In the case of claims whose main lot on
the due date is greater than thirty thousand investment units when the creditor
has demanded payment of the claim from the judicial authority or when the
agreed arbitration procedure for its collection has been initiated and in
addition the provisions of the previous paragraph are complied with.
c) It is proven that the debtor has been
declared bankrupt or in insolvency proceedings. In the first case, there must
be a judgement declaring the bankruptcy concluded by payment of the bankruptcy
fee or by lack of assets.
However, the plaintiff maintains that with
the documentation it provided in the inspection procedure, as in the appeal for
annulment and in the present trial, it proves that there is a practical
impossibility of recovery of the claims from which it seeks to be deducted, by
virtue of the fact that they are adapted to the assumption established in
paragraph b) of section XVI of article 31 of the Income Tax Law, insofar as the
amount of the same exceeds thirty thousand investment units and also complies
with the other requirements established in said legal precept, such as having
sued the payment of the credit before the judicial authority.
However, as the defendant argues, the
plaintiff does not prove that it has complied with the requirement to inform
the Tax Administration Service by 15 February of each year of the bad debts it
deducted in the previous calendar year in order to prove the existence of the
practical impossibility of collection, in the understanding that this is the
pre-budget for deducting bad debts.
Without prejudice to the foregoing, the
plaintiff in the present lawsuit exhibits the promissory notes from which the
bad debts originated, the claims for which payment of the credit was demanded,
letters stating that the debtors could not be located, death certificates of
the debtors, notices to the debtors stating that the bad debts would be
deducted, statements of account of the debtors, rulings on uncollectibility,
certificates issued by the Public Registry of Property, in order to prove the
existence of the practical impossibility of collection, since for this purpose
it had to demonstrate that it had demanded payment of the credit from the
judicial authority or that it had initiated the agreed arbitration procedure
for its collection, and furthermore that it had informed the Tax Administration
Service, by 15 February of each year, of the uncollectible credits it had
deducted in the immediately preceding calendar year.
Therefore, by not accrediting that it
complied with this requirement, it is in accordance with the law that the tax
authority has unduly determined the deduction for uncollectible accounts in the
amount of $25,000,000.00.
The above is supported by thesis 2a.
CXVI/2008, of the Second Chamber of the Supreme Court of Justice of the Nation,
Ninth Period, published in the Semanario Judicial de
la Federación y su Gaceta, Volume XXVIII, September 2008, page 278:
RENT. ARTICLE 31, SECTION XVI, OF THE
RELATIVE TAX LAW DOES NOT VIOLATE THE PRINCIPLE OF TAX LEGALITY (LEGISLATION IN
FORCE UNTIL DECEMBER 31, 2007). The aforementioned provision, which establishes
that the deduction of losses on uncollectible receivables may be made when they
are deemed to have been incurred in the month in which the applicable statute
of limitations expires or before, if the practical impossibility of recovery is
known, exemplifying cases in which such impossibility may exist, does not infringe
the principle of tax legality contained in Article 31, fraction IV, of the
Political Constitution of the United Mexican States, since it delimits the
essential elements of income tax and leaves no room for arbitrariness on the
part of the tax authorities or for the payment of an unforeseeable tax, nor
does the taxable person know, with such a provision, the certain way to
contribute to public expenditure. This
is so, since the parties to the tax relationship must consider that the
existence of the practical impossibility of collection occurs, among other
assumptions: in the case of credits whose principal fate on the due date does
not exceed $20,000. In this case, if two or more credits are owed to the same
individual or entity, they must be added together to determine whether they do
not exceed the indicated amount. This applies to credits contracted with the
general public whose principal amount on the due date is between $5,000.00 and
$20,000.00. 00, provided that the taxpayer, in accordance with the general
rules issued by the Tax Administration Service, reports such credits to the
credit information companies authorized by the Ministry of Finance and Public
Credit, and when the debtor is a taxpayer with business activities and the
creditor informs him in writing that he will make the deduction of the
uncollectible credit, so that he may accumulate the income derived from the
uncovered debt. The debtor must report by February 15 of each year the
uncollectible credits deducted in the immediately preceding calendar year; for loans whose
principal amount at maturity is greater than $20,000. 00, when the creditor has
demanded payment from the judicial authority or has initiated the agreed
arbitration procedure for collection and complies with the duty to inform the
debtor in writing so that he may accumulate the income derived from the unpaid
debt, and the taxpayer must inform by 15 February of each year of the
uncollectible claims which he deducted in the immediately preceding calendar
year; when it is proven that the debtor has been declared bankrupt or has filed
for bankruptcy, and when the first alleged judgment declares the bankruptcy
concluded due to bankruptcy payment or lack of assets; In the case of credit
institutions, these may only deduct when ordered or authorized by the National
Banking and Securities Commission, if no deduction has been previously made
under the terms of Article 53 of the Income Tax Law, which provides for
deductions from the amount of the global preventive reserves that are
established or increased in accordance with Article 76 of the Law on Credit
Institutions; In the case of corporations which must determine at the end of
each year the annual adjustment for inflation, deductions for bad debts must be
considered as cancelled in the last month of the first half of the year in
which they are deducted; and, in the case of accounts receivable secured by a
mortgage, only 50% of the amount may be deducted, and when the debtor pays the
debt or applies the amount of the auction to cover the debt, the deduction must
be made from the balance of the account receivable or, if applicable, the
accumulation of the amount recovered.
Consequently, the concept of a third party challenge to the claim is UNDERLINED.
TENTH: Based on the provisions of Article
50 of the Federal Law on Contentious Administrative Procedure, this Court shall
analyse the arguments of the plaintiff in the FOURTH concept of challenge to
the claim, in which it controls the legal validity of the settlement resolution
contained in official letter number 900- 07-04-2015-55504 dated 19 October
2015:
(See transcript)
SUMMARY OF THE GROUNDS FOR CHALLENGE
The plaintiff refers to the fact that the
liquidation resolution is illegal because the authority acted outside the provisions
of Article 50 of the Federal Fiscal Code.
This is so because in said resolution, the
authority did not determine contributions, but rather imposed the obligation to
inform its controlling company during fiscal year 2008,*******
********* ****** ** ***** about the modification of its profit in the consolidable part, so that the latter would present a
complementary declaration for fiscal year 2008, in which it would modify its
fiscal result, considering the profit in the amount of $3,082,309,114.
This does not constitute a determination of
contributions as provided for in Article 50 of the Federal Tax Code, but rather
a different type of allocation, which the authority is not empowered to make.
That in order for an authority to issue a
resolution in terms of Article 50 of the Federal Fiscal Code, the facts known
during the visit or review must necessarily imply the existence of an omitted
contribution and therefore, the determination of a tax credit. Therefore, since
this was not the case in this case, the authority issued a resolution
imposing obligations on the plaintiff, without the authority to do so.
That issue has already been resolved in
Case 7223/13-17-9 by the Sixth Regional Metropolitan Chamber, by judgment of 14
August 2014, which declared the contested decision to be void.
SUMMARY OF THE EXCEPTIONAL ARGUMENTS
The defendant authority, in its response to
the complaint, argued that Article 50 of the Federal Fiscal Code does not
establish the competence of the tax authorities, in addition to the fact that
in the revised fiscal year its controlling company participated in 100% of the
plaintiff's fiscal result, which makes it impossible for it to settle any
contribution on behalf of the latter.
DETERMINATION OF THE DISPUTE
The dispute is limited to determining
whether by issuing the resolution contained in the official letter number
900-07-04-2015-55504 dated October 19, 2015, the tax authority violated the
provisions of Article 50 of the Federal Fiscal Code.
RESOLUTION OF THE SECOND SECTION OF THE
SUPERIOR CHAMBER
In order to resolve the point of dispute,
the provisions of Article 50 of the Federal Fiscal Code will be analysed:
Article 50. - The tax authorities which,
when carrying out visits to the taxpayers or when exercising the powers of
verification referred to in Article 48 of this Code, become aware of facts or
omissions which involve a breach of the tax provisions, shall determine the
contributions omitted by means of a resolution which shall be personally
notified to the taxpayer, within a maximum period of six months from the date
on which the final report of the visit is drawn up or, in the case of a review
of the taxpayers' accounts carried out in the offices of the tax authorities,
from the date on which the periods referred to in sections VI and VII of
Article 48 of this Code expire.
In accordance with the article transcribed,
the tax authorities that, when carrying out visits to taxpayers or when
exercising the powers of verification referred to in Article 48 of this Code,
become aware of facts or omissions that involve non-compliance with the tax
provisions, shall determine the contributions omitted by means of a resolution
that shall be notified personally to the taxpayer, within the period
established therein.
In this regard, this Court considers that
the plaintiff is not correct in that it maintains that the aforementioned
provision only authorises the tax authorities to determine contributions
through resolutions issued under the terms of that article; since the
aforementioned paragraph does not establish any aspect of the competence of the
tax authority, but rather refers to the manner in which the latter must inform
the taxpayers of the contributions omitted, if any, resulting from the exercise
of their powers of verification.
That is to say, the provision under
analysis does not in any way establish the obligation of the tax authorities to
determine contributions through the resolution they issue by virtue of their
powers of verification, but rather establishes that if, as a result of the
facts or omissions known to them in the exercise of their powers of
verification, there are contributions omitted, these must be determined by
means of a resolution brought to the attention of the taxpayers in the terms
established therein.
Therefore, the arguments of the plaintiff
are unfounded, since Article 50 of the Federal Fiscal Code does not provide the
tax authorities with any jurisdiction, but rather establishes the manner in
which the tax authorities must determine and make known to the taxpayers the
omitted contributions derived from the exercise of their verification powers.
However, in the resolution contained in
official letter number 900-07-04-2015-55504 dated 19 October 2015, the
authority resolved the following
From the foregoing, it is noted that since
the authority determined that of the total authorized deductions in the amount
of $31,954,849,360.00 were unduly considered deductions made up of advertising
and publicity in the amount of $526,660,963.00, marketing expenses in the
amount of $1,304,856,468. In addition, the Company was charged with
$25,000,000.00 in uncollectible accounts, which amounted to $1,856,517,431.00,
determined as a result of the authority's audit of the Company in fiscal year
2008:
Once the authorized deductions that the
plaintiff should have considered were determined, with respect to the non-consolidable part, it was determined that the tax profit
corresponded to the amount of $3'082'309,114.00.
Considering that the tax authority
determined a difference in the tax result of the plaintiff, in the amount of
$1'856,517,431.00, the part of said difference that corresponds to its controlling
company ******* ********* **** ** ****, while the plaintiff determines its
consolidated tax result, amounts to $1'856,517,431.00, corresponding to 100% of
the tax profit determined related to the consolidable
participation.
Consequently, considering that the
controlling company's participation in the plaintiff's tax result was 100% and
that the plaintiff determined a tax profit in the amount of $3'082'309,114.00,
which turns out to be greater than the tax profit in the amount of
$1'856'517,431. 00, derived from the non-deductible items, ******* *********
********* **** ** ***** had to file a complementary declaration for income tax
correction, modifying the taxable income declared by the taxpayer for the
purpose of reflecting the profit in the amount of $3'082'309,114.00, determined
by the auditing company.
That the tax assessment resolution only
refers to the contributions to which the plaintiff was subject as a direct
income tax payer for the 2008 fiscal year, not including compliance with
obligations derived from entering into transactions with related parties,
considered as such under the terms of the Income Tax Law, considering the
prices and amounts of consideration that would have been used with or between
independent parties in comparable transactions, resulting from obtaining income
from sources of wealth located in Mexico, those derived from the tax
consolidation regime to which the plaintiff was subject; nor those relating to
the origin of goods, as well as their entry into and exit from national
territory.
In accordance with the above, the authority
determined undue deductions for advertising and publicity in the amount of
$526,660,963.00, marketing expenses in the amount of $1,304,856,468.00 and for
the concept of uncollectible accounts in the amount of $25,000,000. 00, so it
is clear that the defendant complied with the provisions of Article 50 of the
Federal Fiscal Code, as it became aware through the exercise of its
verification powers that the plaintiff did not comply with the requirements of
law to deduct such amounts, and therefore made it known to the plaintiff
through said resolution.
This does not preclude the tax authority
from not expressly determining omitted contributions, since the amounts
referred to are not deductible and should be considered as cumulative income
for income tax purposes and paid in full to the Federal Tax Authority. In other
words, the authority determined that the plaintiff failed to consider these
amounts as income for the calculation of the aforementioned contribution.
The fact that the authority determined that
******* ********* ********* **** ******* had to file a complementary
declaration for income tax correction, modifying the tax profit declared by the
taxpayer for the purpose of reflecting the profit in the amount of
$3'082'309,114.00, determined by the auditing company, does not prevent the
conclusion reached, since as it is stated in the liquidation resolution, this
is due to the fact that the plaintiff determines its consolidated tax result,
so its controlling company must correct its declaration regarding income tax.
Consequently, the concept of challenge FOUR
of the lawsuit is UNfounded.
Based on the provisions of Article 50 of
the Federal Law on Contentious Administrative Procedures, this Court will analyze the concept of challenge SEVENTH of the lawsuit, in
which the plaintiff maintains that in 2003, 2004 and 2006, the origin of the
deductions for the concepts of marketing, advertising and publicity expenses
was analyzed, determining their origin, and therefore
it is improper that the defendant authority has rejected them.
In this concept of challenge, the plaintiff
argued the following:
(See transcript)
SUMMARY OF THE GROUNDS FOR CHALLENGE
It should be noted that the plaintiff
maintains that the decision to settle the case is unlawful because in 2003,
2004 and 2006 the appropriateness of the deductions for marketing, advertising
and publicity expenses had already been reviewed and it was determined that
they were appropriate.
The defendant's decision infringes the
human right to legitimate expectations.
By means of official letter No
900-05-04-2013-83606 of 9 December 2013, the Fiscal Administration of Companies
that Consolidate Taxes observed the non-deductibility of marketing, advertising
and publicity expenses, however, by means of various official letters No
900-05-2014-45798 of 9 July 2014, having challenged those observations, it
determined that those concepts were deductible.
That by means of official letters numbers
900-07-2008-29842 of 08 December 2008 and 900-07-04-2008-29851 of 10 December
2008, the audit authority did not reject the deductions for the concepts of
marketing, propaganda and advertising expenses.
SUMMARY OF THE EXCEPTIONAL ARGUMENTS
The defendant, when answering the
complaint, stated that the arguments of the plaintiff are unfounded, because
the fact that in previous years the authority has resolved the same issue in a
different way, does not imply that it should continue to apply the same
criteria in subsequent reviews.
That the actions of the International
Taxation Authority "4" do not oblige it to act exactly the same in a
different fiscal year, as the circumstances may not be identical to those
reviewed previously or it may decide to change its mind regarding the
appropriateness of deductions derived from a new reasoning.
It is not apparent that the circumstances
of the financial years 2003, 2004 and 2006 were the same as those of the
financial year revised by the defendant, or that the same concepts are to be
deducted.
DETERMINATION OF THE DISPUTE
The dispute consists in determining whether
the fact that in previous years the tax authority had determined that the
deductions for marketing, advertising and publicity expenses were appropriate,
obliges the defendant authority to act on the same terms in the present case.
DECISION OF THE SECOND SECTION OF THE
SUPERIOR CHAMBER
The Court considers that the applicant is
not correct inasmuch as it argues that the authority should have considered the
deductions for marketing, advertising and publicity to be appropriate, since in
2003, 2004 and 2006 the appropriateness of the deductions for those concepts
had already been reviewed and it was determined that they were appropriate.
That is so because the tax authorities, in
exercising their powers of verification, determine the tax position of
taxpayers on the basis of the specific circumstances of the tax year in
question, that is to say, the authorities will analyse the specific aspects of
the activities or operations carried out by the taxpayer in order to determine
whether or not it complies with its tax obligations, in relation to the
documentation and information which the taxpayer provides to them for the
revised year.
Therefore, the tax authority reviews
taxpayers by tax year, since it must specifically analyse the information and
documentation referring to the operations that the taxpayer carried out during
the tax year, in order to determine whether in that year, in particular, it
complied with its tax obligations.
Therefore, what is determined by the
authority in relation to a tax year does not go beyond the considerations
arising from the review of a different year, since the authority must take into
account the documents and information provided to it during the audit procedure
in question and in the light of the transactions carried out in the year under
audit and not in a previous year, in order to ascertain the taxpayer's tax
position, the fact that the defendant in the year under review reaches a
different conclusion from that of a previous year does not therefore imply that
it acted unlawfully, since the authority is required to consider only those
aspects which are relevant to the transactions carried out by individuals in
the year under review.
Therefore, if the tax authority had
determined that the deductions for marketing, advertising and publicity
expenses were appropriate and, in the present case, found them to be improper,
that does not constitute an unlawfulness of the tax assessment, since the tax
position of the claimant is determined in the light of the particularities of
each financial year, It may be that in one case the applicant exhibits the
documentation from which the deduction of those costs is derived and then, in
respect of another year, determines that they are inappropriate because the
necessary evidence that they meet the requirements for that purpose is not
produced.
The foregoing reasoning is corroborated by
the provisions of article 48, sections IV and IX of the Federal Fiscal Code, in
force in 2015:
When the tax authorities request from the taxpayers,
jointly and severally liable parties or third parties, reports, data or
documents or ask for the presentation of the accounting or part of it, for the
exercise of their faculties of verification, outside a home visit, the
following shall apply
(…)
IV. As a consequence of the review of the
reports, data, documents or accounts required from the taxpayers, jointly
liable parties or third parties, the tax authorities shall issue an official
letter of observations, in which they shall state in detail the facts or
omissions that have come to light and that involve a breach of the tax
provisions of the taxpayer or jointly liable party, who may be notified in
accordance with the provisions of Article 134 of this Code.
(…)
IX.- When the taxpayer does not fully
correct its fiscal situation in accordance with the official letter of
observations or does not distort the facts or omissions set forth in said
document, the resolution determining the contributions or uses omitted shall be
issued, which shall be notified to the taxpayer in compliance with the
provisions of section I of this article and in the place specified in said
section.
From the precept transcribed, it is noted
that when the tax authorities request from the taxpayers, jointly and severally
liable or third parties, reports, data or documents or request the presentation
of the accounts or part of them, for the exercise of their powers of
verification, as occurred in the case, they shall comply with the guidelines
established in said article.
That as a result of the review of the
reports, data, documents or accounts required from the taxpayers, jointly and
severally liable parties or third parties, the tax authorities shall issue an
official letter of observations, in which they shall state in detail the facts
or omissions that have come to their attention and that involve a breach of the
tax provisions of the taxpayer or jointly and severally liable party, who may
be notified in accordance with the provisions of Article 134 of the Code.
That when the taxpayer does not fully
correct its fiscal situation in accordance with the letter of observations or
does not distort the facts or omissions consigned in said document, the
resolution that determines the contributions or uses omitted shall be issued,
which shall be notified to the taxpayer in compliance with the provisions of
section I of said article and in the place specified in said section.
As we can see, it follows from the above
provision that in the case of a cabinet review, the tax authorities will issue
an official letter of observations, derived from the review of the reports,
data, documents or accounting required from the taxpayers, in which they will
state in detail the facts or omissions that were known and that involve a
breach of the tax provisions, which will be notified to the taxpayer so that it
can correct its tax situation, and if it does not do so, the corresponding
resolution will be issued determining the tax situation of the individual.
Thus, for the purpose of determining the
taxpayer's tax situation, the authority must review the reports, data,
documents or accounts provided by the taxpayer in respect of the tax year under
review.
Therefore, the authority must take into
account the specific case or the particular fact in order to determine whether
or not the taxpayers complied with their tax obligations, in respect of a
specific period. Consequently, in the present case, there was no obligation on
the defendant authority to act on the same terms as in previous years, in
respect of the deductions made by the shareholder for marketing, advertising
and publicity.
Nor is the applicant correct, as regards
the argument that the authority infringed the human right to legitimate
expectations by deciding that the deductions it made for marketing, advertising
and publicity costs were undue, even though those costs had been considered
appropriate in previous years.
That is because, in tax matters, legitimate
expectations are protected by the protection of the expectations legitimately
created in the taxpayer by the activity of the State, which includes the
possibility that such expectations may be created by the tax rules, the purpose
of which is to prevent an untimely change by the issue of new rules which could
have harmful retroactive effects, such as making them more burdensome for
taxpayers.
However, in the present case we are not
faced with any legitimate expectation created in the taxpayer by the activity
of the State, since it is insisted that, for the purpose of determining the tax
situation of a taxpayer, in respect of a given period, the tax authorities must
review the documents, data and information provided to them by the taxpayers
during the audit and which relate to the activities or transactions carried out
in the year under review or which have an impact on that year, on a
case-by-case basis; Therefore, what was determined by the authority in a fiscal
year prior to the audited one should not necessarily be considered in the
conclusion reached regarding the latter, since the particularities of the case
should be taken into account.
Moreover, in the eighth recital of this
judgment, it was determined that the expenses incurred by the shareholder for
marketing concepts are deductible, in terms of section I of Article 31 of the
Income Tax Law.
Therefore, the concept of challenge FOUR of
the lawsuit is UNfounded.
By virtue of the fact that there are no
concepts of challenge pending, it will be appropriate to declare the challenged
resolution null and void, as well as that originally appealed under the terms
described in Recital E of this ruling.
In view of the foregoing and based on
Articles 49, 50, 51, Section IV and 52, Sections I and III of the Federal Law
on Contentious-Administrative Procedure - in force before June 13, 2016, in
accordance with the Second Transitional Provision of the Decree that amends,
adds and repeals various provisions of the aforementioned law, this Section:
RESOLVES
I.- The plaintiff has PARTIALLY proved the
facts of its action, consequently;
II.- The contested decision is declared
null and void, as well as that originally appealed, detailed in Result 1 of
this ruling, under the terms and for the purposes specified in Recital 8 of
this decision.
III. The validity of the contested decision
is recognized, as well as that of the appealed decision, with respect to the
other concepts that were not declared null and void.
IV.- BE NOTIFIED.
This was resolved by the Second Section of
the Superior Chamber of the Federal Court of Administrative Justice, in session
on April 11, 2019, by a majority of three votes in favor
of Magistrates Carlos Mena Adame, Juan Manuel Jiménez
Illescas and Víctor Martín Orduña
Muñoz, and one vote against by Magistrate Alfredo Salgado Loyo,
who reserved his right to formulate an individual vote. Magistrate Magda Zulema
Mosri Gutiérrez was absent.
The rapporteur in this case was Judge
Víctor Martín Orduña Muñoz, whose paper was approved.
The present report was formulated on 15
April 2019 and based on the provisions of Articles 27, section III, and 48,
section III, of the Organic Law of the Federal Court of Fiscal and
Administrative Justice, - applicable in terms of the provisions of the sixth
paragraph of the Fifth Transitory Article of the Decree issuing the General Law
of the National Anti-Corruption System; the General Law on Administrative
Responsibilities and the Organic Law of the Federal Court of Administrative Justice,
published in the Official Gazette on 18 July 2016, are signed by the Presiding
Judge Víctor Martín Orduña Muñoz and Judge Alfredo
Salgado Loyo, President of the Second Section of the
Superior Chamber, before Ms Andrea Guadalupe Aguirre Ornelas, Assistant
Secretary of Agreements of the same Section, who authorises and attests.
SPEAKER
JUDGE VÍCTOR MARTÍN ORDUÑA MUÑOZ
PRESIDENT OF THE SECOND SECTION
MAGISTRATE ALFREDO SALGADO LOYO
ASSISTANT SECRETARY FOR AGREEMENTS
ANDREA GUADALUPE AGUIRRE ORNELAS
APGV
"In accordance with the provisions of Article 116 of the General Law on Transparency and Access to Public Information; 113, sections I and III of the Federal Law on Transparency and Access to Public Information, and Thirty-eighth, sections I and II, and Fortieth of the General Guidelines on the classification and declassification of information, as well as for the preparation of public versions, the name of the plaintiff, its legal representative, the plaintiff's domicile and data from third parties related to the plaintiff, information legally considered as confidential, were removed from this public version, as it updated what was indicated in these normative assumptions. ”