Amid the health crisis brought by COVID-19, it is of outmost importance for Mexican taxpayers to understand the applicability of the relevant force majeure tax provisions.
For such purposes, please bear in mind that on March 30, 2020, the Mexican National Health Council published a decree in the Official Federal Gazette (the “DOF”) pursuant to which it declared the epidemic generated by the COVID-19 disease as a state of sanitary emergency due to force majeure and authorized the Ministry of Health to determine the actions deemed necessary to address such emergency (the “Sanitary Emergency Decree”). Additionally, on March 31, 2020, the Ministry of Health published a decree in the DOF whereby, mainly, it ordered the immediate suspension, from March 30th to April 30, 2020 (the “Contingency Period”), of all non-essential activities in the public, social and private sectors (the “Suspension of Activities Decree” and together with the Sanitary Emergency Decree, the “Decrees”). Pursuant to their publication in the DOF, such Decrees are binding and have full legal effects.
Specifically, the Suspension of Activities Decree establishes that tax collection activities are considered as essential activities and must, therefore, continue during the Contingency Period.
Although there are many discussions around the subject and especially about the Decrees issued by the Federal Government, in general terms, the force majeure concept refers to an unforeseeable and insurmountable event that makes it impossible to fulfill an obligation and is considered by Mexican tax provisions as follows:
Mexican Income Tax Law (“MITL”)
i) Loss deduction
The MITL establishes that taxpayers may deduct losses derived from a force majeure event.
The loss of goods derived from force majeure events shall be deductible only to the extent that their acquisition value corresponds to their market value, whereas the loss of assets due to force majeure events shall only be deductible to the extent that such assets are considered as deductible investments.
Loss of goods derived from force majeure events that are not reflected in inventory shall be deductible in the year in which they occur, and the amount of the loss shall be equal to the amount pending to be deducted on the date the loss is suffered. Please note that the MITL refers not only to losses of fixed assets but also to fixed assets that are no longer useful.
In the case of loss of value in inventories due to deterioration or other causes not attributable to the taxpayer, the MITL establishes that the deduction must be considered during the year that the circumstance arises, to the extent that specific requirements are met.