Digital companies ask Mexico to soften its stance on taxation

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Governments will get more power to tax big multinationals doing business in their countries under a major overhaul of decades-old cross-border tax rules outlined on Wednesday by the OECD .

The rise of big internet companies like Google and Facebook has pushed current tax rules to the limit as such firms can legally book profit and park assets like trademarks and patents in low tax countries like Ireland regardless of where their customers are.

Earlier this year more than 130 countries and territories agreed that a rewriting of tax rules largely going back to the 1920s was overdue and tasked the Paris-based OECD public policy forum to come up with proposals.

The issue of taxing big cross-border multinational firms has become all the more urgent as a growing number of countries have adopted plans for their own tax on digital companies in the absence of a global deal.

“The current system is under stress and will not survive if we don’t remove the tensions,” OECD head of tax policy Pascal Saint-Amans told journalists on a conference call.

Facebook, Google, Twitter, Mercado Libre, and Airbnb

, among other of the 12 firms that make up the Internet Latin American Association (ALAI) , asked Mexican authorities for more time to comply with the new rules of the 2020 Tax Package.

They consider it necessary to have 12 months instead of one, as proposed in the fiscal miscellaneous, because that took time in Europe, specifically in France, where in last July they were able to establish a 3% tax of the income of digital economy businesses .

With more time, they believe, they can prevent being turned off and even a general digital outage , which can have an esteemed economic impact of MXN $6.474 billion per day , equivalent to 0.03 points of the gross domestic product (GNP).

The 2020 fiscal miscellaneous puts into consideration of the Congress to go beyond a binding criterion with control measures to stablish obligations to digital services providers residing abroad without establishments in Mexico.

Mexico could raise $3.6 billion by imposing taxes on Netflix, Spotify, and Amazon Prime

For those who do not pay the 16% VAT rate in our country or those who do not register to tax authorities , there will be administrative sanctions, such as the suspension of the connection with public telecommunications network providers in Mexico.

In addition, the names of the n on-complying companies will be published in the blacklist of faulty taxpayers of the Tax Administration Service (SAT) and in the Federation’s Official Journal (DOF) , so that recipients of their services in national territory abstain from hiring them in the future.

If they are approved by congresspeople and senators , the new measures will come into effect starting April 2020, for which ALAI asked for an adaptation period of at least one year.

A threat to López Obrador’s media.

During a news conference, they warned that an Internet blockage will affect all digital apps , which can deter watching President Andrés Manuel López Obrador’s messages, as well as his morning news conferences.

“If you turn Spotify off, we would be turning off Google’s apps, [Gmail], its searches, and YouTube channels; well… not even the President’s channel would be visible,” warned the director of Public Affairs in Google Mexico, Lina Ornelas.

She explained that Spotify lives in Google’s cloud , a company that is established in California in the United States.

The manager o f Public Policies of Airbnb, Jorge Balderrama , admitted that this kind of foreign companies do not have fiscal domicile in Mexico, but only on their countries of origin.

“All the companies present here today and the digital economy pay their corresponding taxes in the countries of origin,” he asserted.

Mercado Libre

was the only company that asserted to have a fiscal domicile in Mexico, which was emphasized by its director of public policies, Alehira Orozco.

Mexico will tax Avon, Tupperware, Uber, Didi, and Rappi

However, if the company does not fulfill on time its fiscal obligations it will also be sanctioned with the suspension to the public telecommunications network .

“The implementation time is unrealistic with a higher impact for small businesses of the digital ecosystem,” stated ALAI members.

Total blockage.

Regarding the sanction of disconnecting them from the Internet should they not comply with the new measures, the manager of public policies and government affairs of Google, Manuel Haces, calculated that the economic impact due to the blockage could be of MXN $6.4 billion .

He pointed out that the measure infringes on the telecommunications reform for an open internet system and to guarantee access to information and the freedom of speech.

It does not only affect hosting services but also to third users that cannot access the services located in that same cloud.

He warned that not only one application will be blocked but all the ones that share the same hosting, such as websites and others.

ALAI’s speaker and director, Sissi de la Peña

, considered that the new norms are anti-constitutional measures that infringe upon international agreements and human rights.

In Mexico, authorities are discussing several initiatives to tax digital economy , starting in April 2020 . The companies affected have asked for 12 months before they start paying taxes and also asked lawmakers to soften the sanctions included in the new laws.

Last week, the Organisation for Economic Co-operation and Development (OECD) announced that it is working on a proposal in regards to tax law applied to digital economy, which will be based on the principle that large companies should pay taxes wherever their users are, no matter where their tax domicile is located.

In Latin America, the Cepal has also suggested taxing the services offered by digital companies. In its report “2019 Fiscal Outlook in Latin America and the Caribbean,” the organization says that for Mexico, implementing these new taxes would translate into a potential value-added tax (IVA) collection for up to USD $177 million every year, if companies such as Uber, Spotify, Netflix, and Apple pay this tax.