Government to Limit Tax Deductions and Losses for Companies

The federal government proposes establishing control mechanisms to prevent abuse of tax deductions and tax losses by companies with revenues exceeding US$295.9 million.

As part of the 2027 Economic Package, a bill to reform the Income Tax Law (ISR) was included, which aims to strengthen the fight against so-called “factureras” (companies that issue fake invoices) and to facilitate and simplify compliance with tax obligations.

With this initiative, the federal government notes that only one in ten companies typically reports positive income and pays taxes exceeding the equivalent of 2% of its revenue.

That is why the reform proposes establishing a general mechanism to regulate allowable deductions in determining the income tax applicable to corporations resident in Mexico that earn income in excess of US$2.9 million.

According to data obtained through risk models and included in the justification for the bill, it is estimated that when a company’s deductions exceed 96.67% of its taxable income, expenses incurred through shell companies “account for” an average of 10%.

Therefore, it is proposed to implement a control mechanism for the administration of corporate deductions equivalent to 96.67% of taxable income for profitable companies whose deductions exceed or are similar to that mechanism.

Meanwhile, for companies with deductions of less than 96.67% of taxable income, the applicable allowable deductions may be up to 99% of their income. The government is also proposing to limit the carryforward of tax losses from prior years to 50% of the current year's taxable income, and noted that these measures are in line with practices in other countries as well as recommendations from the Organization for Economic Cooperation and Development (OECD).

In addition, the reform aims to reduce the amount of the net interest deduction that companies can claim from 30% of adjusted taxable income to just 20%, while preserving the benefit that any amount not deducted in a given fiscal year may be deducted over the following 10 fiscal years, until the deduction is fully utilized.

Figueroa explains that the proposed amendments to the Income Tax Law are intended to boost revenue from this tax so that it reaches the 7% annual growth rate that the government set as a target in the 2027 Federal Revenue Law (LIF).