Mexico: A Tax: Controversy Overview

Background and Current Situation

The landscape of tax disputes has changed considerably over the past year and will continue to change in the near future.

To provide some context, since 2018, Mexican federal tax authorities have implemented very robust audit programmes with little room for flexibility. The intent of these programmes was to increase tax revenue to help alleviate budgetary difficulties stemming from a Mexican government strategy in which social programmes (subsidies and aid) consume a very significant portion of the annual budget.

The Mexican government’s tax audit strategy involved launching multiple simultaneous audits of large taxpayers, spanning several years, in which 100% of the relevant elements of income tax and VAT calculations were scrutinised, with exhaustive requests for information requiring the collection of very robust – and, at times, very old – evidence.

Consequently, it has become very common to hear tax departments in the Mexican private sector speak of requirements that are difficult to meet, long working hours spent gathering evidence, and the compilation of voluminous files that, in the end, were rejected by the authorities due to the absence of certain elements which – though incidental – were deemed essential for analysing the taxpayer’s specific situation and were used to deny tax deductions or credits.

In substance, the authorities also generated new interpretations of Mexican regulations which, without actually amending them, produced very different effects from those traditionally recognised in Mexico, including by the tax authorities themselves in the past. These generated enormous tension between the authorities and taxpayers, which escalated to unprecedented levels: tax credits worth billions of pesos were being debated not only in the courts but also in the media; diplomatic notes from other countries addressing the country’s tax enforcement strategy; tariffs partially justified by the actions of Mexican tax authorities against foreign companies; international arbitration proceedings initiated under investment protection treaties; as well as statements from sectors of Mexican and foreign taxpayers openly complaining about the complex tax audit environment to which they are exposed, with particular emphasis on the deterioration of the legal certainty necessary to do business in the country.

Added to all of the above is the uncertainty surrounding the 2024 reform of the Federal judiciary, which we wrote about last year and which continues to raise many doubts regarding the quality and independence of the new judges.

Although it is still too early to assess the judicial reform in Mexico, the consensus within the country’s legal sector is that there is uncertainty regarding its implementation and outcomes.

In tax matters, uncertainty is growing as a result of the erratic messages coming from the Supreme Court of Justice of the Nation, where there are still no clear signs regarding the continuity of the criteria established decades ago, and where public statements made by some justices do not provide legal certainty – quite the opposite, in fact.

Against this backdrop, it is not surprising to see that private investment in Mexico has been on the decline, which has a significant impact on the country’s economic outlook. The current administration faces major difficulties and challenges moving forward, stemming in large part from the deterioration of legal certainty in tax matters.

Governmental Response to Uncertainty

The Mexican government has responded to this scenario of uncertainty by publishing administrative agreements in the Official Gazette (4 May 2026) to facilitate investment and, in tax matters, by publishing “guiding criteria” for the authorities responsible for auditing taxpayers; while these are not legally binding regulations, they are clearly intended to address the practices described above, which were the subject of complaints by the private sector.

These guidelines state that tax authorities may not initiate more than one audit per year (except when necessary or appropriate given the nature of the matter, or as required by law), that they must work with selective samples (rather than requesting 100% of the supporting documentation for each item analysed), that the authorities’ criteria must not be retroactive (ie, new interpretations of old laws will not be applied to past years), and that the authorities’ criteria must be proportionate (ie, they must not result in the payment of taxes on wealth that does not exist or that does not correspond to the company’s economic reality).

These criteria are positive and could, in the short term, alter the conduct of audits as well as the way tax disputes are handled in the country.

However, we believe that if the Mexican government wishes to provide legal certainty, these criteria must be included in the law. Otherwise, there is a risk that the document will lose its force over time, and pressure on public finances will once again lead to an audit strategy such as the one described above.

Looking Ahead

In this context, we expect that disputes with Mexican tax authorities will unfold in an environment where co-operation should prevail in the provision of information (which will no longer be as exhaustive) and in the establishment of reasonable criteria that lead to reasonable legal consequences and payment of proportionate taxes.

Taxpayers should expect audit procedures that allow for greater flexibility regarding documentation, but in which aspects such as the materiality of transactions, interest deductions or the determination of foreign exchange effects will continue to be scrutinised.

Similarly, audits for the year 2021 are expected to begin shortly; these will involve analysing the labour subcontracting reform implemented by the federal government that year, which has significant tax implications. We believe this will be the next major focus of tax enforcement and will generate significant discussion within the industry. However, tax authorities are expected to exercise caution in applying these regulations.

In this context, it is important for legal departments to play a prominent and meaningful role in the audit process, since tax disputes often arise at this stage, and it is during this stage that they can be resolved without the need to go to court.

We are facing a time of change that requires building consensus with the authorities, so that disputes brought before the courts pertain exclusively to those points of law where no reasonable positions can exist. Litigating today, in the context of the uncertainty described above, must be a tool that is carefully analysed and used with full awareness of the taxpayer’s current situation.

Likewise, we believe that the government’s actions will naturally lead to a tax reform. Public finances require relief, and without reforms it will be difficult to increase primary revenue and collection. This also represents a great opportunity for the government to provide incentives and a legal framework that creates the legal certainty sought by major investors in Mexico and around the world.