Knowing who actually exercises control over the persons and legal structures has always been a challenge. Knowing this could help the authorities to control or, if necessary, to designate responsibilities regarding the correct use of these structures. Currently, the tax administrations have figures such as joint and several liability, which is necessary to know who will be liable in the part of the tax interest that cannot be guaranteed with assets of individuals and legal structures.

But the problem is much bigger, the issue goes beyond taxation and has been working at the international level, since 2003 in accordance with recommendation 24 and 25 of the Financial Action Task Force (FATF)[i], established international transparency standards for the identification of final beneficiaries.

It can be noted then, that achieving this transparency of “real” ownership of individuals and legal structures is difficult in the combination of preventing money laundering, as well as preventing tax evasion and tax fraud, hence the importance of cross-checking information between different competent authorities within and outside the countries. The countries must conduct the necessary adjustments in their rules in order to achieve accurate, real and timely results with respect to the final beneficiary, who actually has control of the individuals and legal structures, this will help to establish  measures to prevent their misuse.

In this order of ideas, it is important to mention the report of the Organization for Economic Cooperation and Development (OECD), regarding the manual on beneficial ownership, prepared by the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes, Inter-American Development Bank of March 2019, which indicates that the beneficial owner refers to “individuals who are the true owners or controllers or who benefit economically from a legal vehicle, such as a commercial company, a trust, a foundation, etc.” That is, who is effectively the owner or controller and who benefits from the entity’s legal structure. Indicating that the importance of identifying the final beneficiary is to eliminate the anonymity, which for many years has allowed illegal activities, such as corruption, money laundering and terrorist financing, as well as tax evasion.

Several circumstances allow the non-identification of the beneficiaries, such as the use of unreal shareholders “the figureheads”, bearer shares, figures of indirect representation and other corporate figures. The Global forum has an orientation focused on tax issues, while the FATF recommendations focus on all types of legal vehicles that can be used for LA or FT.

Currently, this background is contemplated in the proposal to reform the Federal Tax Code (CFF) in Mexico for the year 2022, indicating that the G20 invited to review the FATF’s work on the concept of controlling beneficiary, in order to have the information available for the exchange of information regarding legal entities, relevant legal structures and bank accounts.

Derived from the above and considering that the controlling beneficiary according to the FATF recommendation, the Global Forum and the history of regulation in Mexico, in the prevention and identification of operations with resources of illicit origin, Articles 32-B Ter, 32-B Fourth and 32-B Fifth were added to the CFF, and this will ensure that the tax administration complies with the minimum international standards of transparency with respect to the controlling beneficiaries, which is purely tax oriented, but will serve as a source of information for other national and international areas derived from a reciprocal exchange of information. It is indicated that, for the interpretation of these provisions in the CFF, the recommendations of the FATF and the Global Forum organized by the OECD will be applied.

Controlling beneficiary for tax purposes is the individual or group of individuals who:

I. Directly or through any other or any legal act, get the benefit derived from its participation in a legal entity, a trust or any other legal entity, as well as from any other legal act, (liable subjects) or is the one who ultimately exercise the rights of use, enjoyment, benefit, use or disposition of a good or service or on whose behalf a transaction is made, even if it does so on a contingent basis.

II. Directly, indirectly or on a contingent basis, they exercise control of the liable subjects, when, through the ownership of securities, by contract or by any other legal act, they may:

• To impose, directly or indirectly, decisions at the general meetings of shareholders, partners or equivalent bodies, or to appoint or dismiss the majority of directors, managers or their equivalents.

• Maintain ownership of the rights that allow, directly or indirectly, to exercise the vote with respect to more than 15% of the share capital; or
• Managing, directly or indirectly, the administration, the strategy or the main policies of the controlled entities.

The liable subjects must obtain and keep, as part of their accounting, and provide within a period of 15 working days to the Tax Administration Service (TA), when required, the reliable, complete and updated information of their controlling beneficiaries.

The Notaries that intervene in the formation or execution of contracts or legal acts that give rise to the constitution of the liable subjects, as well as the financial entities and the members of the financial system for purposes of the Income Tax Law (IT), in the case of information related to financial accounts, are liableto obtain the information to identify the controlling beneficiaries and to adopt reasonable measures to verify their identity.

The information to be collected is as follows:

• Full names and surnames, which must correspond to the official document with which the identity has been accredited. Alternative names.

• Alternative names.

• Date of birth. Where applicable, date of death.

• Gender

• Country of origin and nationality. If they have more than one, identify them all.

• Population registration number or its equivalent, in the case of other countries or jurisdictions.

• Country or jurisdiction of residence for tax purposes.

• Type and number or key of the official identification.

• Key in the RFC or tax identification number, or its equivalent, in case of being a resident abroad, for tax purposes.

• Marital status, with identification of the spouse and patrimonial regime, or identification of the concubine or partner, if applicable.

• Contact details: e-mail and telephone numbers.

• Private address and tax address.

• Relationship with the legal entity or quality held in the trust or the legal entity, as applicable.

• Degree of participation in the legal entity or in the trust or legal entity, which allows exercising the rights of use, enjoyment, use or disposition of a good or service or to conduct a transaction.

• Description of the form of participation or control (direct or indirect).

• Number of shares, social shares, participations or rights or equivalents; series, class and nominal value thereof, in the capital of the legal entity.

• Place where the shares, social shares, participations or other equivalent rights are deposited or in custody.

• Determined date from which the individual acquired the status of controlling beneficiary of the legal entity, trust or any other legal figure.

• If applicable, provide the data mentioned in the preceding sections regarding the one or those who hold the position of sole administrator of the legal entity or equivalent. In the event that the legal entity has a board of directors or equivalent body, of each member of said board.

• Date on which a modification in the participation or control in the legal entity, trust or any other legal figure has occurred.

• Type of modification of the participation or control in the legal entity, trust or any other legal figure.

• Date of termination of participation or control in the legal entity, trust or any other legal figure.

This information must be kept up to date, in case of modifications in the identity or participation of the beneficiaries, the liable subjects must update the information within the following fifteen calendar days.

Due to the relevance of obtaining this information, the legislator considered establishing a “punishment” to the liable subject for each controlling beneficiary in case of non-compliance with these obligations:

• Failure to obtain, keep or submit the information within the established deadlines, fine of $1,500,000.00 to $2,000,000.00

• Failure to keep information updated, fine from $800,000.00 to $1,000,000.00

• Submit the information incomplete, inaccurate, with errors or in a form other than that indicated in the applicable provisions fine of $500,000.00 to $800,000.00

As can be seen, this new obligation in Mexico addresses international issues, which will help transparency and identification of beneficial owners/controllers, reducing the possibility of committing illegal acts through individuals or legal structures, and which may be exchanged through international instruments signed between States.

References.

•  A Beneficial Ownership Implementation Toolkit. http://dx.doi.org/10.18235/0001711.
• Inter-American Center of Tax Administrations (2022) Toolkit for the Design and Effective Implementation of Domestic and International General Anti-Avoidance Rules / 2022
• Tax Code of the Federation, Latest Reform DOF 12-11-2021
• FATF (2019), Best practices on final beneficiaries for legal entities, FATF, Paris, http://www.fatf-gafi.org/publications/methodsandtrends/documents/best-practices-beneficial-ownership-legal-persons.html
• Resolución Miscelánea Fiscal para 2022 regla 2.8.1.22.
• https://www.cfatf-gafic.org/index.php/es/documentos/gafi40-recomendaciones
• https://www.gafilat.org/index.php/es/las-40-recomendaciones/

[i] FATF, intergovernmental body that aims to set standards and promote effective implementation of legal, regulatory and operational measures to combat the laundering of assets (LA), terrorist financing (TF) and proliferation of weapons of mass destruction, and other threats to the integrity of the international financial system)

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