Obligation to identify the Controlling Beneficiary (Beneficiario Controlador) in Mexican Tax Law

published on 7 March 2024 | reading time approx. 2 minutes

A pathbreaking tax reform introduced in 2022 has established new obligations for all legal entities, trusts, associations and other legal figures operating in Mexico with respect to the identification of their Controlling Beneficiaries. If the legal entities covered by the law fail to fulfil the new obligations, draconian penalties are looming.

General Considerations

In order to particularly combat tax evasion, money laundering and terrorist financing, the Mexican tax law imposes disclosure obligations on certain legal entities with regard to their Controlling Beneficiaries. Accordingly, those legal entities must obtain, verify and record certain information from this cohort of persons. Furthermore, the information must be stored in a corresponding register as part of their accounting records and kept up to date at all times. Upon request by the tax authorities (Servicio de Administración Tributaria/“SAT”), the information and the supporting documents must be submitted within 15 working days as a rule. Failure to comply with these obligations is otherwise subject to fines ranging from MXN 800,000 (approx. USD 46,600) to MXN 2,000,000 (approx. USD 116,500) per Controlling Beneficiary.

How to Determine the Controlling Beneficiary?

The Controlling Beneficiary must always be one or several natural person/-s. The law provides three ways to determine the Controlling Beneficiary:

Economic Benefit: A Controlling Beneficiary is a natural person obtaining a direct or indirect benefit through the legal participation in the legal entity covered by law. Consequently, this refers in particular to the person or group of persons who holds the rights of use, enjoyment, profit, exploitation or disposal.

The following only applies if no determination can be made with the aforementioned method:

Exercise of Control: The natural person or group of persons is considered to be the Controlling Beneficiary who exercise control over the legal entity subject to the provisions by virtue of ownership of shares or by contractual legal relationship and thus has at least one of the following powers:

Impose, directly or indirectly, decisions at shareholders´meetings or equivalent bodies, as well as to appoint or dismiss the majority of directors, administrators or their equivalents

Maintain the ownership of the rights that allow, directly or indirectly, the exercise of voting rights in respect of more than 15 percent of the capital stock

Determine, directly or indirectly, the administration, strategy or main policies

Catch-all Provision: If no person is identifiable pursuant to the above criteria, the managing director or, if applicable, the members of the board of directors or members of a comparable body of the legal entity in question shall be deemed to be the Controlling Beneficiary/-ies.

Information about the Controlling Beneficiary/-ies

The legal entities are obliged to record and maintain comprehensive information on the Controlling Beneficiary/-ies. This includes personal details, as well as information on marital status, contact details, residential address and tax residence. Additionally, the record should encompass the Beneficiary's relationship to the legal entity subject to the law, the degree and form of participation and control, along with information on any changes in relation to the aforementioned. Finally, certain information may also need to be collected from the persons entrusted with management duties.

Legal Framework

The legal framework for identifying the Controlling Beneficiary is primarily governed by the Mexican Federal Tax Code (Codigo Fiscal de la Federacion/“CFF”) along with corresponding administrative regulations outlined in the Miscellaneous Tax Resolution (Resolución Miscelánea Fiscal).

In the event of non-compliance with the legal requirements, the CFF stipulates significant fines and additional administrative penalties, such as the non-issuance of important tax documents. As a result, legal entities must not only ensure that the information is obtained from the Controlling Beneficiary, but also that it is stored in accordance with the law, submitted on time and in the correct form and updated on an ongoing basis. As there is still no standardised administrative practice, the interpretation and application of these new regulations poses a considerable practical challenge for the legal entities concerned. Consequently, all companies must comply with this new regulation and take appropriate precautions as well as seek expert advice on compliance.