As countries across the globe seek to curb corporate tax avoidance with country-by-country reporting, some Latin American countries aren’t waiting for these reports to be submitted, they are using their current e-invoicing tools to pave their way to greater tax revenues.
For years, governments in Latin America have lured companies through incentives and tax breaks. Now, officials are tightening tax regulations and withholding tax refunds as a means to generate additional cash flow. Nowhere is this trend more evident than Mexico, which recently withheld more than $384 million in value-added tax from 270 global corporations such as Unilever and Colgate.
As revenues from oil production in Mexico have declined, the country has not only amped up its tax regulations through e-invoicing and e-accounting mandates, but it has also gotten more creative in its enforcement of tax laws, using VAT refunds to influence tax declarations and companies’ operating models.
While SAT (Mexico’s tax authority) officials dismiss this line of reasoning and instead point to irregularities in the penalized companies’ returns, one thing is certain – governments aren’t backing down on tax regulation. In Mexico in particular, where the top 132 multinationals pay less than 1.5% of their gross income in corporate tax (the lowest among Organisation for Economic Co-operation and Development members according to Reuters), governments are increasingly looking for ways to maximize their tax revenues.
If companies operating in Latin America don’t take action now to manage compliance, they will face continued scrutiny, penalties and lost or delayed tax refunds. Companies who do not manage compliance using their system of record and keep accurate records (as Invoiceware clients do) will continue to be at risk. Those risks are only increasing as governments expand regulations globally and seek to invoke their rights to tax money in new ways.
From monitoring regional trends to choosing the right compliance solution, companies must be proactive to ensure they don’t miss out on significant tax refunds. Listen to our recent webinar, "Electronic Audits and e-Invoicing CFDI 3.3 upgrade expected in Mexico: Are you prepared?" to learn more.
To find out more about best practices for managing compliance in Latin America, contact us.