Mexico: Civil law debt offsetting system not a means of payment to credit VAT (court decision)

A court decision concerning civil law debt offsetting system as a means of payment to credit VAT

A court decision concerning debt offsetting system as a means of payment to credit VAT

There has been a split among the courts as to whether a value added tax (VAT) refund can be the means for resolving a VAT liability. One position of the courts has been that the VAT refund amount is not available for resolving the VAT liability, whereas other courts have concluded that the VAT refund can be used as a credit to resolve a VAT liability. 

To settle this issue, the Plenary Session on Administrative Matters of the Sixteenth Circuit (Pleno en Materia Administrativa del Decimosexto Circuito) (a judicial body or court) decided that the applicability of the debt offsetting system (compensacion) established under the civil law to cancel reciprocal debts and credits is not a means of payment for credit against VAT.

The plenary session based its decision on the fact that the debt offsetting system under civil law settles only existing obligations between reciprocal debtors and creditors and only with respect to the same tax.

Read an August 2022 report (Spanish) prepared by the KPMG member firm in Mexico


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