Mexico: “Offset” figure not a payment of VAT (court decision)

A court decision concerning whether figure of “compensation” constitutes a payment of VAT

A court decision concerning whether figure of “compensation” constitutes a payment of VAT

The Second Chamber of the Supreme Court of Justice (Suprema Corte de Justicia de la Nación) on 15 March 2023 held (413/2022) that an "offset" amount resulting in the extinction of obligations cannot be considered an "effective payment method” in accordance with provision 1-B of the value added tax (VAT) law. Consequently, the VAT related to the offset amount does not constitute a creditable VAT incurred on expenditures and the buyer can thus not claim a VAT refund of said VAT. 

KPMG observation

Although there are still elements that were not analyzed or considered by the court, this decision sets a relevant precedent for the treatment and recovery of VAT that may affect all types of companies. Thus, taxpayers need to prepare detailed analyses and identify the operations they carry out with clients and suppliers where offsetting is involved and evaluate the potential effect of the court’s decision on whether VAT may be recoverable or creditable.

Read a March 2023 report (Spanish) prepared by the KPMG member firm in Mexico


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