1. Who is subject to tax audits in Mexico?

All taxpayers, regardless of size, may be audited by the Tax Administration Service (SAT). However, large taxpayers are under the jurisdiction of the General Administration of Large Taxpayers (AGGC), which handles audits for entities exceeding certain revenue thresholds or with complex operations.

2. What are the main audit powers of the SAT?

SAT may exercise its powers through (i) desk audits, (ii) field visits at the taxpayer’s domicile, and (iii) electronic reviews. These procedures allow SAT to request documentation, review accounting, and assess tax compliance.

3. How long does a tax audit last?

Generally, an audit lasts 12 months from initiation.

• In desk reviews, the audit ends with an official “letter of observations” (oficio de observaciones). Taxpayers have 20 business days to submit evidence to rebut the findings.

• In field visits, the audit ends with a final report (acta final). Before this, SAT issues a last partial report, and taxpayers also have 20 business days to provide evidence to rebut the observations.

For transfer pricing audits, the audits may last up to 24 months, and before they conclude, taxpayers have 2 months to respond to the official notice of observations or the last partial report. This period may be extended by 1 month at the request of the taxpayer.

4. How is a tax audit commenced?

Audits begin with a formal order served on the taxpayer. For on-site visits, officials must present a written order of visit; for desk reviews, SAT serves notice through the electronic tax mailbox or a request of information in the domicile of the taxpayer.

5. What are the possible outcomes of an audit?

An audit may conclude with (i) no findings, or (ii) observations of potential non-compliance, which may subsequently give rise to a tax assessment determining unpaid taxes, surcharges, and penalties.

6. What is the Conclusive Agreement (Acuerdo Conclusivo) before PRODECON?

It is an alternative dispute resolution procedure before the Taxpayer Ombudsman (PRODECON). Taxpayers may request it during an ongoing audit. Once filed, it suspends the deadlines for the audit conclusion or the issuance of a tax assessment, depending on the stage.

7. What are the possible outcomes of a Conclusive Agreement?

The procedure may end with:

• A total agreement,

• A partial agreement, or

• No agreement.

It is commonly used to submit additional evidence, strengthen arguments, and negotiate factual matters with SAT.

8. What remedies are available against a tax assessment?

Taxpayers may challenge an assessment by filing either an Administrative Appeal before SAT or Administrative Litigation before the Federal Administrative Justice Court (TFJA).

9. What is the deadline to file an Administrative Appeal?

Within 30 business days from the date the assessment is formally served.

10. Is it necessary to guarantee the tax liability in an Administrative Appeal?

No. The Administrative Appeal does not require any guarantee of the assessed liability.

11. Why is the Administrative Appeal generally recommended?

It is advisable to exhaust it because it is the last opportunity to submit evidence. In subsequent litigation, only evidence filed during the audit or in the Administrative Appeal will generally be admitted.

12. What are the advantages of the Administrative Appeal?

• No guarantee of the tax liability required.

• Faster resolution compared to litigation.

• Opportunity to expand on evidence and arguments before going to court.

13. What are the disadvantages of the Administrative Appeal?

It is resolved by SAT itself, which may raise concerns about impartiality. If denied, the taxpayer is able to file a nullity claim before the Federal Administrative Justice Court.

14. What is Administrative Litigation (Juicio Contencioso Administrativo)?

It is a judicial proceeding before the Federal Administrative Justice Court. The process concludes with a judgment, which may be appealed by either party. In principle, only evidence submitted during the audit or Administrative Appeal will be reviewed.

15. What happens after the judgment in Administrative Litigation?

The judgment may be challenged by:

• The taxpayer, by filing a Direct Amparo within 15 business days; or

• The tax authority, by filing a Tax Review Appeal.

Both remedies are decided by a Federal Circuit Court of the Federal Judiciary, which generally issues the final ruling on the merits.

16. What is the Exclusive Trial on the Merits (Juicio de Resolución Exclusiva de Fondo)?

It is a special type of litigation in which only substantive issues are reviewed, excluding procedural defects. Notably, taxpayers do not need to guarantee the tax liability while the case is pending, until the first-instance judgment is issued.

17. Is it mandatory to guarantee the tax liability in standard Administrative Litigation?

Yes. To suspend enforcement of the assessment while the trial is pending, taxpayers must provide a guarantee (bond, deposit, lien, or letter of credit). Otherwise, SAT may initiate collection proceedings.

18. Can a taxpayer reduce a definitive tax liability without litigation?

Yes. Taxpayers may seek:

• Reduction of penalties under Article 74 of the Federal Tax Code; or

• Application of Article 70-A benefits, which allow reduced surcharges and partial remission of penalties.

19. What practical strategies should businesses consider?

• Keep accounting records organized and updated.

• Respond promptly to SAT’s requests.

• Consider a Conclusive Agreement before PRODECON.

• Use the Administrative Appeal strategically to file all evidence.

• Anticipate the guarantee requirement in litigation.

• Explore post-litigation benefits to mitigate financial burden.

• Seek specialized legal counsel at the earliest stage.

Important Notice

This material is provided for informational purposes only and does not constitute specialized legal advice. Each case depends on its particular facts and circumstances and should be analyzed individually.

At Matus-Ruiz, we remain at your service to address any questions regarding the matters outlined above, and to provide tailored legal advice in connection with tax audits and controversies in Mexico.

‍