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Accounting-Fiscal Treatment of Insurance Recovery

When companies suffer a loss or due to force majeure (natural disaster, theft, loss), where some property, merchandise or asset may be lost and said property is insured, the insurer will be obliged to indemnify the taxpayer and the amount that is received will be subject to what is mentioned in the following article.

Article 18 LISR. For the purposes of this Title, the following are considered accruable income, in addition to those indicated in other articles of this Law:

VI. The amount recovered by insurance, bonds or responsibilities by third parties, in the case of loss of property of the taxpayer.

As we can see, this amount received from the insurer will be cumulative according to Art. 18 LISR, however, there is an exception when the amounts paid by the insurer are reinvested in the acquisition of an asset of a similar nature or to redeem liabilities generated by the lost assets, this according to article 37, which is referred to.

Article 37 LISR. Losses of property of the taxpayer due to fortuitous event or force majeure, which are not reflected in the inventory, will be deductible in the year in which they occur. The loss will be equal to the amount pending deduction on the date it is suffered. The amount that is recovered will be accumulated under the terms of article 18 of this Law.

When fixed assets that are not individually identifiable are lost due to a fortuitous event or force majeure or cease to be useful, the pending amount to be deducted from said assets will be applied considering that the first assets acquired are the first to be lost.

When the taxpayer reinvests the recovered amount in the acquisition of assets of a similar nature to those lost, or to redeem liabilities for the acquisition of said assets, he will only accumulate the part of the recovered amount not reinvested or not used to redeem liabilities. The amount reinvested that comes from the recovery may only be deducted by applying the percentage authorized by this Law on the original amount of the investment of the asset that was lost and up to the amount that was pending deduction from this amount on the date of suffer the loss.

If the taxpayer invests additional amounts to those recovered, they will be considered as a different investment.

The reinvestment referred to in this precept must be made within the following twelve months from the date the recovery is obtained. In the event that the amounts recovered are not reinvested or are not used to redeem liabilities, within said period, they will be added to the other income obtained in the year in which the period ends.

Taxpayers may request authorization from the tax authorities, so that the term indicated in the previous paragraph can be extended for another equal period.

The recovered amount not reinvested within the term indicated in the fifth paragraph of this article, will be adjusted by multiplying it by the update factor corresponding to the period from the month in which the recovery was obtained and until the month in which it is accumulated.

When the number of months included in the period in which the asset has been used in the year is odd, the month immediately preceding the one corresponding to the half of the period will be considered as the last month of the first half of said period.

That is why attention must be paid to these operations, since depending on the assumptions in which the taxpayer finds himself, this type of operation could be accumulated for ISR, or only be as an accounting income.

We inform you that this information provides general information based on the current laws and regulations, and in case of an individual report, be sure to receive advice from an expert before handling it.

Reproduction, partial or full distribution without the approval of Doowoo Accounting S de RL de CV is prohibited.

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