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Business Reason and Materiality

During recent years, the tax authority has focused on improving its review processes, where the results show that the operations are real, in the exercise of its verification powers, the tax authority may presume that the legal acts lack a reason of business or materiality based on the facts and circumstances of the taxpayer, as well as the valuation of the elements, the information and documentation obtained during them, which is why it is necessary to know the definition of these concepts.


Business reason: It can be understood as the reason to carry out a legal act related to the economic activity of the business (corporate purpose of the company), which is aimed at obtaining a profit.


Materiality: Refers to the possibility of verifying whether the situations (legal or de facto) to which taxpayers give fiscal effects were carried out.


The non-existence of the business reason will occur when (5-A CFF):

1) The expected economic benefit is less than the tax benefit actually obtained.

2) In a series of legal acts, the same objective could be achieved through the performance of a smaller number of acts and the fiscal effect of these would have been more burdensome.


The non-existence of operations covered by tax receipts will occur when (Art.69 B CFF):

1) When Companies that Invoice Simulated Operations (EFOS) are issuing receipts without having assets, personnel or infrastructure.

2) It is found as not located.


To verify the materiality of an operation, the authority is focusing on data collected through questionnaires, contacts, emails, logs, documents, quotes, photographic evidence, contracts and additional information provided by taxpayers or by third parties related to said acts, it is Therefore, it is not enough for taxpayers to meet the various requirements established in article 29-A CFF (Requirements of the CFDI) or with the provisions of article 27 LISR (Requirements of deductions) so that the Vouchers are deductible. fiscally, there are also other requirements that the Tax Administration Service (SAT) considers necessary to validate a deduction, these are the materiality and the business reason of the operations.


In terms of transfer prices, it is convenient to emphasize that the transactions must be carried out in accordance with the principle of market value; That is to say, that they are carried out as if they were independent third parties in comparable operations and verify that there is no manipulation or erosion of the tax base.



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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