Mexican GAAR: Recent Ruling Leads to More Questions Than Answers

In 2020, Mexico introduced a General Anti-Abuse Rule (GAAR) — i.e., Article 5-A of the Federal Tax Code. In a nutshell, the Mexican GAAR allows the Tax Administration Service (“SAT,” per its acronym in Spanish) to re-characterize the tax treatment of transactions that lack a “business purpose” and generate a “tax benefit” for the taxpayer. In cases in which it intends to apply the GAAR, the SAT must notify the taxpayer during an examination process and obtain authorization from a joint committee integrated by officials of the SAT and the Ministry of Finance.

Article 5-A is a one-of-its-kind provision within ...