Materiality of Operations Supported by Tax Receipts

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Materiality of Operations Supported by Tax Receipts

In October 2024, a Mexican Collegiate Court in Administrative Matters determined that to prove the materiality of operations supported by tax invoices, in the case of services that do not require a written contract with a definite date due to their lack of specialization or complexity, it is unnecessary to demonstrate their execution through such contracts.

Based on this isolated thesis, taxpayers can use all available evidence to demonstrate the materiality of their operations without the need for a written contract with a definite date to deduct the expense in all applicable cases.

As a result, evidence that is irrelevant to the nature of the operation or that is disproportionate, not meeting reasonable and justifiable parameters according to the goods or services covered by the tax invoices, cannot be required. Consequently, other evidentiary elements may be accepted, even indirect evidence, as a comprehensive analysis of the provided evidence can generate sufficient proof to establish the materiality of the operation.

Since a written contract with a definite date is not required to demonstrate the materiality of the operation, it will suffice to rely on other supporting documentation, such as a service order, accounting records, the corresponding invoice, or proof of payment (e.g., a bank statement showing the transfer).

Considerations for Businesses and Tax Professionals

Alternative Documentation for Basic Services: While a written contract with a definite date is not mandatory, it is advisable to maintain auxiliary documentation supporting the operation, such as:
a. A Service Order signed by the parties involved in the operation.
b. Deliverables evidencing the services, such as: (i) Progress reports, (ii) Accounting records, (iii) Executive summaries, (iv) Payment evidence, and (v) Photographs.
c. A Final Report detailing the benefits obtained from the provision of these services.

Criteria in Tax Disputes: This ruling may be used in defense during tax audits where the materiality of basic services is questioned, enabling a more accessible and flexible evidentiary approach.

Prevention for Complex Services: For highly specialized or complex services, contracts remain important, alongside other evidence to prove their execution.

At Calderón Marín, we are here to provide the guidance and consultancy needed for any tax-related matters or processes requiring your attention. We understand that each case is unique and are committed to delivering personalized and efficient solutions to help our clients and colleagues navigate any fiscal challenges. Please do not hesitate to contact us for any questions or assistance; we will be delighted to support you at all times.