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News Article

Platforms Will Be Blocked, Sanctioned If Taxes Are Not Paid

By Andrea Villar | Mon, 09/14/2020 - 13:06

Digital platforms such as Uber, DiDi, Amazon, Netflix, TikTok, Facebook, Zoom or Spotify that do not comply with the taxes proposed by the López Obrador administration in FY21, will have to pay penalties and may even have their services blocked.

Even though the Value Added Tax (VAT) Act enforced on June 1, contains a regulatory framework for the payment of taxes by digital service providers, "experience shows that it is not sufficient to be an effective measure and to achieve the desired compliance,” says the FY21 document. The government determined that when a digital company resides abroad and must use the internet infrastructure of a national concessionaire, the latter can establish a mechanism that allows it to block access to its services. The same goes for companies not registered in the Federal Taxpayers' Registry (RFC) with the Tax Administration Service (SAT), or that have not designated a legal representative and an address in the country or do not process an advanced electronic signature. 

In early June, Manager of Digital Commerce and International Organizations of the Latin American Internet Association (ALAI) Sissi De La Peña, said that excessive regulation of tech companies could affect the digital economy by inhibiting innovation and new developments. "The digital economy tries to find alternative solutions to problems that we do not have at the moment and excessive regulation in all cases can inhibit this development of new services. All countries and companies have been in an extensive collaborative development with the OECD, which expects to have results by the end of 2020 with something much more specific on audit issues," said De La Peña at the 11th edition of the South School on Internet Governance event. 

In May, companies like Netflix, Nintendo and Mercado Libre increased prices to their users to cover the digital tax. From November onward, Spotify will also increase its prices in the country. The government hopes that up to MX$100 billion (US$4.4 billion) can be collected from digital platforms in taxes. "We are just starting to work on the issue of digital taxes but to have an order of magnitude, once we have a stable mechanism this should represent more than MX$100 billion (US$4.4 billion) in taxes like VAT and ISR,” said Minister of Finance Arturo Herrera back in June. According to Herrera, the digital economy represents around 5-6 percent of the national GDP, which is equivalent to around MX$1.3 trillion (US$57.3 billion), an amount that could increase due to COVID-19 lockdowns. 

From January to May 2020, taxes from digital platforms amounted to MX$123.7 million (US$5.4 million), of which MX$87.5 million (US$3.9 million) corresponded to VAT and MX$36.2 million (US$1.6 million) to ISR. Herrera said during a press conference on loans for SMEs that digital platforms such as Uber, Netflix and Amazon must pay taxes for an equity issue, because "it cannot be that some of the richest companies in the world are not paying taxes.”

Andrea Villar Andrea Villar Journalist and Industry Analyst