Taxes Hit Tech Companies and Users in Mexico

After not having paid any federal contribution since they began operations in Mexico, taxes begin to reach big tech companies. Yesterday, Netflix and Nintendo announced to their users that the price of their subscriptions will increase in June due to the consumption tax that legislators approved in 2019 for digital services.

"As reported in late 2019, the Mexican government is adding VAT to digital services such as Netflix as of June 1. Consequently, we have started to notify our users that there will be an adjustment in our prices. At the same time, we have worked to minimize our impact on the basic plan. Members will see this tax as a separate item on their bill starting on June 1," a Netflix spokesperson said in a statement.

Netflix’s rates will be the following:

• Basic (1 screen), from MX$129 (US$5.39) to MX$139 (US$5.81)

• Standard (2 screens), from MX$169 (US$7.07) to MX$196 (US$8.20)

• Premium (4 screens), from MX$229 (US$9.58) to MX$266 (US$11.12)

Chapter 1 of the Income Tax Law (ISR) also establishes that residents abroad must pay taxes in Mexico regarding income from sources of wealth located in national territory, even if they do not have a permanent establishment in the country. Other companies like Cabify, Cornershop and Rappi have already paid this tax since June 2019. 

The Huge Dilemma on How to Tax Big Techs

For decades, if an international company established itself abroad, the government has had the right to tax them. However, when the internet came along, controlling companies offering services and products through this channel became more difficult. Then the dilemma arose of how to collect taxes from large technology companies since, like others, they make profits from the population in the countries they operate.

On Monday this week, French Minister of Finance Bruno Le Maire took up the issue and called for a European tax on digital companies. Faced with the crisis unleashed by COVID-19, the assessment is more relevant than ever, he added. “This crisis shows that the digital giants are doing best, simply because they are able to keep their businesses going. And yet they are the least taxed,” said Le Maire at a Linkedin Live event.

According to analysts, the measure applied in Mexico is a very big step to inspect digital companies that avoid taxes and which are very difficult to tax.