Gabriel Romero serves as Sovos’ country manager for Mexico where he oversees all aspects of the company’s operations. Gabriel is a high-visibility leader that believes in the importance of building long-term relationships with customers. His philosophy is to focus on the entire customer experience, from the first point of contact to solution delivery and post selling support.

During his tenure, Gabriel has helped to position SOVOS as a top tax and electronic signature solution in Mexico. This was achieved by aligning technical, back office and customer contact teams inside SOVOS toward a common goal.

The basis of Gabriel’s growth regional strategy has been centered on consultive sales, which help to better inform the company about customer needs and provide solutions and services that are aligned with market needs.

Away from the office Gabriel likes to provide balance in his life with long hikes, regular exercise and meditation and yoga. He is at his happiest spending quality time with his family and friends in Mexico City.

For more, see Gabriel’s LinkedIn profile.

In the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” issued on 1 July 2021, members of the G20 Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) have agreed upon a framework to move forward with a global tax reform deal.

This will address the tax challenges of an increasingly digital worldwide economy. As of 9 July 2021, 132 of the 139 OECD/G20 member jurisdictions have agreed to the Inclusive Framework on BEPS.

Pillar Details

Pillar 1

Pillar 1 gives a new taxing right, Amount A, to market countries to ensure companies pay tax on a portion of residual profits earned from activities in those jurisdictions, regardless of physical presence. Pillar 1 will apply to multinational enterprises (“MNEs”) with global turnover above 20 billion euros and profitability above 10%.

There will be a new nexus rule permitting allocation of Amount A to a market jurisdiction when the in-scope multinational enterprise derives at least 1 million euros in revenue from that jurisdiction. For jurisdictions with a GDP less than 40 billion euros, the nexus will instead be set at 250,000 euros.

The “special purpose nexus rule” determines if a jurisdiction qualifies for the Amount A allocation. Furthermore, countries have agreed on an allocation of 20-30% of in-scope MNE residual profits to market jurisdictions, with nexus using a revenue-based allocation key.

Revenue will be sourced to the end market jurisdictions where goods or services are consumed, with detailed source rules still to come.

More details on segmentation are still in the works, as is the final design of a marketing and distribution profits safe harbour that will cap the residual profits allowed to the market jurisdiction through Amount A.

Lastly, countries have agreed to streamline and simplify Amount B with a particular focus on the needs of low-capacity countries. The finalised details are expected to be completed by the end of 2022.

Pillar 2

Pillar 2 consists of Global anti-Base Erosion (“GloBE”) Rules that will ensure MNEs that meet the 750 million euros threshold pay a minimum tax rate of at least 15%. The GloBE Rules consist of an Income Inclusion Rule and an Undertaxed Payment Rule, the latter of which still needs to be finalised.

Pillar 2 also includes a Subject to tax rule, which is a treaty-based rule, allowing source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate. The rate will range from 7.5 to 9 percent.

When Will the Plan be Implemented?

There is currently a commitment to continue discussion, in order to finalise the design elements of the plan within the agreed framework by October 2021. Inclusive Framework members will agree and release an implementation plan.

The current timeline is that the multilateral instrument through which Amount A is implemented will be developed and opened for signature in 2022, with Amount A coming into effect in 2021. Similarly, Pillar Two should be brought into law in 2022, to be effective in 2023.

More Details to Come

Although the key components of the Two-Pillar Solution have been agreed upon, a detailed implementation plan that includes resolving remaining issues is still to come.

As many countries could be implementing these changes in the near future, it is important for businesses active in the digital economy to carefully track and understand the developments surrounding the OECD/G20 Base Erosion and Profit Shifting Project.

Take Action

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On 1 May 2021, the Mexican tax administration (SAT) released one of the most important updates to the electronic invoicing system of the country since 2017.

The update was about the new Bill of Lading Supplement (locally known as Suplemento de Carta Porte) that should be added as an annex to the electronic invoice (CFDI) of Transfer (CFDI de Traslado) or to the CFDI of Revenues (CFDI de Ingresos) that are issued for hauling services.

This supplement is based on the provisions of Articles 29 and 29-A of the Fiscal Code of Mexico, and the rule 2.7.1.9 of the Miscellaneous Fiscal Resolution. The articles of the tax code grant the tax administration the power to define the documents to be used for supporting the legal transportation goods inside that country via specific rules. The mentioned rule describes the specific requirements of the Supplement of Carta Porte.

Why has Mexico introduced the Carta Porte supplement?

Latin American countries have a serious problem with tax evasion, usually made possible by smuggling goods without paying the corresponding taxes. According to the information provided by the SAT, 60% of the goods transported in Mexico have an illegal origin.

Therefore, the purpose of enforcing the use of the Carta Porte supplement, whether as an annex to the CFDI of Transfers or the CFDI of Revenues, is to ensure the traceability of the products moved inside the Mexican territory by requiring the provision of additional information about the origin, location, precise destination and routes of transport of the products transferred by roads, rail, water or air in Mexico.

Once this change comes into effect, transporters of goods by road, rail, water or air must have a copy of the Supplement of Carta Porte in the vehicle that proves lawful compliance with this mandate.

Who is required to issue the Carta Porte supplement?

When will the supplement become mandatory and when should it be issued?

The Carta Porte as a supplement of the CFDI of Transfers or the CFDI of Revenues

As we know, the new regulations require the Carta Porte supplement to be added to the CFDI of Transfers or to the CFDI of Revenues, depending on who is transporting the goods.

The Carta Porte supplement will be added to the CFDI of Transfers when the transport of goods is made by the owner (i.e. internal distributions between warehouses and stores, consignment, etc.) or when the seller assumes the shipment of the products to the purchaser.

The Carta Porte supplement will also be added to CFDI of Transfers when the shipping of the goods is made by an intermediary or by an agent of transport as explained before. In such cases the current regulations provide that the CFDI should have zero as a value of the products and the RFC key to be used is the generic key established for transactions carried out with the public. In the field for description, the object of the transfer should be specified.

When the Carta Porte supplement is issued as part of the CFDI of Revenues (CFDI de Ingresos) as a result of the goods being transported by a haulage company, the haulage company should issue the CFDI of Revenues with the Carta Porte supplement. However, different to the previous case where the CFDI had a value of zero, the value to be included in the CFDI of Revenues will be the price of transportation services charged by the haulage company to the client.

It is important to mention that Carta Porte supplement does not substitute other documents necessary to prove the legitimate origin or ownership of products. Other additional documents will be required for this purpose.

Documents accompanying the Carta Porte supplement

While the Carta Porte supplement provides clear information about the transportation of goods being transferred, that document alone does not prove the lawful status of the goods being hauled. That status should be proven by whoever is providing the transportation, with the corresponding documents proving the origin of those hauled products, such as import documents, CFDI of Pagos, registrations and licenses etc.

In the case of transportation of petroleum products, the lawful status of the product will be proven with the printed representation of the supplement established for that type of products (the Complemento de Hidrocarburos y Petroliferos).

Structure of the Carta Porte supplement

According to the technical documentation released by the SAT, the information provided via the Carta Porte supplement will be conveyed via a number of fields (around 215) that will contain optional and mandatory information about the product being transported, type of packaging used, weight, quantity, insurance, the permit of transportation provided to the hauling company by the Secretary of Public transportation, plate and registration of the motor vehicle used, driver, as well as information about the recipient of the products being transported within Mexico.

The information of those fields will be filled via direct input by the taxpayers or in some cases via the specific choices available in a set of catalogs established by the SAT.

Such catalogs can be grouped as follows:

Catalog of transport: Contains the keys for choosing the means of transport used to move the goods (01 transport by land, 02 Maritime transport, etc.)

Catalog of station: Describes the place from where merchandise was shipped

Catalog of waterways ports, airports and train stations: Lists all the ports, airports and stations across Mexico

Catalog of units of measurements and packaging: Informs the choices about the type of container and the measurements related to the goods being transported.

Catalog of products and services: Indicates the different codes used to identify the products being transported.

Catalog of dangerous materials: Lists the options to describe and identify the products considered dangerous, when they are being transported.

Other catalogs included in this supplement are those related to the type of transport and trailers used to transfer the products by land, packaging, the types of permits, the municipalities, neighborhoods, and locations, among others.

Penalties and sanctions

Once the use of the Carta Porte supplement becomes mandatory, noncompliance with this requirement will have several immediate consequences for the violators.

Additional clarifications about the scope of the Carta Porte supplement:

When the SAT released the new Miscellaneous Fiscal Resolution for 2021 there were several doubts about the scope of this mandate. This was because for the case of land transportation, the rule established that the use of the supplement would be required only when the goods were transported via federal roads. That original release of the Miscellaneous Fiscal Resolution also established compliance with this mandate would be required to owners of national goods that are part of their assets when they haul those assets in Mexico.

To remove those misunderstandings and limitations, the SAT has recently released a new modification specifying that the mandate will be required for all movement of goods, regardless of the road used. The new resolution also excluded the reference to “national goods that are part of their assets”, so that it is clear now that it applies to any goods being transferred, regardless of its origin.

Take Action

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Brown Forman embraces changing e-invoicing regulations with Sovos

case study

Brown Forman

The Sovos e-invoicing compliance solution allowed Brown-Forman to ease the burden of compliance from its IT team.

Summary

Business Challenges

  • Growth strategy hindered by complex regulations

  • Real-time processes and responses required by mandates impacting business operations

  • Limited IT resources to monitor and implement requirements

Solution

Brown Forman selected Sovos’ Business to Government regional reporting platform for:

  • Brazil Nota Fiscal
  • Mexico CFDI
  • Mexico eContabilidad

Benefits

  • Seamless integration with SA

  • Constant monitoring and support has resulted in zero business disruptions

  • Ability to redeploy resources to core business functions

  • Need for ongoing SAP upgrades and IT burdens eliminated

The Company

Brown-Forman is one of the ten largest spirits companies in the world, distributing products in more than 160 countries. Based in Louisville, Kentucky with offices across the globe, Brown-Forman manufactures iconic brands such as Jack Daniels, Southern Comfort and Woodford Reserve.

The Challenge

International expansion has been integral to Brown-Forman’s success, but this growth strategy placed a great demand on its IT team. The company’s SAP systems needed to comply with the constantly changing financial legislation around the world, and e-invoicing mandates threatened to exceed the Brown-Forman IT team’s bandwidth. This was especially a concern in Brazil and Mexico, where the company operates nine facilities and regulations change frequently.

Demanding real-time processes and responses, any e-invoicing oversight in these countries would affect both the finance and supply chain teams, and could significantly impact business operations. 

The Solution

With limited in-house IT resources to monitor and implement each country’s fiscal requirements, Brown-Forman needed a solution that would help it adapt to the ever-changing Latin American landscape and also integrate into its single global instance of SAP ERP.

Given the extensive scope of its operations in Latin America, Brown-Forman realised that it needed a specific subject matter expert. In addition, the company required a predictable cost structure during its heavy expansion.

“Because Sovos provides the network upgrades as well as the SAP ERP configurations, we have been able to work with one vendor across multiple countries and confidently manage the changes to Brazil’s Nota Fiscal and Mexico CFDI’s legislation.”

Randy Isdahl

Director, SAP Process Architecture at Brown-Forman

The Benefits

Sovos provides Brown-Forman with constant monitoring and support, ensuring no compliance-related business disruptions. Plus, the Sovos solution seamlessly integrated within Brown-Forman’s existing systems, allowing the company to manage multi-country compliance directly within its internal SAP system.

The Results

With Sovos e-invoicing compliance in place, Brown-Forman was able to redeploy resources to core business functions, including account receivables and account payables, and focus on supply chain and logistics enhancements. In addition, the partnership has eliminated the ongoing SAP upgrades and IT burdens caused by the constantly changing e-invoicing regulations.

Why Sovos?

Brown-Forman selected the Sovos eInvoice and eAccounting regional solutions to simplify its compliance efforts in Brazil and Mexico. The company sought a solution that could help it cut down on human resource capital and technology investments, and Sovos’ SaaS platform allowed it to accomplish that goal.

Overview

The main indirect tax of Mexico is the Value Added Tax (locally known as IVA), which generally applies to all imports, supplies of goods, and the provision of services by a taxable person unless specifically exempted by a particular law. The tax is imposed by the federal government of Mexico and ordinarily applies on each level of the commercialisation chain. This tax has been applied in Mexico since 1980.

Click here to read "Why the New Process for Cancelling E-Invoices in Mexico Matters"

Tax Rate

Mexico applies a single standard rate of 16% across the country. However, there is also a 0% rate applicable to exports and the local supply of certain goods and services. Sales of ice, fresh water, machinery and raw materials for manufacturers, books, newspapers, magazines by their editors, medicines, as well as the supply of services to eligible manufacturers, are subject to the 0% rate.

It is worth mentioning that until December 2013, Mexico applied a reduced rate of 11% in Mexican Border states of Baja California Norte, Baja California Sur, Quintana Roo, the municipalities of Caborca and Cananea, and in the bordering regions of the Colorado River in the state of Sonora. This was an effort largely to attract businesses to these areas and because the sales tax in the U.S. border states was half of the IVA in Mexico. These regions were commonly referred as the “maquiladora zones.”

That 11% reduced rate was revoked starting January 1, 2014, and substituted with a broader regime of incentives aimed at the manufacturing companies located in that region.

Taxable Base and Exemptions

As mentioned before, the Mexican IVA applies to all goods and services unless specifically exempted by the law. There is a wide variety of goods and services exempt from the tax, including:

Credit-Debit Mechanism

The Mexican IVA doesn’t differ much from IVA in other countries in that it allows the taxpayer to deduct the IVA that has been paid to the taxpayer’s suppliers or IVA that the taxpayer has paid himself at the time of importing goods that were subject to the tax. In addition to the IVA paid on imports and local purchases, the taxpayer also has the right to credit the IVA withheld by clients that are required to apply the reverse charge system that we are going to examine later.

In those instances where the taxpayer cannot use all the credit that has been accumulated on its purchases, the remaining amount can be carried over to later periods or eventually even to request a reimbursement from the government.

Taxable Event and Periodic Payment

One of the unique characteristics of the Mexican IVA is that when determining the taxable event, the law requires the taxpayer to use the cash accounting method rather than the accrual accounting method. What this basically means is that IVA on a sale is considered due when the seller is effectively paid, rather than when the invoice has been issued, the service provided or the good has been supplied. If the seller does not get paid, no tax liability exists either.

In general, the Mexican IVA should be paid on a monthly basis, no later than the 17th day of the month after the taxable event occurred.

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Learn how other mandates in Latin America affect your business and how you can overcome challenges by downloading the Definitive Guide to Latin American Compliance.

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