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Invoicing, Accounting, and Tax Compliance in Mexico

How Mexico has embraced technology to combat tax evasion and corruption.

Mexico, like many of its Latin American neighbors, relies on a value-added tax, or VAT, to raise a substantial portion of its government revenue. The VAT essentially requires companies to act as tax collectors on their own transactions, so it relies on accurate invoicing to confirm proper remittances.

In recent years, Mexican tax authorities have increasingly turned to electronic solutions to detect errors and/or fraud in tax reporting, and have promulgated e-invoicing and e-accounting regulations aimed at increasing the efficiency of government audits. These efforts have clearly paid off, resulting in a 34 percent increase in VAT collections in just a single quarter.1

More recently, the SAT announced modifications to the standard CFDI, which it expects will yield higher-quality transactional data for use during the higher number of electronic audits it plans to perform in 2017. The SAT also anticipates expanding e-invoicing to the export process this year, which will allow Mexican authorities and their international counterparts to cross-reference transactions and ensure proper tax treatment and reporting in global business.

Finally, Mexico is currently in the process of launching a new regulation to electronically document payment receipts (“recibos de pago”). As of July 1, these receipts must be incorporated into the CFDI process for SAT to track. Receipt information must include the payment date, method, currency, exchange rate, amount, check number, supplier’s bank details, buyer’s bank details, tax identification numbers, validation certificate, electronic seal, and a link to the relevant CFDI. This new process will enable the SAT to track the partial payment of invoices, which has in the past provided a loophole for those who would seek to remit less than the full amount owed on each transaction.

For some companies, compliance will require substantial effort. Yet the Mexican government need not be the only beneficiary of this effort. Embracing these demands may actually benefit businesses more than it disrupts them. The automation that was originally intended to facilitate government tax collection efforts can also be used by companies to drive process improvements in other finance-, logistics-, and compliance-based operations as well. For instance, transitioning from a paper-based system to electronic invoices and financial reports enables companies to reduce document processing time and storage costs, and to eliminate manual data-entry errors and inconsistent data-collection practices.

"It is clear that government-mandated electronic invoicing is here to stay--at least in Mexico. Companies should be ready for when, not if, their invoices become subject to government audit."In addition, accounts payable, accounts receivable, shipping, receiving, and other finance and supply chain functions can be streamlined on a single enterprise management platform and programmed to proceed upon government CFDI authentication, reducing bureaucratic and processing delays (e.g., verification of identity and tax eligibility, journal entry reversals, transaction voiding) and improving liquidity.