Mexico: Supreme Court addresses certain employment-related tax deductions

Mexico: Court addresses employment-related tax

The second chamber of the Supreme Court of Justice of the Nation (Suprema Corte de Justicia de la Nación) determined that a limit on certain deductions imposed on employers in connection to payments made to their employees, and the related limited deductibility of payments that in turn represent non-taxable or exempt income at the employee level, including also payments made to retirement plans using a factor of 0.53 or 0.47, were constitutional and thus applicable starting FY 2014.

Related content

The second chamber of the high court in its analysis, considered that because the payments made to employees were a “strategic deduction” (i.e., payments necessary for the company to be able to conduct its business activity), the deductibility of such payments could be limited as long as the payments were made for a valid and rational reason.  Additionally, the second chamber:

  • Upheld a finding of non-constitutionality of a general requirement for social security, depending on whether the taxpayer’s employees are members of a union or not union members
  • Provided protection against certain limitations regarding inflationary effects of the value of the cost of goods sold

KPMG observation

Tax professionals in Mexico have observed that the last two aspects of the court’s findings were previously resolved favorably for taxpayers, in earlier proceedings. However, given that a new law was subsequently enacted and effective in 2014, there has been a mandatory requirement for taxpayers to affirmatively protest to state their positions. 

Also, it has been observed that these issues were addressed and decided by only one chamber of the Supreme Court—and not by a full count panel. 

Still, only an auxiliary aspect of the issues has been settled in the high court’s decision. Therefore, binding precedent has not been established and, thus, the finding is not required to be followed. What does this mean for taxpayers that have cases in process with similar issues? It may be that these cases could be addressed and decided by a full panel of the Supreme Court, so that a binding court precedential decision would be handed down.  


Read a September 2016 report (Spanish) prepared by the KPMG member firm in Mexico: Resuelve la Corte amparo en materia de deducciones


For more information, contact a tax professional with KPMG´s Mexico Tax Center in New York or with the KPMG member firm in Mexico:

Jose Manuel Ramirez | +1 212 872 6541 | 

Manuel Rico | +52 555 246 8558 |

Catherine Thibault | +52 555 246 8474 |

Ana Carolina Dominguez | +52 555 246 8448 |

Jose Miguel Echenique | +52 555 246 8561 |

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG's new digital platform