The Tax Administration Service (SAT) must make a refund to Continental Automotive for the amount of 16.9 million pesos, as endorsed by the Federal Court of Administrative Justice (TFJA).
According to the presentation presented by magistrate Nora Elizabeth Urby, the treasury denied the return to the company, for ISR, considering that, first of all, the services it provided were classified as royalties, in addition to arguing that granting him the Continental refund would have a double benefit, since he had made deductions from ISR withholdings in Germany.
However, the presentation that was unanimously approved in the First Section of the Superior Chamber of the TFJA, indicated that in accordance with the treaty to avoid double taxation between Mexico and Germany, there is no impediment to making the refund, and it corresponds to Mexico inform the German tax authority about it for tax purposes.
In this way, it was resolved that the SAT must pay Continental not only the 16.9 million pesos, but also the updating and interest that they cause.
Last February, the TFJA endorsed the decision of the SAT to deny the Continental company a tax refund of 12.9 million pesos for a similar case, in which the company alleged that the withholding rate for royalties was applied incorrectly, when they were actually corporate profits.
Likewise, Continental stated that the income is taxable exclusively in Germany as the country of residence, since it cannot be taxed in Mexico since it is the country of the source of wealth; however, the magistrate’s presentation indicated that, given the background on the subject, the return does not proceed in Mexico.
“The refund does not proceed in Mexico if the resident abroad deducted it as a cost for the corporate tax base in Germany (…) in turn, we consider that the arguments are inoperative because they raise the illegality of the contested act and the recognition of the subjective right through future and hypothetical questions, given that it was stated that if the return is authorized, it would not generate a double benefit”, said the rapporteur magistrate Magda Zulema Mosri, last February.
He also pointed out that before the international treaties where Mexico is signed to avoid double taxation and tax evasion, interpretations that cause double non-taxation are prohibited, because it would imply tax evasion.