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How can I prevent an electronic audit by the SAT?

Since 2011, companies operating in Mexico have been required to utilize electronic invoices (or e-invoices) in order to document business transactions with the country’s tax authority – Servicio de Administración Tributaria or SAT. Then in 2014 tax reforms required the electronic uploading of  accounting records to SAT’s website. Now, Mexico is enhancing tax regulations by implementing electronic audits as a means of enhancing revenues.

What is e-invoicing?

Electronic invoicing (or e-invoicing) is a method utilized by trading partners to exchange data such as invoices, purchase orders, debit and credit notes, payment terms and instructions and remittance slips in an integrated electronic format such as EDI or XML, or standard internet-based web forms.

The pending electronic audits should not come as breaking news to entities that have been involved in cross border transactions with businesses in Mexico. Faced with fiscal challenges due in part to plummeting oil production, the country has previously been withholding tax refunds to offset the loss in revenue. In fact almost $400 million in value-added tax (VAT) was recently withheld from 270 multinational corporations.

In short, the e-invoicing and e-accounting mandates have provided greater transparency in corporate transactions. This has enabled Mexico to plug the holes in its tax collection processes, dramatically increase revenues and avoid raising taxes. The next phase of this revenue enhancement strategy is to build on standardized e-invoicing and reporting procedures by moving to electronic audits.

The SAT is slated to move about 4,000 audits into the electronic system that will be triggered by discrepancies between declared taxes compared to electronic reports.

Why this matters

If your company is conducting business in Mexico, it is crucial to integrate a comprehensive compliance system into your enterprise resource planning. By implementing a seamless XML invoicing process you can greatly mitigate the risk of accounting errors and avoid an audit by the SAT. If an audit reveals discrepancies, you could face adverse tax consequences such as withheld tax funds or other enforcement action by the SAT. For this reason, you are well advised to engage the services of an attorney with experience in cross border transactions and international tax audits.

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