Mexico e-Invoicing: Insider Tips for Avoiding Tax Penalties in Procure to Pay

Despite the unique issues triggered by Mexico’s transition to mandatory electronic invoicing and tax reporting, some companies continue to pay off of paper or PDF invoices. But these days, the only document that will withstand an audit is a signed XML. Paper carries no weight in Mexico. And, as discussed previously, the Mexico Tax Administration Service (SAT) will transition to electronic audits during the summer of 2016. This means that audits and, more importantly, penalties will come in the form of an email after the government uses analytics and big data to find discrepancies in tax payments.

More than 80% of companies I speak with still handle the accounts payable process manually in Mexico, which sets them up for potentially significant fines. Consider the following risks of not using automation to defend your business while the Mexican tax authority is using automation to level penalties:

• $300-$4,602 USD fine per missing or incorrect e-invoice
• $15-$4,092 USD fine per invoice that does not match accounting records (eContabilidad)
• Up to $200 USD fine for each transaction that should have been posted in the delinquent or inaccurate Polizas report
• 80-100% fine on tax filing issues
• For Maquiladoras, improper filing for VAT tax returns could lead to the government revoking your rating, which means cash flow delays and higher potential tax rates. The cash flow impact can be even larger for these manufacturing operations, as they carry no VAT tax offset because they do not sell locally.

It is important to ask your team the following questions to ensure you are not at risk:

• Do we collect, automatically validate, and pay off the XML invoice?
  • If you are paying off a PDF, your company is creating downstream tax issues, as it is common to find a 5% difference between the PDF and XML.
• Are we automatically matching the XML invoice to purchase orders?
  • If not, how are you sure that the tax on the vendor invoice is collected? In Mexico, the SAT doesn’t care if your supplier made a mistake that led to a larger-than-allowed deduction. The check is your responsibility. As the Mexican government looks to introduce a new version of its comprehensive electronic invoicing law, tax checks will become even more complex. Early previews of the new standard show taxes listed at the line item level.
• Are we automatically matching the XML invoice to the goods receipts?
  • Unlike Brazil, it is possible to have partial shipments in Mexico. You need to ensure that you can track an invoice through the full reception of goods, or you will be creating issues for controllers at the end of the month when they try to reconcile the books and invoices to actual received goods.
• Are you 100% sure that all invoices for purchases and travel and expense are linked to an XML that the government will consider valid?
  • Remember that the government requires a company to link the unique identifier of each XML when filing your journal entry reports. They do this so that they can use big data to audit your electronic accounting filings. For example, if you claim 1,000 invoices that add up to one million pesos in VAT deductions, there need to be 1,000 XML invoices in the government servers with the exact same data. Otherwise, the penalties listed above will be assessed and levied through an electronic audit.

As you look at your procure-to-pay processes around the globe, be sure to take a closer look at Mexico. There, it is not just about process efficiency; it is also about properly managing the VAT tax. Considering that this is 16% of your spend, it cannot be avoided. It can only be managed efficiently enough to ensure that you’re not paying even more. Stay up to date on the latest news by visiting our Mexico resource center.