Recent Case Decision

January 23, 2007
Recent Case Decision

Potential deductibility of employment benefits confirmed. The Supreme Court of Justice of Mexico has ruled that Article 31,Paragraph XII of the Income Tax Law (Ley de Impuestos Sobre la Renta), which limits and conditions the possibility of deductingemployee benefit expenses if the employees are unionized or not, and according to the amount of contributions or payments toSocial Security, is unconstitutional and violates the principle of tax fairness, in view of the fact that taxpayers that are in the sameposition for purposes of Mexican income tax receive different treatment in accordance with how they classify their employees.This decision is important because it not only resolves the constitutionality of Article 31, Paragraph XII of the Income Tax Lawmentioned above, but it also establishes a criterion for determining whether a tax fairness principle has been violated when theavailability of a tax provision depends on the exercise of a deduction in situations outside of the scope of the tax involved.Decision CXXIX/2006. Income. Article 31, Paragraph XII, of the related tax law limiting deductions for employment expenses asviolative of the tax fairness principle (legislation in force as of January 1, 2003).

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