One of the most relevant aspects of the tax reform for fiscal year 2020 is the incorporation of a new section XXXII to article 28 of the Mexican Income Tax Law (“MITL”), an article that describes non-deductible expenses for income tax purposes.

As of January 1, 2020, a new limitation will be established to the deduction of the net interest of the year that exceed the amount that results from multiplying the adjusted tax profit by 30%. This limitation will be applicable to all legal entities and foreign residents with a permanent establishment in the country who pay taxes pursuant to Title II of the MITL (Corporations). This limitation will only be applicable to taxpayers whose accrued interest during the year exceeds MXN $20,000,000.00. However, this amount will apply jointly to all legal entities and foreign residents with a permanent establishment in the country who belong to the same group and/or are related parties. This amount will be distributed among the members of the same group in the proportion of the taxable income obtained during the previous year. For these purposes, this section defines the concept of net interest of the year as the amount that results from subtracting from the total accrued interest deriving from the taxpayer’s debts, the total interest income obtained during the same fiscal year, as well as the amount indicated in the previous paragraph. The provision in question also describes the mechanic to be followed in order to determine the adjusted tax profit, which in general terms, consists of adding to the tax profit obtained during the year (determined pursuant to the provisions of section I of article 9 of the MITL), the total interest accrued during the year deriving from the taxpayer's debts, as well as the total amount deducted during the year for investments (i.e., depreciation and amortization of fixed assets, deferred expenses, deferred charges) and expenses incurred during preoperative periods (similar to a tax EBITDA).