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"UNCONSTITUTIONAL DECLARATION OF THE NEW CREDIT SALARY TAX LAW BY A MEXICAN FEDERAL COURT"

By: Raúl Mérigo

Early this year in a great team effort between "Hernandez, Merigo & Hurtado S.C." and "Gutierrez & Diaz, S.C.", several constitutional injunction proceedings (Amparo proceedings) were initiated before Federal District Courts against a new tax called Credit Salary Substitute Tax (ISCAS) contained in the new Income Tax Law published on December 31st, 2001 in the Official Gazette.

Such ISCAS was considered unconstitutional for not complying with Mexican Constitution requirements on tax matters, as we pointed out previously in our article called "THE NEW CREDIT SALARY SUBSTITUTE TAX. SOME LEGAL AND CONSTITUTIONAL ASPECTS", which can be referred to in our web page.

On June 24th of this year a judgment by the 8th Federal District Court in Tijuana, Mexico, on case number 149/02, ruled that ISCAS was unconstitutional based on the issues presented by our team and the fact that such tax is not in compliance with article 31, fraction IV of the Mexican Constitution with regards to the public destiny of tax revenues.

Among other considerations, the holding of the District Judge establishes that

"…in any case the Credit Tax Substitute Tax is not intended for public expense's purposes and it contraries the constitutional right of the plaintiff."

The ruling of the Court was also based on the fact that ISCAS was not created to satisfy a public expense need but rather to "save government from an obligation assumed", which was to give an additional help to all low-wage workers, by providing them with an additional amount of money through their payroll, rewarded by their employers according to Mexican Income Tax Law.

This judicial pronouncement -which we believe is one of the first rulings in Tijuana of de ISCAS Tax Law- can still be modified by the Federal Supreme Court in the event that Mexican authorities decide to file a petition for review against said judgment. Nevertheless, we consider such holding to be valuable and strong on its merits due to the fact that it brings great benefits to employers by permitting them to reduce all the amounts granted to their employers as Credit Salary from their determined Income Tax, without having to be subject to provisions set forth in the Third Transitory Article of Income Tax Law, which was declared unconstitutional.

It is important to state the fact that, according to Mexico's constitutional system, only those who filed the constitutional injunction proceeding (Amparo proceeding) will be able to benefit from such judgment, notwithstanding the fact that those who did not file for such proceedings may be eligible to obtain the same advantages, and that in such cases some legal actions would be necessary to file before our Federal Courts.

If you have any question regarding tax issues or this article, please do not hesitate to contact us.

 

The information contained in this article is provided for informative purposes and does not constitutes a legal advise. Any question or information that may be relevant to the reader should be reviewed and researched, and it may result in different recommendations.

 

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