As the second largest exchanger of e-invoices in the world – behind only Brazil – Mexico is quickly becoming one of the most sophisticated financial compliance governments in the world. In some ways, it is even starting to supersede Brazil in terms of complexity – particularly in the way it can now link individual business transactions straight to tax reporting and liability.
With automated, real-time electronic audits pending and an updated version of its e-invoicing legislation (3.3) providing even greater visibility into business operations, 2016 is poised to be a year of fundamental consequence to businesses operating in Mexico. The country has already closed tax loopholes and increased its tax collections by 34% – and that’s before it introduced e-accounting and e-audits. Now, Mexico is going even further to crack down on the VAT evasion that is estimated to cost the country 25%-50% of its total potential tax income annually.
As you prepare to comply with these changing requirements, use the questions below to ensure you aren’t leaving your company vulnerable to errors and audits.
Are you overestimating the capabilities of PACs?
Mexico is one of the only governments to outsource its electronic signing to third parties. PACs are companies certified to sign on behalf of the government – not end-to-end solution providers. If you think of an e-invoice as mail, a PAC provides the stamp – the letter, envelope, addressing and mailbox delivery are all still your responsibility. Ultimately the creation of the content is 90% of the cost, as this is an ERP extraction issue which means updates to the global system.
How will you update your compliance efforts in the event of an inevitable change in requirements?
Mandates in Mexico, and even across the globe, are changing rapidly. Companies relying on manual compliance are faced with fire drills with each new iteration of the updated requirements. If you are using a third-party solution, ensure that updates are included in your support contact for not only the government connectivity but also the accounting system configurations.
Do you create foreign trade CFDIs? If so, have you updated your billing processes to include the new data required?
The SAT has mandated that all companies incorporate a new “complemento” (additional information) for foreign trade CFDIs starting in July. For companies not using an end-to-end solution like Invoiceware International, this means new SAP support packs and regression testing on the global infrastructure.
Are your CFDI e-invoices archived for 5 years?
XML archives are vital in the event of an audit, and missing records can result in fines of $300-$4,602 USD per invoice. As the SAT implements e-audits, complying with this archive requirement will become even more important, as the government will be able to quickly identify missing records.
Does your compliance solution include billing, accounts payable and reporting?
These three components are all critical to avoiding audits. Because the government approves all sales and purchases, and links all transactions to VAT reports via unique IDs (UUIDs), e-invoicing and accounts payable must be aligned with your general ledger and reporting. The best way to do this is through your ERP, but all too often, companies are siloing off e-invoicing, accounts payable automation and reporting, increasing error risk.
Does your solution include built in validations?
The Mexican government has created an environment in which everything is tied to an XML and UUID – every purchase, every credit/debit note, every journal entry and every VAT report. If any link in the chain is missing, or of there is any error at any point, an electronic audit is inevitable. Built-in matching and validations ensure that any missing links and errors are identified and addressed before they become an audit risk.
When it comes to compliance, think of it like this. Governments are now empowered with big data. You aren’t going to be able to defend against that level of insight with spreadsheets, which is why it’s critical to address compliance with automation and sophisticated solutions.