General aspects of companies that invoice simulated operations (EFOS by its Spanish Acronym)

Article 69-B of the Federal Fiscal Code provides a procedure to detect and challenge taxpayers who have issued tax receipts where operations are simulated.

This article states that a transaction is presumed to be nonexistent when:

• It is detected that a taxpayer has issued a Digital Tax Receipt (CFDI by its Spanish acronym) without having
  • Assets
  • Staff
  • Infraestructure or
  • Material capactiy.
  • Are not located.

Before continuing it is necessary to define the following;

• EFOS (Companies that invoice simulated operations)
• EDOS (Companies that Deduct Simulated Operations)

Before the authority determines that a taxpayer is an EFOS, it will grant this taxpayer the opportunity to provide evidence to demonstrate that the operations were real. If the SAT considers that the taxpayer does not provide sufficient evidence to demonstrate that the operation is non-existent, its data will be added to a list that will be published in the Federal Official Gazette and on the website of the tax authority as a Company that Invoices Simulated Operations (EFOS).

Taxpayers who carry out operations with an EFOS will be given a 30-day period following the publication of the list of companies that invoice simulated operations (EFOS), to correct their tax situation or to demonstrate before the tax authority that they have effectively acquired the goods or received the services, in other words, that the operation did take place, otherwise it will be considered as EDOS (Company that Deduct Simulated Operations).

In case the clarification is not made, the Fiscal Code establishes that these operations should not be given fiscal effects so that the inventory, assets and/or expenses paid to the EFOS would not be deductible.

Some of the effects that the company could have in case of doing business with EFOS could be:

1. Not considering the fiscal effects covered by them, and paying the corresponding taxes.
2. Issuance of tax credits.
3. Presumption of simulation of acts considered as a tax fraud crime that could be punished with imprisonment.

In order to prevent any eventuality, we recommend the following:

1. Constantly review the list established in Article 69-B of the Federal Tax Code published on the SAT and the Federal Official Gazette, with the intent of identifying the operations that have been carried out with suppliers qualified as final EFOS.
2. Enter into contracts for the provision of services between the taxpayer and its suppliers, where it contains a clause for justified early termination and/or withholding of payments, in case the supplier is published in the final list (EFOS).
3. To create a file with each of the suppliers, or at least the most significant suppliers with whom there has been a business relationship, containing: the client’s acceptance of the operation and its performance, as well as documentary support of the service provided, from the beginning to the final delivery, with the aim of ensuring the materiality of the operations carried out.
4. Review or request if the supplier is considered to be located before the tax authorities. We suggest that this review be done before and during the provision of services, even after the operations with this supplier are completed.

It will also be important to be well informed about the suppliers with whom transactions will be carried out. We recommend trying to find out whether these suppliers have the material capacity, whether they have the assets, the personnel, or the infrastructure to provide services.

In Nuñez Rosas y Asociados, we offer you our different tools and areas for reviewing operations with suppliers, as well as our diverse services to support you in any situation to review the situation of each taxpayer, seeking at all times that they are complying with their tax obligations.