US, Global Corporate Giants Not Amused Mexico Finally Forces Them to Pay the Taxes They Owe

American Bar Association, Mexican business lobby, ambassadors from the US, Canada, etc. in uproar over holding executives accountable and threatening them with criminal probes. 70 Mexican officials also investigated.

By Nick Corbishley, for WOLF STREET:

The American Bar Association (ABA) this week lambasted the Mexican government for using heavy handed tactics, including criminal probes into tax fraud, to motivate corporate tax dodgers to finally settle their tax bills. The complaint echoes a similar broadside from the International Bar Association last month and reflects growing frustration among companies about the government’s use of more stringent audits, tighter surveillance methods, and the threat of tough legal action to crack down on corporate tax dodgers and tax frauds.

The Government says it has launched criminal proceedings against 43 companies that owe 55 billion pesos ($2.6 billion) to the treasury in unpaid taxes dating back to 2010. Most other companies that have been subject to audit in recent months have agreed to settle their tax debts.

Thanks largely to its zero tolerance approach toward corporate tax dodging,the government so far this year through August has already collected over 60% more in taxes from large corporate taxpayers — 155 billion pesos ($7 billion) — than in the entire year 2019, Raquel Buenrostro, who heads Mexico’s SAT tax authority, told Reuters.

But authorities had reviewed only 627 large companies so far, she said, and over 11,000 companies, each with annual income above 1.52 billion pesos ($72 million), have not yet been audited, and more work needs to be done.

Each peso is desperately needed, not only to finance the government’s ambitious programs aimed almost exclusively at the country’s most vulnerable, but also to plug the gaping balance sheet hole left behind by the state-owned and now bailed-out oil major Pemex.

Before the arrival of the current president Andrés Manuel Lopez Obrador (AMLO), in late 2018, Mexico had the weakest tax take in the OECD and the fifth weakest of all economies in Latin America and the Caribbean. In 2018, it collected the equivalent of 16.1% of GDP — just 1.5 percentage points higher than the notorious tax haven Panama and less than half the amount of tax revenue collected as a proportion of GDP by Latin America’s other alpha economy, Brazil (33%).

One major reason for the discrepancy is that in Mexico many large companies, both domestic and subsidiaries of multinational corporations, have a long history of not paying the taxes they owe — in some cases going back decades. But that is beginning to change. In recent months, Walmart’s Mexico unit, Coca-Cola bottler Femsa, and brewer Grupo Modelo, a division of the world’s largest brewer Anheuser-Busch InBev, have all agreed to pay hundreds of millions of dollars in current taxes and back taxes.

The main reason companies are finally settling their debts is that the price for not doing so is a lot more punitive than it used to be. A few weeks ago, Audi agreed to an audit over some $4 million of unpaid local taxes, but only after the governor of Puebla threatened to close the German automaker’s plant.

The cases of two big companies that have refused to settle with authorities have been passed to the fiscal prosecutor’s office, Buenrostro said. Earlier this month, Mexico’s top fiscal prosecutor Carlos Romero said that the office may bring criminal charges against individuals that instigated or perpetrated the tax fraud, including executives and tax attorneys, who may face jail time.

When the AMLO administration took over almost two years ago, it “realized that there was no desire to collect taxes from certain companies,” Buenrostro, who heads the SAT tax authority, told El País. “Some businessmen were surprised to be summoned [to the tax office] because they had never had to pay the taxes. They told me that every three years they would simply waive the unpaid taxes.”

That is now changing. So far this year, executives of 627 companies have passed through Buenrostro’s office — except for the two — with check book in hand. Years-long and in some cases decades-long legal claims are being resolved in a matter of days, as the likes of Walmart, BBVA, Coca-Cola, and América Móvil finally settle their debts.

But not everybody’s happy about the new set-up. Four ambassadors, from the US, Canada, Japan and France, have paid Buenrostro a visit in recent months, all in the hoping of convincing Buenrostro to back off a little, but to no avail.

It’s this rough treatment of the executives and corporate tax attorneys — rough treatment meaning holding them personally accountable for their decisions — that has raised the hackles of the American Bar Association.

Mexico’s largest business lobby, Coparmex, complained that recent changes to the criminal code mean that companies that issue false invoices to avoid taxes are now being treated like organized criminal gangs. Some lobby members even accuse Buenrostro of “fiscal terrorism” for proposing to use photographs, videos and cell phones to gather information against tax frauds as well as threatening companies and their executives with legal action for failing to comply.

The SAT has also launched investigations against 70 public officials, half of them in customs, for looking the other way during previous administrations. Investigations that used to be resolved with a dismissal now often end up in the fiscal prosecutor’s office.

It appears that the powerful business groups active in Mexico no longer get coddled by the government, which also had the gall of steadfastly refusing to use taxpayer money to bail out shareholders and bondholders of large corporations during the virus crisis. By Nick Corbishley, for WOLF STREET.

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  70 comments for “US, Global Corporate Giants Not Amused Mexico Finally Forces Them to Pay the Taxes They Owe

  1. JC says:

    Good for Mexico. If that would only happen north of the border.

    • Joe Saba says:

      depending on amounts
      I see move to other countries for corporations

      I nominate CUBA if we can send CUBA congress 1st
      close, depressed economy
      want democratic change then GIVE THEM ECONOMY

    • Paulo says:

      Nice to see. Good news article. Whining deadbeats.

      • Slavik says:

        Corporations do not pay taxes. The workers do! Corporations are legal fictions. Also there are many landmark cases that show who is a taxpayer and who is not. But it is also true that foreign governments using USA resources and land do pay taxes.

        But why is this article good news? American fucks Mexico royally!

        • Wolf Richter says:

          Slavik,

          “Corporations do not pay taxes. The workers do!”

          That’s BS propaganda. Shareholders pay the corporate taxes. Companies aren’t owned by workers (very few are). They’re owned by shareholders including executives, and they’re the ones out of whose pockets corporate taxes ultimate come. And if the company defaults, bondholders get asked to the cashier as well (because their recovery will be lower).

          When corporations got the Trump tax cut, they didn’t pass it on to workers ?????? They passed it on to shareholders.

        • dr_doomz says:

          I agree in part with with Slavik. Who pays “corporate taxes”? Everyone: shareholders, employees, their customers and vendors. All taxes are a production cost and are ultimately charged back to society in the form of higher prices and/or, in the case of labor, wages cuts, which helps limit or offset the losses. Been there done that. To demand that businesses pay higher taxes is to demand a lower standard of living for society. Those in the private sector, that is.

    • Javert Chip says:

      Totally agree with Paulo.

      It’d be interesting to se how US tax deadbeats in Mexico actually accounted for their tax liability.

      I could barely understand Joe Saba’s comment, but I don’t really see companies moving out of Mexico purely for tax reasons (especially to wretched Cuba).

    • Stuart says:

      Agreed. Put a few of the parasites in jail and watch how quickly they follow the law.

    • Nik says:

      Ya..like that’s going to happen..lolol I would not hold my breath amigo. Since basically the Mega-Multinationals are going to displace Governments and Run the World in the not to distant Future…aloha

    • makruger says:

      With this kind of accountability, it’s just a matter of time until the USA invades and annexes Mexico to set things strait again. Say, how can we get a government like that?

    • Dave Chapman says:

      @JC Hear, Hear!

  2. Tony22 says:

    Harkens back to another Latin American tax boondoogle. United Fruit Company, now Chiquita Brands, low balled the value of it’s massive Central American banana plantations, so as to pay really low property taxes.
    When the Central American governments decided it was time to nationalize the plantations, they paid compensation for the stated value that UFC said they were worth. At that point, Communists were discovered around there and we had to “liberate them.”

    • Freedomnowandhow says:

      Good observation, the Corporate welfare breeds corruption and we people suffer. I now understand why National take overs of Commerce happen down your way. It’s the people getting fed up with corruption…..and Thanks Wolf for a article that won’t get much coverage in the State’s.

      • Freedomnowandhow says:

        Good observation, the Corporate welfare breeds corruption and we people suffer. I now understand why National take overs of Commerce happen down your way. It’s the people getting fed up with corruption…..and Thanks Wolf for a article that won’t get much coverage in the State’s. I shutter to post this article elsewhere as the cry’s of some friends would be, “Socialist, like the party your voting for”.

        • joe2 says:

          Outlaw impersonal corporations with personal rights and go back to partnerships with personal liability.

    • Cobalt Programmer says:

      “Banana Republic” is a term for Latin American nations from where the fruits are exported to USA. Due to frequent “Cu-de-tat”, the supply of fruits were temporarily affected. When the predatory nature of the “Free-market” gets exposed, they will change their…name. No sir, the principles of the free market cannot be changed.
      Rarely these countries put the welfare of the people in the table. Often times, the sudden awakening of the Latin American countries are simply staged for internal reasons.
      1. Divert public attention towards foreign oppressors?
      2. Make the local Leaders look strong
      3. Ask for bribes to extend tax breaks
      These sudden shake-ups might have noble intentions. They leads to job-loss , confusion and increase in violence among locals. The viscous cycle perpetuates itself. Inches taken and leagues were lost for the country.

      • sunny129 says:

        @ Cobalt Programmer

        fyi
        USA has exploited the central and South American Countries for it’s own interest! Please read history!

        The United States has a 200-year-long history of intervening in Latin American politics to protect its geopolitical and economic interests. All of these invasions and interventions have been aimed at preventing radical or revolutionary movements from gaining or wielding political power that would set a “bad example” or restrict U.S. access to oil and other natural resources in these countries.

        • Cobalt Programmer says:

          I am from India, I can understand that.
          You are talking about the “external factors”.
          I am complaining about the “internal factors” natural to the countries which is also a part of the problem.

      • Lisa_Hooker says:

        A name change. Good idea. I suggest Republic Bananas, LLC.

        • 91B20 1stCav (AUS) says:

          Lisa-the next time one of my friends call me a ‘socialist democrat’, i think i’ll retort: ‘banana republican’…

          may we ALL find a better day.

        • Lisa_Hooker says:

          Thanks soldier, I’m going to use that myself.

    • Lynn says:

      Good luck doing to Mexico what UFC did to Guatemala. It ain’t gonna happen. The citizens are armed to the teeth and the gangs are large, militantly organized, ruthless and very territorial, even if the government hasn’t been. They’ll be doing all that to company goons themselves with government looking the other way. That would be the one thing that would unify Mexico.

  3. Brady Boyd says:

    Yep, time to find another country to move supply chains to.

    Cambodia?

    • Tony22 says:

      Burma or bust, less uppity, and a nice military dictatorship in place. Plus they are placid Buddhists, and will cheerfully enter the free market labor camps.

    • roddy6667 says:

      China moved many of its garment factories to Vietnam, Cambodia, and Bangladesh years ago.

  4. Whitey says:

    “It’s this rough treatment of the executives and corporate tax attorneys — rough treatment meaning holding them personally accountable for their decisions ”

    Sociopathic corporate decisions are made by people, not an invisible entity. Kudos to Mexico for dragging those individuals out into the light and holding them personally accountable for their malfeasance. Too bad that tactic isn’t
    being employed north of the border- we’d be living in a better world.

    Nick, I really enjoy your entries to Wolfstreet.

    • MarMar says:

      Yes, this story was the best news I’ve read in a while. Love to see corporate wrongdoers flummoxed that a little tax fraud is actually treated as a criminal matter.

  5. Wisdom Seeker says:

    A good reminder that no nation can function effectively if the people allow any officials or corporations To become Too Big to Jail!

  6. Randy Oldman says:

    Maravilloso! Finally law is being enforced for now. In my experience the average Mexican is gracious and very deserving of more of his country’s bounty.

  7. polistra says:

    Lawyers hate laws.

    • Panamabob says:

      “Lawyers hate laws.”, unless they have a hand in writing them with the paid influence of lobbyists. It’s business as usual for the corporations operating in the USA.

  8. Dano says:

    I love Mexico!

    Glad to see them get their act together. Maybe they can teach us how to do this?

  9. Brant Lee says:

    If Mexico would actually get their poop together and cut down on the corruption, there would be a flow to south of the (U.S.) border. It’s an absolutely beautiful country that puts retirement to shame in Florida. Most Mexicans forced to seek labor in the U.S. would much rather live in their homeland.

    • MarMar says:

      In the last few years, there’s been a net outflow of Mexicans from the US.

      • roddy6667 says:

        I keep pointing this out to the “build the wall” crowd, to no avail.

        • AJ says:

          A very large percentage of those sneaking in now are Chinese; large contingents of Africans and Indians too

    • MonkeyBusiness says:

      This is rich. Telling Mexicans to get their act together. Everyone in drug enforcement knows that if Gringos were to stop buying drugs, then perhaps there’s a way for Mexico to get their act together, but then the money wouldn’t flow.

      “The spice must flow” indeed.

      The United Shoppers of America doesn’t care or want to know the consequences of their own actions.

      • Garage Wanted, House Optional says:

        Now THAT’s rich.

        You think demand for illegal drugs is going to go away? Or that we’re just going to reverse human history and stop everyone from using drugs whether they’re legal or not?

        I saw something about Mexico trying to legalize marijuana, and believe that would be a good first step for them. Perhaps this is just the beginning where they’re trying to get more income flowing so when the US cuts ties after legalization they can have a bit of a buffer.

        If America really wanted to help Mexico we would end the War on Drugs and figure out a better way forward.

    • sandi says:

      yep I agree. stamp on fraud leads to cleaning up on corruption, and crime.

  10. sunny129 says:

    ‘ government, which also had the gall of steadfastly refusing to use taxpayer money to bail out shareholders and bondholders of large corporations during the virus crisis’

    How refreshing to hear from a developing country which refused to be another BAILOUT Nation like America, where corporate excesses have been ignored conveniently by regulators like FAA re BA.

    BA used 43 Billions to buy back their shares while NOT spending a dime to fix the 737 Max problems. Over 330 people died but no one went to jail! Airline industry used over 26 Billions for buy-backs but now they want 2nd bailout! No wonder, why BUY_BACK was ILLEGAL prior to 1986, until over turned by Wall ST, the US Corpors and of course aided by GOP!

    America, the best democracy money can buy!

    • Old School says:

      I saw a photo two days ago of the printed version of the US tax code. It was several large books that stacked up to 3 or 4 ft high. That is the corruption there. The tax code in theory should be one page as every page invites corrupt loopholes. Might be better just to have a fixed percentage sales tax and get rid of everything else.

      • Garage Wanted, House Optional says:

        I completely agree with the sentiment, though perhaps not the implementation as I’m still unsure what to do to make it fair. The only reason laws (including tax code) are so lengthy is to invite loopholes into them. Laws should be clear and concise about what they are making illegal and what the penalties are.

      • Ricardo says:

        That Sir, 26 U.S.C., is my bread and butter!
        My beans and tortia!
        My rice bowl!

        I believe that the phitgragh that you refer to includes the Code AND Regulations. These are complemented by libraries of case law and other administrative documents and they are all written in a very special language that is nothing like Esperanto.

        Gotta love it,

  11. Anthony A. says:

    If the ALMO administration really wants to do something that will make headlines, they need to clean up the corruption in (government owned) PEMEX.

  12. fred flintstone says:

    For those of you that want to see a bear market……..if Biden gets elected with a democratic senate……..he says he wants to have capital gains taxed at income rates and eliminate the step up at death.
    Which leaves folks with gains just about two months to get their gains taxed.
    The last two months of the year ought to be a hum dinger.
    Not to mention what a higher corporate rate does to earnings next year.
    None of this should be construed as a political statement……it’s all about making and keeping dinero.
    A stimulus bill of 3.2 trillion plus might overcome some of it……and the drunken fools might do it.

    • rhodium says:

      Good. This stupid market is insanely overvalued because real economic growth is dead and the modern economy is now apparently a bunch of idiots on robinhood. People should make their money honestly, not gambling on stocks untethered from any rational methods of valuation. I hope it crashes. Then we can focus on why real economic growth is low instead of on this towering fake market giving all these tools grand delusions about what counts as reality.

    • nick kelly says:

      ‘..if Biden gets elected with a democratic senate……’

      ‘..None of this should be construed as a political statement’

      ‘A stimulus bill of 3.2 trillion plus might overcome some of it……and the drunken fools might do it.’

      The fools in office just did 3 trillion in 3 months. There are no fiscal conservatives.

      When Gary Cohn was trying to discuss the budget and said ‘you can’t just print money’, POTUS said “Why not? Why not? (‘Fear’, Bob Woodward, pg. 58)

      So since neither party offers sane finance, how about sane in other ways?

      • nick kelly says:

        WR: since this is still under mod, could I change last 3 words to ‘sane re: covid’

    • Sierra7 says:

      Fred Flintstone:
      There is no reason that those who make their money “on Wall Street” not pay the same rate of income taxes as the street cleaner in Poke-a-Hole America.
      It’s the worse scandal in our tax mess nation.
      We have thousands upon thousands of law firms across this nation working diligently for individuals and businesses on how to avoid paying taxes!
      In addition why do we have such a tax system that so many Americans have to hire someone to do those taxes????
      It’s the grandest scam of them all….the US income tax system.
      Sorry, it’s a disgrace!

      • Old School says:

        You have to remember that if you own a stock the company has already paid fed, state and local income taxes. I if that adds up to 30% you are left with 70%. If they pay out 50% dividend that is taxed as income so if you are in 30% state and Fed bracket then you are left with 49% of company income and government’s combined take of the dividend is 51%. Capital gains might work out to a 60% for you and 40% for government. Just remember stock holders get plucked multiple times just like labor.

  13. GotCollateral says:

    > …complained that recent changes to the criminal code mean that companies that issue false invoices to avoid taxes are now being treated like organized criminal gangs…

    > …false invoices…

    so to originate those invoices from the caymens and structure the income as debt owed to the entity in the caymens is false now? :P

    • Lisa_Hooker says:

      Some “consulting” companies in the Cayman Islands are paid considerably higher than “market” rates. Don’t ask me how I know.

  14. DR DOOM says:

    Bust their ass and get the cash.

  15. MiTurn says:

    Further proof that large corporations struggle to be good citizens. In fact, they’re exploitative by design. Not all, but most. Make them toe the line, like everyone else. What’re they gonna do, leave Mexico? No…

  16. doug says:

    Individual responsibility for one’s actions? WTF?
    I applaud the effort. It is a herculean task, and I wish them luck.
    Then maybe USofA can emulate?

  17. Norma Lacy says:

    Bravo Mexico! Now let’s see the f’ing deadbeats in Ireland turn loose a few shekels. Crooks is the polite name for these plundering a’holes. And who is the world’s single largest supplier of plastic pollution? Good ole Uncle Buffy and his co-cola…. clean up yr mess Uncle B.

    • nick kelly says:

      Re: Ireland; The EU is on the case and the gal in charge of tax is one tough cookie.

    • GolferDave says:

      In Mexico corporate interests have successfully fought any initiative to make plastics recyclable and refundablere. There is no refund deposits on drink bottles. As a result the country is littered with plastic old and new. If there was even a 20 centavo (1 cent) deposit on bottles and bags the country would be instantly cleaned up by the myriad of scavenging poor.
      Maybe AMLO can do something here…

  18. Stephen C says:

    Well then, the CIA will now have to dust off a few old but time-tested plans and get busy.

    • Tonymike says:

      It is the National Endowment for Democracy that is the “new” front for colored revolutions and political assassinations. The Criminal In Actions just provides the money, the poisons (like that super deadly stuff called Novachick that hardly kills anyone) and the fake protesters and saviors (like the white helmets) to say their represent “The People.” Viva La Revolution by making the vulture capitalist pay their fair share.

  19. HR01 says:

    Nick,

    Keep up the good work. As others no doubt have already posted, content such as you have provided simply does not make it into U.S. news coverage.

    Sadly, as Stephen C has posted above, there will be repercussions.

  20. Viloso says:

    Meanwhile El Mencho is probably laughing his ass off. Taxes??? What stinking taxes?? Buy yourself an army like Me!!!

  21. Lynn says:

    Thanks Nick, needed some good news today.

  22. BuySome says:

    God no! They’re trying to bleed the corporations, not scare them away by removing the perks for the people who are in charge of investment decisions. Intoxicants and whoring is what keeps them doing such a fine job.

  23. Mickey Hickey says:

    Pandemics do change the world. Largely because the people blame the gov’t of the day for causing them and not controlling them. The public swings from paranoia to complacency and back to paranoia. During the paranoid phase the public demands controls, shut downs, quarantines, masks. Then as the controls become effective and the infection and mortality rates decrease the public mood goes from accepting controls to opposition to controls. The govt reacts by loosening controls which leads to high infection and mortality rates. These oscillations between paranoia and complacency continue until an effective vaccine regime is implemented or if the plague continues unabated to a breakdown of society.

  24. Mickey Hickeyt says:

    I should have mentioned that many gov’ts have now been backed into a corner by Covid-19 and are forced into making decisions that are not in accordance with what lobbyists were buying from politicians in calmer times. The lobbyists are now competing with the political belief that there is a risk of societal breakdown. The govt of the day is likely to be swept away as a result. Mexico is lucky to have AMLO as a leader. In Ireland the people already believe they are being governed by “cute hoors”, there is a distinct lack of respect for politicians in Ireland. Next general election in Ireland tweedle dum and tweedle dee are highly likely to be swept aside. In the USA they have an incurable case of President worship and a political duopoly. Albert Camus said that a single leader state whether it be Dictator or Democrat is akin to having a nation of people condemned to involuntary servitude. Governing a nation of people condemned to involuntary servitude is far easier than governing a nation of hard bitten cynics.

  25. Randy says:

    That’s chump change for these conglomerates. A slap in the hand. There used to getting fined billions. Price of doing business. Still a hell of a lot cheaper than keeping that work in the U.S. What they save on slave labor them billions are a drop in the bucket.

  26. Sinbad says:

    As a young man here in Australia the corporations paid roughly 60% of the tax bill, and workers 40%. Today it’s reversed with corporations paying 40% of the tax bill.
    I am really glad that Mexico is making a stand, and I hope leading the way to make corporations pay a more equitable share of the tax bill.

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