Trade groups urge Mexico to remove Internet blockage proposal

By Dumont

In a tax reform which came into force on June 1, 2020, Mexico introduced new value added tax (VAT) rules for digital services provided through an online platform.

Under the tax reform, digital services provided by a nonresident having no permanent establishment in Mexico must register, collect and report VAT for certain sales of goods and services to Mexican residents. Nonresident digital service providers are required to obtain a Mexican tax ID, appoint a Mexican legal representative and request an electronic signature, among other obligations.

On September 2020 Mexico’s President presented to the Congress an economic package for 2021 that establishes additional non-compliance consequences for foreign digital services providers.

The proposal under Congress debate states that the digital service access of nonresidents without a permanent establishment in Mexico could be blocked by the concession holders of a public telecommunications network in Mexico if they fail to comply with the obligations in force since June 1, 2020.

According to Reuters, the U.S. Chamber of Commerce and other trade groups are now urging the Mexican government to remove the proposal from its 2021 economic package.

In a letter to Mexican lawmakers, the groups said the provision is “inconsistent with Mexican law and trade obligations, would have a negative impact on the Mexican economy, and is unnecessary to ensure tax compliance.”

The measure could result in “significant blockages to digital platforms and services,” and would violate Mexico’s telecommunications law, the letter states.