Background and Key Players
For several years, Mexican insurance companies have been in dispute with the tax authority over the collection and payment of Value Added Tax (IVA) on insurance premiums. The controversy revolves around the fact that insurers charge IVA on premiums, then claim this tax as part of their fiscal obligations when it actually belongs to hospitals and mechanical workshops that handle accident-related services.
Who is Reginaldo Sandoval?
Reginaldo Sandoval is a Mexican politician and diputado (deputy) of the Partido del Trabajo (Labor Party). He has been vocal about the IVA dispute, highlighting the irregularities in how insurance companies have been handling and reporting IVA payments to the tax authority.
Who is Ricardo Monreal?
Ricardo Monreal is a morenista (member of the Morena political party) who played a crucial role in negotiating the agreement between the government and insurance companies. He outlined the conditions under which insurers would be granted tax concessions in exchange for complying with IVA payment obligations.
The Agreement Details
The Mexican government and insurance companies reached an agreement through a reservation added to the Federal Tax Income Law (LIF) 2026. This reservation aims to rectify IVA-related irregularities and provide insurance companies with more manageable fiscal obligations.
Key Conditions of the Agreement
- IVA Condonation: The government agreed to forgive past unpaid IVA, provided insurance companies meet certain conditions.
- IVA Payment Obligation: Starting from 2025, insurance companies must pay the IVA on collected premiums.
- No Third-Party Claims: Insurers cannot claim IVA derived from third parties, such as hospitals or mechanical workshops.
- Partial Payments: Insurance companies are required to make partial payments towards their IVA obligations.
Impact on the Insurance Sector
This agreement modifies Article 25 of the LIF, stating that IVA transferred in acquiring goods or services for fulfilling insurance contracts cannot be claimed when the indemnification involves damage repair or replacement of sabotaged property.
Additionally, a fiscal stimulus equivalent to the IVA amount or credited fiscal amount (including penalties, surcharges, and enforcement expenses) is granted to eligible insurance companies who demonstrate they’ve paid to correct their fiscal situation by March 31, 2026. This stimulus equals 100% of the outstanding penalties.
However, companies with fiscal convictions, those listed as suppliers, or those without valid invoice-issuing certificates cannot access this stimulus.
Historical Context
A History of Litigation
For the past couple of years, insurance companies have engaged in litigation with the tax authority over IVA collection. The most prominent case involved French insurance giant Axa, which offers auto, health, home, and travel insurance.
This issue has been addressed since the previous administration, acknowledging potential consequences for some insurance companies. In December, Axa initiated commercial arbitration against the Mexican government at the International Centre for Settlement of Investment Disputes under the World Bank.
