Introduction
In Mexico, around 30% of the country’s insurance companies, including some of the most prominent ones, reportedly received a generous tax amnesty from Claudia Sheinbaum’s government. However, it seems that the government merely altered the rules and enforced these new terms through tax threats.
On the Brink of Collapse
Approximately a dozen insurance companies operating in Mexico were on the verge of a catastrophic scenario: technical bankruptcy. The government and lawmakers navigated the brink of disaster, avoiding a systemic crisis that would have had far-reaching consequences for the entire insurance industry in the country.
Such a crisis would have triggered a destructive domino effect on the national economy, as the insurance sector is a significant institutional investor in Mexico. Its assets account for 5.4% of the Gross Domestic Product (GDP), according to data from the Mexican Insurance Association (AMIS), currently led by Pedro Pacheco.
With 1.6 trillion pesos invested primarily in government instruments, the insurance industry’s vulnerability to the government’s intended retroactive IVA collection would have been catastrophic. The cost of not allowing IVA accreditation to insurance companies and retroactively charging them would have amounted to 156 billion pesos, equivalent to 1% of the GDP, as per a study by the Actuarial College.
The Legal Battle
Since the beginning of the previous administration, under President López Obrador, the government embarked on a legal battle against insurance companies through the Servicio de Administración Tributaria (SAT).
In 2019, the government decided to reinterpret a criterion of the Value-Added Tax (IVA) Law that had allowed insurance companies to accredit this tax since 1980. This change would have forced insurers to pay the IVA they collected from customers when selling policies and later accredit the damage payments, a practice common across industries worldwide.
Facing this reinterpretation, several insurance companies filed legal resources with the Federal Administrative Court (TFJA) to uphold the 1980 criterion established in the IVA law framework.
Tax Amnesty: Partial Relief
The tax amnesty granted to insurance companies is partial, as they will only need to pay 20 billion pesos. Moreover, they can settle this amount in installments starting from 2026.
This agreement implies that companies will not be charged for debts from the four preceding years (before 2025) if they abandon ongoing lawsuits and can pay the annual amount in 12 installments during 2026.
Last-Minute Agreement
For insurance companies, the good news is that they will not have to pay between 150 billion and 200 billion pesos (according to media reports) that the Tax Administration Service (SAT) intended to collect from them for allegedly irregular IVA collection over the past five years.
The resolution averts an industry crisis and potential national economic impacts. Simultaneously, it prevents a nationwide crisis and enforces the government’s interpretation criterion change.
Side Notes
- Government Positioning: The Claudia Sheinbaum administration will not seize energy plants or any other assets from concession holders in the hydrocarbons sector via temporary occupation.
- The government’s stance is crucial, but it’s evident that there’s progress in statism within the energy, hydrocarbons, and electricity sectors. The situation remains to be seen.
