A quick overview of the controlling beneficiary figure in Mexico

Identifying the “real” owner or beneficiary of a corporation or trust has at times been tricky for authorities. There is a large diversity of strategies that allow the protection of anonymity of the final beneficiaries of a corporation, such as bearer shares, figures of indirect representation, and shell companies, to name just a few. While there may be legitimate reasons for the owners of a corporation to want to remain anonymous, there are many illegitimate reasons, including tax evasion, corruption, and money laundering.

Derived from recommendations 24 and 25 of the Financial Action Task Force (FATF), international transparency standards were established in 2003 for the identification of final beneficiaries. Different governments around the globe have reformed their tax laws accordingly, and Mexico is not an exception.

The essence of these standards is to oblige both public and private entities to safeguard and preserve relevant information, and to make it available to tax authorities (or any other relevant authority for that matter) if necessary.

In 2022, in direct response to the G20’s invitation, Mexico reformed its federal tax code (specifically with the addition of Articles 32-B Third, 32-B Fourth, and 32-B Fifth) ,and issued, through a miscellaneous tax resolution, guidelines and characteristics of the information that various public and private entities must keep. This has been colloquially referred to as “The Controlling Beneficiary File”.

For these purposes, the tax regulation defines the controlling beneficiary as the natural individual or group of natural individuals who:

1. Directly, or through any other legal act, receive the benefit derived from their participation in a legal entity, trust, from any other legal act, or who ultimately exercise the rights of use, enjoyment, benefit, or disposition of a good or service;
2.  Directly, indirectly, or a contingency basis, exercise control of the liable subjects, when, through the ownership of securities, by contract or by any other legal act, they may:

1. 1. Impose, directly or indirectly, decisions at the general meetings of shareholders, partners or equivalent bodies, or appoint or dismiss the majority of directors, managers or their equivalents;
   2. Maintain ownership of the rights that allow them, directly or indirectly, to exercise a vote with respect to more than 15 percent of the share capital; or
   3. Manage, directly or indirectly, the administration, strategy, or main policies of the controlled entities.

Furthermore, tax regulation mandates the following entities to comply with all legal provisions regarding the controlling beneficiary:

1. All types of corporations and partnerships;
2. Trustees, settlors or beneficiaries;
3. Contracting or integrating parties of any other vehicles or legal form other than legal entities or trusts;
4. Notaries public; and
5. Any other person involved in the execution of contracts or legal acts that give rise to the incorporation of legal entities or the execution of trusts or any legal form, must implement internal control procedures, duly documented, to obtain, maintain and update the “Controlling Beneficiary File”.

Some, if not all, of the information that tax authorities require to store in the “Controlling Beneficiary File” is of a very sensitive nature. This will undoubtedly represent a challenge in (1) safeguarding information from third parties who may want to misuse it, and (2) determining the extent of the responsibility of the people who are legally obligated to safeguard the information.

The miscellaneous tax resolution establishes that the “Controlling Beneficiary File” must contain the following information:

• Full names and surnames
• Alternative names and/or alias
• Date of birth, and where applicable, date of death
• Gender
• Country of origin and nationality (if more than one, all must be stated)
• Population registration number (CURP) or its equivalent in another country/jurisdiction
• Country/jurisdiction of residence for tax purposes
• Official identification
• Tax identification number (RFC in Mexico), or its equivalent, in case of being a foreign resident for tax purposes
• Marital status, with identification of the spouse, common-law partner and marital regime (if applicable)
• Contact details: email and telephone numbers
• Private address and tax address
• Relationship with the legal entity or position held in the trust, as applicable
• Degree of participation in the legal entity or in trust which allows exercising the right to use, enjoyment, use or disposition of a good or service or to conduct a transaction
• Description of the form of participation or control (direct or indirect)
• Number of shares, social shares, participations, or any other equivalent rights in the entity, detailing the series, class, and their nominal value
• Place where the shares, social shares, participations, or other equivalent rights are deposited, or in custody
• Determination of date when the individual acquired the status of controlling beneficiary of the legal entity or trust
• The data mentioned in the preceding sections must be kept for all controlling beneficiaries, which includes the person holding the position of sole administrator (or equivalent) and all the members of the board of directors (or equivalent)
• Date on which modifications in the participation or control in the legal entity or trust have occurred
• Type of modification in the participation or control in the legal entity or trust
• Date of termination of participation or control in the legal entity or trust

All this information must be kept up to date since the tax authorities may require any of the aforementioned entities to deliver the “Controlling Beneficiary File” within 15 days of said requirement. Failing to comply with the authorities in a timely and accurate fashion may result in fines to the non- complying part for up to MXN 2 million.

The controlling beneficiary figure is one that undoubtedly will change the landscape in which businesses are structured and information is kept in Mexico. As Mexico complies with international standards, the hope for the future is for a lot more of transparency in business operations before the tax authorities, which, in turn, could represent a reduction in tax evasion, tax fraud, and money laundering.

This increase in transparency is part of a legal trend, which imposes an additional bureaucratic burden on corporations and increases potential liability in cases of non-compliance. While most countries tend to unite in their efforts, it is clear that specific requirements can vary greatly from one country to another, making it of paramount importance to have access to advice from someone with local expertise.

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