The foreign client is not enough: Mexico tightens the VAT zero-rate for exported services

Recent Mexican judicial precedent has reinforced a principle that tax authorities have been advancing for some time: the identity and residence of the customer are not enough. What matters is where the service is actually used, enjoyed or economically exploited.

Consider a Mexican company providing administrative, technical, marketing, or management services to its foreign parent. The foreign entity may sign the agreement and pay the invoice. Yet if the activities ultimately support Mexican operations, personnel, or sales, the authorities may question whether an export has occurred at all.

In other words, a cross-border payment does not automatically create a cross-border service.

This becomes particularly relevant for multinational groups. Shared-service centres, regional management structures, technology platforms, and centralised functions rarely benefit only one entity or jurisdiction. A report may be delivered abroad while its recommendations are implemented in Mexico. A regional marketing strategy may be commissioned overseas but substantially benefit Mexican sales.

That tension between contractual destination and economic benefit is precisely where the VAT risk lies.

Evidence beyond the contract

A well-drafted agreement remains essential, but it cannot operate in isolation. Taxpayers should be able to demonstrate what was actually performed, who requested it, who received the deliverables, how they were used and where the resulting benefit was realised.

This is especially important in VAT refund proceedings, where authorities may look beyond invoices and agreements and examine the underlying business reality. The question can quickly move from “Who is your customer?” to “Show me what you actually did for them”.

Multinational groups should therefore review intercompany arrangements carefully. Transfer pricing documentation does not automatically resolve the VAT analysis: a service may be appropriately priced under the arm’s-length principle and still fail to qualify for the 0% VAT rate. Where an engagement includes activities benefiting different jurisdictions, separating and documenting distinct services also becomes critical. The objective is not to artificially divide a transaction, but to ensure that contracts, invoicing, and evidence accurately reflect reality.

The recent precedent should not be read as a blanket prohibition on zero rating services performed in Mexico. Mexican regulations expressly contemplate services rendered domestically but enjoyed abroad. The decisive issue remains the nature of the service and whether applicable statutory and regulatory conditions are satisfied.

For groups operating across borders, this is an opportunity to revisit service agreements, separate distinct activities, and identify exposures before they emerge in an audit or VAT refund proceeding.

My perspective is simple: international invoicing does not create an export. The underlying transaction must support it. In cross-border taxation, the strength of a position is ultimately measured not by how convincingly a contract describes it, but by how clearly the facts demonstrate it.

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Prof Sergio Guerrero Rosas, Managing Director at Guerrero y Santana, has over 25 years’ experience advising companies from SMEs to multinationals, as well as individuals, on tax and estate planning. He is also Global Vice Chair of the GGI Trust & Estate Planning (TEP) Practice Group.