María Elena Sierra Díaz, General Director, AS Consultores, Mexico
Cargo agents, consolidators or Freight Forwarders are socially recognized companies.
They can perform in two ways to render their services as specialized companies in logistics.
- As an agent for third parties to carry out actions that commit the third party itself (management).
- As principal when they render the services and acquire the corresponding responsibilities.
According to the International Federation of Freight Forwarders Associations (FIATA), the International Cargo Agent is the renderer of a specialized service, who acting as the principal or third party between the user and the carrier, develops activities to directly solve, on its customer’s behalf, all the problems implied in the physical flow of the merchandise.
Based on such definition, Cargo agents may act as principals or third parties (in their capacity of sole brokerage).
For this reason, there are Cargo agents who issue Bills of lading, documents recognized in our law as Credit instruments under the provisions of the General Law of Negotiable Instruments and Credit Operations which, according to article 19, these are merchandise transportation documents where a carrier sends merchandise to a consignee, who in turn, may circulate such merchandise according to the agreed conditions in the aforementioned documents, depending on their negotiability.
The United Nations Convention on the Carriage of Goods by Sea of 1978 defines in article 1, number 7, “Bill of Lading” (B/L) as “a document which evidences a contract of carriage by sea and the taking over or loading of the goods by the carrier, and by which the carrier undertakes to deliver the goods against surrender of the document. A provision in the document that the goods are to be delivered to the order of a named person, or to order, or to bearer, constitutes such an undertaking”.
The MASTER BL, or bill of lading called “master”. – It is the bill of lading issued by the Shipping company, or its representative, who shall effectively transport the cargo; it may be negotiable and may or may not grant rights on the merchandise.
The House BL, or bill of lading called “house”. – It is the bill of lading issued by an NVOCC operator, a Freight Forwarder or a Cargo agent who oversees the transportation of certain merchandise, which is generally, non-negotiable.
For the air transportation, it is important to say that the waybill is not a Credit instrument but a transportation document which is under the abovementioned scheme.
Therefore, the Cargo agent may act as the carrier according to the services rendered when issuing a transportation document.
Moreover, the Commercial Code in force in the Mexican Republic expressly establishes in article 577 the following: “The carrier, except as otherwise agreed, may establish with others, the merchandise management”. In that case, it shall preserve such character with the first person that he has agreed and shall have the shipper character with the second one… The last carrier shall have the obligation of delivering the cargo to the consignee.
The Civil Aviation Law article 4 section IV, clearly establishes the secondary application of the Commercial Code in everything that does not contravene the same regulation, without such law going against with the abovementioned provision of the Commercial Code.
Likewise, the General Communication Roads Act clearly establishes that there are carrier and transporter companies, and such legislation establishes the conditions, mechanisms, and forms that shall monitor and enforce the operation, construction and handling of the General Communication Roads in the Nation, which is an administrative matter that shall be observed, or it shall be sanctioned by the infringements established by the law.
In the same manner and regarding the handling of imports and exports merchandise, its entry and exit of the national territory, the Customs Law establishes in article 20, several obligations that the Carrier companies, the captains, pilots, drivers, and owners of transportation means for the merchandise importation and exportation must comply. Sections VII and VIII are highlighted as they specify the obligations for the dispatch of data electronic manifests in accordance with regulations 1.9.9. and 1.9.17 of the Norms of General Character of Foreign Trade, and to ensure such compliance, a CAAT Registration (Harmonized Alphanumeric Carrier Code) must be obtained according to regulation 2.4.6 of the abovementioned Law.
Once the abovementioned has been identified as a basis, it is necessary to mention that:
- If there is a transportation document, either the Master or House Bill of Lading, the Master Air Way Bill, the House Air Way Bill, or any other in each of the transportation modalities, it shall be issued by the Carrier or transporter.
- When there is a transportation document, the issuer acts as a carrier, even though it is not the owner of the transportation means, in terms of the Commercial Code.
Vat Taxation
As it has been established in the previous lines, the Cargo agent who performs activities where he assumes the responsibility for the issuance of a transportation document shall be considered as a valid carrier; therefore, he is duly rendering transportation services which are subject to the Value Added Tax Law.
In consequence, it is recommended that the Cargo agents contemplate their charter and transportation services in their corporate purpose and in their actions before the Ministry of Finance and Public Credit, with the purpose of performing the corresponding billing for the transportation services rendered, when acting as principal or carrier, and thus the provisions in article 29, section V of the Value Added Tax Law may duly apply.
According to article 29, section V of the Value Added Tax Law, the international service for the transportation of goods rendered by companies residing in the country, is considered as an exportation service and thus, it is taxed with the 0% rate when the service starts in the national territory and ends abroad.
Therefore, our opinion is to have the possibility of taxing such services with the 0% rate when we refer to the international freight operations for merchandise exportation, where there is a transportation document that the Cargo agent is responsible for and acts as a carrier, by issuing its own transportation contract.
The abovementioned is based on article 577 of the Commercial Code, which clearly establishes that the Cargo agent shall be the Carrier of its Customer, and the transporter shall be the carrier of the Cargo agent, but both (the transporter and the Cargo agent) shall be the carrier to their respective customer.
Therefore, the transportation services are being provided when the Cargo agent issues the House document even though they are not being provided by his own means, but he acquires all the risks and obligations of the transportation contract where he acts as the carrier.
If the previous criterion shows undoubtedly that if a Cargo agent proves his carrier character with the House document, it is totally justifiable before any administrative or tax authority that it is his obligation to tax the rendered services to a 0% rate complying with the provisions of article 29 section V of the Value Added Tax Law.
In the case of imports, when the responsibility is derived from a transportation document, or at the moment of collection, if it is an international operation, it may be considered as a service that is not levied and shall receive a 0% treatment. It is necessary to consider that it must be invoiced acknowledging the carrier’s quality and having a document as proof.
Billing
According to article 1° section II, 14 section II, with the provisions of the VAT Law, individual and legal entities, such as Cargo agents that render their services in the national territory, are obliged to pay such tax.
It’s worth mentioning that the indicated answers refer only to internal criteria, obtained from the criteria of specialists in tax matters and practices that the Cargo agents, shipping companies and other actors in foreign trade are currently carrying out.
Types of invoices in:
- National Transport. – By the service starting in a specific location and concluding in another specific location within the national territory, the tax shall be applied at the overall rate of 16%, in accordance with article 16, in the first paragraph of the VAT Law.
If it is a national air transportation starting in the national territory, and ending in the border zone of the national territory, the following criterion published by SAT shall be considered for such effects:
07/ VAT on air transportation starting in the border zone.
Article 1, section II of the VAT Law establishes that individual and legal entities who render independent services in the national territory are obliged to a tax payment at a 16% rate. Concerning international air transportation, article 16 in its third paragraph establishes that air transportation to Mexican locations in the border zone that covers 20 kilometers in a parallel line to the northern and southern international dividing lines of the country, shall apply the same tax, by levying only 25% of the service to the general rate of the tax. On the contrary, if the service rendered is carried out from any Mexican settlement located in the border zone to any other national destination that is not located in such border zone, the rendered service shall be levied in full at the general rate of the added value tax. Therefore, it is considered a wrongful tax practice for: I. Those taxpayers who consider that only the 25% of the service is rendered in the national territory, if the service rendered is carried out from any Mexican settlement located in the border zone to any other national destination that is not located in such border zone. II. Those who give advice or counseling, render services or participate in the implementation or execution of the abovementioned practice.
For national land transportation that is rendered by an individual or legal entity, a 4% retention shall be applied by the legal entity who received the service.
- International and National Combined Transport of Imports. – In accordance with article 16 or the VAT Law, VAT is not incurred, as it is not a transportation that starts in the national territory.
The 4% retention is not applicable as it is not an exclusive land transportation.
If this service also includes a land transportation separately hired by the Cargo agent from a resident in the national territory, when invoicing, VAT shall be levied to this service, and as it is by land, there shall be a 4% retention by the legal entity that receives the service.
As a criterion, the Cargo agents consider that, in these cases, billing to a national client, shall depend on the way that the Bill of Lading (HBL) is issued, if the national transportation is included, VAT shall not be levied to the service as it is only an international transportation service, which is also correct.
We must remember that in the event of the international transportation of goods destined to be imported, the international freight is always part of the customs value, independently of the INCOTERM used for such operation, and therefore, the costs of the freight face the same fate as the merchandise regarding the Value Added Tax payment and that is why the VAT Law excludes the International Transport of Goods for importation, even when this service is being billed to a resident in Mexico by another resident in Mexico.
In case of carrying out the international freight billing of goods aimed to be imported with the Value Added Tax, we could be dealing with a double taxation, as it is already covered according to the customs declaration.
- International and National Combined Transport of Exports. – In accordance with article 29 section V, such service is considered an exportation with a 0% rate of VAT as it is rendered by a resident of the country. When the service is rendered by non-residents in the country it must be understood that the second paragraph of article 16 of the VAT Law shall be applied, which establishes that due to the fact that the service rendering started in the national territory, it shall pay the Value Added Tax at the general rate of 16% in all the national territory, except in the border zone, where the general rate is of 11%.
The 4% retention is not applicable as it is not an exclusive land transportation.
If this service also includes a land transportation separately hired by the Cargo agent from a resident in the national territory, when invoicing, VAT shall be levied to this service, and as it is by land, there shall be a 4% retention by the legal entity that receives the service.
As a criterion, the Cargo agents consider that billing to a national customer, in these cases, shall depend on the way that the Bill of Lading (HBL) is issued, if the national transportation is included, the service shall not incur VAT as it is only an international transportation service, which is also correct.
Therefore, our opinion is to have the possibility of levying such services with the 0% rate when we refer to the international freight operations for merchandise exportation, where there is a transportation document that the Cargo agent is responsible for and acts as a carrier, by issuing its own transportation contract.
The abovementioned is based on article 577 of the Commercial Code, which clearly establishes that the Cargo agent shall be the Carrier of its Customer, and the transporter shall be the carrier of the Cargo agent, but both (the transporter and the Cargo agent) shall be the carrier to their respective customer.
Therefore, the transportation services are being provided when the Cargo agent issues the House document even though they are not being provided by his own means, but he acquires all the risks and obligations of the transportation contract where he acts as the carrier.
- International Land Transportation of Imports. – In accordance with article 16, VAT is not levied, as it is a service that did not start in the national territory. Therefore, by not having such tax, its retention is not required.
- International Land Transportation of Exports. – In accordance with article 16, this transportation shall be subject to VAT payment for starting in the national territory. However, we must pay attention to section V of article 29 which allows us to consider when this service is rendered by a resident in the country as if it were of exportation, and a 0% rate of VAT shall be applied.
- Sea Transportation of Imports. – Within the VAT Law, there are basic conditions to consider the tax levied according to the provisions in article 1 which are the services listed in article 14 of the same Law and which are rendered in the national territory.
Article 16 of the VAT Law, establishes that the service is rendered in the national territory when it starts there; on the contrary, if the service does not start in the national territory, it shall not be levied. Therefore, as it is a service that is invoiced in the national territory by a Cargo agent, but it is not rendered there, then VAT shall not be levied, according to the abovementioned basis.
On the other hand, considering that the one who renders this service (either a shipping company or the owner of the vessel) is a resident abroad, it also obeys the exception provided by article 15 of the VAT Law:
Article 15th. – The tax for the rendering of the following services shall not be paid:
VI.- The international sea transportation of goods by persons living abroad without the permanent establishment in the country. In no case, the provisions of this section regarding cabotage services within the national territory shall be applicable.
We must remember that in the event of the international transportation of goods destined to be imported, the international freight is always part of the customs value, independently of the INCOTERM used for such operation, and therefore, the costs of the freight face the same fate as the merchandise regarding the Value Added Tax payment and that is why the VAT Law excludes the International Transport of Goods for importation, even when this service is being billed to a resident in Mexico by another resident in Mexico.
In case of carrying out the international freight billing of goods aimed to be imported with the Value Added Tax, we could be dealing with a double taxation, as it is already covered according to the customs declaration.
- Sea Transportation of Exports. – In accordance with article 29 section V, for being rendered by a resident of the country, such service is considered an exportation with a 0% rate of the VAT. When the service is rendered by non-residents in the country it must be understood that the second paragraph of article 16 of the VAT Law shall be applied, which establishes that due to fact that the service rendering started in the national territory, it shall pay the Value Added Tax to the general rate of 15% in all the national territory, except in the border zone, where the general rate is of 10%.
When the service is rendered by a resident abroad, such tax shall not be paid as it fits in the assumption set forth in article 15 section VI (VAT exempted).
Article 15th. – The tax for the rendering of the following services shall not be paid: VI. – The international sea transportation of goods by persons living abroad without the permanent establishment in the country. In no case, the provisions of this section regarding cabotage services within the national territory shall be applicable.
- And 9.- Air transportation of Imports and Exports. – The air transportation of imports shall have the same treatment of exclusion as the international transportation of goods aimed to be imported, as it is reflected in the customs clearance.
There is also the tax agent’s criterion, where the air transportation of imports does not levy any tax as the provisions of the second paragraph of article 16 of the VAT Law are applied since the services did not start in the national territory. A criterion that is correct from our point of view.
It is important to consider that the foreign customers of the Cargo agents are treated as the national ones, reiterating that the VAT taxation does not depend on the customer’s residence, but in the action (a matter of taxation).
Regarding exports, article 16, in the second and third paragraphs of the VAT Law, establishes that in the case of international air transportation, the 25% of the service shall be considered as rendered in the national territory.
According to articles 29, section V of the Value Added Tax Law, and article 60 of its Regulation, the international service for the air transportation of goods rendered by companies residing in the country, pursuant to the reform dated December 9th, 2013 which came into force on January 1st, 2014, as well as the modification to the Value Added Tax Lay Regulation, is considered as an exportation service and thus, a portion of the trip corresponding to 25% of its value is levied at the rate of 16%, when the service starts in the national territory and ends abroad.
Consequently, when the trip starts in the national territory, independently from the carrier residence, the 75% of the services shall be levied at a 0% rate and the 25% at a 16% rate; however:
In compliance with article 89 of the Federal Fiscal Code, it is stated that the present document is an opinion of the legal area; however, it shall always be subject to the interpretation of the tax authorities, and in case that such interpretation turns out to be different from this opinion, it shall not fall into any responsibility.