La Silla Rota: 2027 tax reform will squeeze companies' cash flow

The federal government's plan to cap deductions and limit tax losses for companies will hit corporate cash flow if Congress approves the income tax reform included in the 2027 Economic Package, said Margarita Medrano Hernández, Tax Partner at Baker Tilly Mexico.

In an interview with La Silla Rota, the specialist explained that even if a company posts tax losses, in 2027 and the years that follow it will always have to pay income tax. This is, she said, "a reform with a lot of revenue ambition" that will apply to companies with income above 50 million pesos, with some exceptions.

The amendment projects income tax revenue of 3.289 trillion pesos in 2027, that is, 218 billion pesos more than the estimated close of 2026.

Tax is due even with losses

The provisions submitted by the Ministry of Finance establish that a company will not be able to apply its deductions in full: there will be a 96.67% cap. As a result, Medrano Hernández explained, a profit of roughly 3.32% of taxable income will be generated, triggering the income tax payment.

"Even with a profit, even when I multiply my taxable income for the year by 96.67, I will always have a comparison against my deductions (…) Either way, every company will have to pay tax," she said.

Limits on tax losses

Today tax losses can be applied over a period of up to 10 years. The proposal extends that to 20 years, precisely because it reduces the ability to apply them in full against the taxable result.

Even if a company has accumulated enough losses, from 2027 it will only be able to use them up to 50% of the profit it generates, both in provisional payments and in the annual return. That means there will always be a base subject to the 30% income tax rate, which does not change.

"At the end of the road there will be income tax even with losses. And that tax translates into a monthly or annual payment (…) I would sum it up as cash flow," the expert stressed.

The exceptions and the hit to cash flow

The reform contemplates three exceptions: taxpayers with 1 to 5 years of operations, a period the authority considers essential to justify gains and losses; the primary sectors —agriculture, livestock, fishing and forestry—; and the development hubs.

For everyone else, regardless of industry, activity or economic environment, the effect will be concentrated on liquidity. "Cash flow is everything for a company, it is what makes it possible to pay for its operations, its costs, its payroll," said Medrano Hernández, who warned that companies could have to turn to debt. On top of that, interest may not be deductible, because the applicable limit is also being reduced for 2027.

The specialist underscored that there is no new income tax and no new rates: what changes is how the taxable base is determined.

February 2027, the first payment

The provision would start to apply in February 2027, when the provisional payment for January is made. "The goal is to reach the tax revenue target (…) The impact will be felt by companies at the cash flow level," she concluded.

The Ministry of Finance projects tax revenue of 6.264 trillion pesos for 2027, 425.3 billion more than in 2026. Authorities have pointed out that 54 thousand companies have reported losses for more than five consecutive years, the argument behind the scheme limiting deductions.

Against that backdrop, the Tax Partner at Baker Tilly Mexico questioned placing all companies in the same category, when the authority has enough information to identify those acting improperly.

At Baker Tilly we support companies in analyzing the income tax reform and projecting its effects on their cash flow for 2027.

Article originally published in La Silla Rota, by José Manuel Arteaga.