Written for Mexico. This analysis applies to Mexican federal tax law — ISR (income tax), IVA (VAT) and SAT rules — and cites Mexican statutes. Amounts are in Mexican pesos (MXN).
There is a genuine asymmetry in the law that scheme-sellers adore and few explain in full: the individual (persona física) with business activity deducts merchandise purchases when paid (cash-flow deduction); the company (persona moral, a legal entity) deducts the cost of goods sold — that is, only once it sells (arts. 39 et seq. LISR). The distributors' "hybrid scheme" is built on that asymmetry. Let's take it apart honestly: which part is textbook efficiency and which part is contingency on a timer.
The indisputable part: migrating from an individual to a company
First piece of the reel, safe and pure arithmetic: the distributor operating as an individual pays a progressive rate up to 35%; the same operation in a company pays 30% flat. With meaningful profits, migrating saves up to 5 direct points — plus access to the whole group architecture (holding company, wealth vehicle, the shareholder's compensation menu). The cost: the deferral of the inventory deduction (cost of sales) and the dividend layer when you extract cash. For most mid-sized distributors, the migration wins clearly — it is the part of the scheme that needs no asterisks.
The aggressive piece: inventory held by the individual
The proposed design: the company faces the client and invoices the sales; the related individual holds the inventory — buys the merchandise (deducting it on payment) and sells to the company as it needs to restock. The theoretical benefit: the group "advances" the deduction of MXN $10M, $30M, $50M of inventory that in the company would be frozen for tax purposes until sold.
Now the analysis the reel skips. One: the benefit is deferral, not elimination — when the individual sells to the company, the individual accrues that income; their advance deduction reverses as an accrual on each intercompany sale. The real value is financial (the tax is deferred while the inventory grows) and a rate benefit only if the individual lands in low brackets — which, at distributor volumes, they do not. Two: it is a massive, permanent operation between related parties: demonstrable market prices on each restock, with the individual's margin justified by a real function (what does the individual do besides exist? Do they store, finance, bear inventory risk — with whose warehouse, insurance and staff?). Three: art. 5-A asks the obvious: what business reason is there to split the operation in two, beyond the tax benefit of the timing? If the honest answer is "none," the re-characterization is on the table. Four: an individual concentrated on purchases generates favorable balances and recurring losses — exactly the profiles the SAT's risk models prioritize.
Do you trade with large inventory and tight cash flow?
There are legitimate versions of this efficiency — distribution structures with real functions, well-designed inventory financing, and the plain optimization of costing and turnover inside the company. Strategium models your case with numbers: how much the deferral is really worth, what structure captures it without manufacturing paper entities, and where your risk frontier lies. The efficiency exists; the shortcut doesn't need it.
Frequently asked questions
Isn't this just using what the law allows?
Using the individual's cash-flow deduction is legal; manufacturing a function-less intermediary to arbitrage timing is where art. 5-A allows re-characterization. The line is substance: the same structure with a warehouse, staff and real risk in the individual is defensible; without them, it is form without substance — and the burden of proving substance is yours.
Can't the company deduct inventory in some simpler way?
Inside the company there are orthodox levers nobody exploits before jumping to the scheme: a well-chosen costing method, deduction of shrinkage and obsolescence with their requirements (documented destructions, offering the goods for donation when applicable), and plain turnover management — inventory that turns fast defers little. The right order is to exhaust the simple before buying complexity.
I've been running the hybrid scheme for years — what should I review?
Three urgent internal audits: the prices of the individual-to-company sales against market (with a working paper), the real and demonstrable function of the individual (contracts, warehouse, insurance, payroll), and the consistency of physical inventory against CFDI at both ends. With all three in order, you have a defensible position to maintain; with gaps, you have a restructuring decision to make — better yours than the auditor's.
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