Materiality and business reason: how to shield your operations before the SAT

Mexican tax enforcement has changed the question. It's no longer "do you have the invoice?" — everyone has the CFDI. The question is twofold: did the transaction really happen? (substance, or materiality) and did it have an economic purpose beyond saving taxes? (business reason). Whoever can't answer both with documents has deductions that don't belong to them.

Article 69-B: nonexistent transactions

Art. 69-B of the CFF lets the SAT presume that a supplier's invoices cover nonexistent transactions when that supplier has no assets, personnel or capacity to provide what it invoices. The supplier enters the EFOS list (companies that invoice simulated transactions) — and all of its clients, the EDOS, inherit the problem: 30 days to prove the transaction with that supplier did happen, or to correct.

The point business owners underestimate: you can fall into this without having done anything wrong. It's enough to contract in good faith with a supplier who is later listed. If your file for that transaction is only the invoice and the wire transfer, your deduction and your creditable VAT are at risk — and the window to defend yourself is short and evidence-based.

Article 5-A: the business reason

Art. 5-A of the CFF empowers the authority to recharacterize or deny tax effects to transactions that lack a business reason: when the reasonably expected economic benefit is smaller than the tax benefit obtained. Translation: if the only honest explanation of a transaction is that it pays less tax, the authority can treat it as if it didn't exist or as the transaction it "should have" been.

This turned what used to be good practice into an obligation: documenting the economic rationale behind every structure and every relevant transaction — before executing it, not when the audit arrives.

The file that actually defends you

Materiality is proven with the complete footprint of the transaction's cycle. For a relevant service, the minimum standard:

• Before: quotes or proposals, negotiation emails, a contract with a specific object (not generic), evidence that the supplier has real capacity — personnel, a compliance opinion, a verified 69-B repository.
• During: tangible deliverables (reports, minutes, photographs, logs, access records), operational communication, identifiable personnel from both parties.
• After: a CFDI with a description consistent with the contract, a payment supplement (complemento de pago), correct accounting entries, and evidence of the use of the service in your operation — the famous "and how did this benefit the business?".

For the business reason: a one-page memo or minutes for each structural decision — why the company was set up, why it merged, why the intercompany service was contracted — with the expected economic benefit quantified. It's cheap to produce today and extremely expensive to reconstruct five years later in front of an auditor.

The red flags the SAT cross-checks automatically

The authority already audits with risk models and mass CFDI cross-checks: new suppliers with high invoicing right away, generic concepts ("administrative services"), recurring round amounts, suppliers with a shared address or no payroll, and deductions that grow faster than revenue. None of these signals is illegal — but each one raises your probability of audit, and the audit is won with the file, not with being right.