Executive summary: AXA S.A. filed an ICSID arbitration case against Mexico, citing violations of the France-Mexico Investment Agreement due to a 2019 ruling by the Mexican Tax Administration Service (SAT) that prohibited VAT crediting on claims-related expenses and demanded retroactive reimbursements from 2015. AXA argues this policy undermines its investment rights, imposes financial burdens by charging VAT that was never collected, and risks destabilising the insurance sector.
On 5 December 2024, the ICSID Secretary-General registered a request submitted by the French insurance company AXA S.A. for the institution of arbitration proceedings against the United Mexican States (ICSID Case No. ARB/24/49). The dispute relates to a measure adopted by the Mexican Tax Administration Service (SAT), by which insurance companies were prohibited, as of 2019, from crediting the Value Added Tax (VAT) charged on policies for repairing and replacing damages to policyholders in connection with claims. The request for arbitration is based on the Agreement Between the Government of the Republic of France and the Government of the United Mexican States on the Reciprocal Promotion and Protection of Investments, signed on 12 November 1998.
Since the creation of the VAT Law in 1980, the VAT paid by the insurer for services or acquisition of goods related to the handling of claims (repair of vehicles or real estate, purchase of goods for replacement, direct payment to hospitals, etc.), is credited against the VAT collected for the sale of the policies issued. In other words, all the amounts that the insurer pays in VAT for the purchase of services or goods for the processing of claims are deducted from the amounts that it must pay to the SAT in VAT for the policies sold.
Even in 2005, the SAT issued an express confirmation allowing VAT crediting and in no audited fiscal year did it question or object to it.
However, as of 2019, the SAT prohibited the VAT crediting and retroactively demanded the reimbursement of the credits made since 2015.
According to the SAT's ruling, the VAT paid by insurers for the handling of claims must be recorded as an expense and not as a tax credit.
Indeed, the SAT requires insurers to pay a 16% VAT at every stage of the damage repair chain, including each transfer of spare parts from suppliers to insurers, insurers to workshops, and workshops to customers.
Furthermore, the insurers point out that, although the spare part moves through the repair chain, the sale of the spare parts takes place only once.
The insurance companies argue that they are being retroactively charged VAT that they never actually collected, which would lead them to bankruptcy.
According to the head of SAT, Antonio Martínez Dagnino, audits have been ordered for insurance and surety companies to determine the amount of taxes they would have to pay.
According to SAT's calculations, the companies of the sector should pay the Treasury some 175 billion Mexican pesos, that is, some USD 8,700 million for such concept.
In response to the SAT's claim, three of the country's main insurance companies, AXA, BBVA and GNP, filed amparo actions before the Federal Court of Administrative Justice (TFJA), which are still pending resolution. Essentially, the insurers requested the Court not to force them to pay retroactively something that they never collected.
The federal government is faced with the dilemma that if it collects the money owed by the insurance companies, according to the SAT, it could be jeopardizing the subsistence of the sector, with the consequent closure of sources of employment, outflow of capital and investments and layoffs of workers.
Moreover, a new interpretation of the way in which the VAT is applied would imply an increase in the cost of the policies, both for the companies and for the public sector, which uses this type of instruments to protect strategic facilities (such as those owned by Petróleos Mexicanos and the Federal Electricity Commission), public buildings and assets and sites of historical value. In addition, it should be remembered that most of the reserves required by law from insurers are invested in government securities, which would be seriously affected by a massive sale by the insurers in the event of having to cancel their tax debts.
AXA, for its part, had already expressed its concern to the former government of President Andrés Manuel López Obrador, to whom it communicated that if it were forced to pay the taxes claimed, it would close its offices in Mexico, lay off its workers and return to its headquarters in France. López Obrador responded that he would look for a way to reach an agreement to avoid extreme measures without failing to comply with the tax law.
