900019

ASSESSING THE IMPACT
OF THE FISCAL REFORM
AGENDA FOR MEXICAN
CIVIL SOCIETY
ORGANIZATIONS

The International Center for
Not -for -Profit Law
November 2012

i
ACKNOWLEDGMENTS

ICNL gratefully acknowledges the support of the William and Flora Hewlett Foundation in the
preparation of this study. In addition, ICNL could not have completed this assessment without the
input of civil society leaders, government officia ls, academics and other professionals who have
been collaborating on fiscal reform efforts , as well as the hundreds of CSOs that took the time to
complete the survey on which many of the study findings are based.

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TABLE OF CONTENTS
Acknowledgments ………………………….. ……………………………………………………………………………………………………………………. i
Acronyms ………………………….. …………………………………………………………………………………………………………………………………. 1
Executive Summary ……………………………………………………………………………………………………………………………………………. 2
I. Introduction ……………………………………………………………………………………………………………………………………………. ….. 6
A. Background and Context ………………………………………………………………………………………………………………………….. 6
B. Methodology ……………………………………………………………………………………………………………………………………………. …. 8
II. Overview of th e Legal Framework ………………………….. …………………………………………………………………………….. 9
A. Legal Forms ……………………………………………………………………………………………………………………………………………. …. 10
Civil Associations ……………………………………………………………………………………………………………………………………… 11
Private Assistance Institutions, Private Beneficent Institutions, and Private Beneficent
Associations ……………………………………………………………………………………………………………………………………………. … 11
Civil Societies (Partnerships) ………………………….. …………………………………………………………………………………….. 11
Trusts ……………………………………………………………………………………………………………………………………………. ……………. 12
B. Fiscal Framework …………………………………………………………………………………………………………………………………….. 12
Income Tax -Exempt Status …………………………………………………………………………………………………………………….. 12
Public Benefit Status ………………………………………………………………………………………………………………………………… 13
C. Exemptions from VAT, Customs Duties, and Other Taxes ……………………………………………………………….. 19
VAT ……………………………………………………………………………………………………………………………………………. ………………… 19
Custom Duties …………………………………………………………………………………………………………………………………………… 19
Flat Business Tax ………………………………………………………………………………………………………………………………………. 19
III. Impact of Reforms: Study Findings …………………………………………………………………………………………………. 20
A. Authorized Donees ………………………….. ………………………………………………………………………………………………………. 20
Becoming an Authorized Donee ………………………….. ………………………………………………………. ………………………. 20
Reporting Requirements …………………………………………………………………………………………………………………………. 25
Fiscal Framework Governing Authorized Donees …………………………………………………………………………….. 26
B. Public Funding ………………………………………………………………………………………………………………………………………….. 27
C. Economic Activity …………………………………………………………………………………………………………………………………….. 28
IV. Remaining Obstacles and Recommendations ………………………………………………………. ………………………. 30

A. Harmonization of the Laws and Policies of the Fiscal Framework ………………………………………………… 30
B. Standardization and Simplification of Administr ative Procedures ………………………….. …………………… 31
C. Stakeholder Capacity Building ………………………………………………………………………………………………………………. 32
D. Government -CSO Engagement ………………………………………………………………………………………………………………. 34
E. Weak Public Image of CSOs ……………………………………………………………………………………………………………………. 35

iii

F. Philanthropic Culture in Mexico ………………………………………………………. …………………………………………………… 36
V. Conclusion ………………………….. ……………………………………………………………………………………………………………………… 38

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ACRONYMS
CBO Community -based organization
Cemefi Centro Mexicano para la Filantropía (Mexican Center for Philanthropy)
CLUNI Clave Única de Inscripción ( Unique Registration Key or Identification Number)
CSO Civil society organization
CSR Corporate Social Responsibility
ENAFI Encuesta Nacional sobre Filantropía y Sociedad Civil (National Survey of
Philanthropy and Civil Society)
FPA Federal Public Administration
GDP Gross Domes tic Product
GNI Gross National Income
GoM Government of Mexico
INDESOL Instituto Nacional de Desarrollo Social (National Institute for Social Development)
ICNL International Center for Not -for -Profit Law
IETU Impuesto Empresarial a Tasa Única (Flat Rate Business Tax)
ITAM Autonomous Technical Institute of Mexico
JHU Johns Hopkins University
LISR Ley del Impuesto sobre de la Renta (Federal Income Tax Law)
LIVA Ley del Impuesto al Valor Agregado (Law on Value Added Tax)
PAN Partido Acción Nacional (National Action Party)
PRI Partido Revolucionario Institucional (Institutional Revolutionary Party)
PILAP Partners for Improving Laws Affecting Philanthropy
RISR Reglamento de la Ley del Impuesto Sobre la Renta (Income Tax Law Regulations)
SAT Servicio de Administración Tributaria (Tax Administration Service)
SEDESOL Secretaría de Desarrollo Social (Ministry of Social Development)
SHCP Secretaría de Hacienda y Crédito Público (Ministry of Finance and Public Credit)
VAT Value-Added Tax

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EXECUTIVE SUMMARY
In 2010-2011, the International Center for Not -for -Profit Law (ICNL) undertook a study of the fiscal
framework governing civil society in Mexico to analyze the impact of recent reforms. The study is
part of the Partners for Improving Laws Affecting Philanthropy (PILAP) project funded by the
William and Flora Hewlett Foundation. Since 2005, the PILAP project has undertaken activities in
Mexico to improve fiscal laws and regulations affecting civil society organizations (CSOs) and their
dono rs and increase capacity among civil society representatives and government officials to work
together to create a more enabling environment for civil society. This report provides a snapshot of
the current fiscal framework governing CSOs and analyzes the impact of recent reforms. The report
also identifies remaining obstacles and recommends steps to improve the fiscal framework further
so that it fosters the development of a strong, independent, and financially sustainable civil society
sector in Mexico.
The starting point of this report is Defining a Fiscal Agenda for the Development of Civil Society
Organizations in Mexico (Fiscal Agenda ), a paper prepared in 2007 by a working group of civil
society stakeholders, including a number of PILAP grantees.
1 On e of the chief findings of the Fiscal
Agenda was that Mexican CSOs and their donors operate under a legal system that hinders, rather
than facilitates, a vibrant sector.
The Fiscal Agenda found that complicated laws and expensive bureaucratic procedures p revented
many organizations from seeking recognition as legal persons and obtaining public benefit status.
2
Obtaining formal legal status and, in many instances, public benefit status under either the Federal
Law for the Promotion of Activities Undertaken by CSOs (Promotion Law) or the Federal Income
Tax Law (Ley del Impuesto sobre de la Renta or LISR) are prerequisites for accessing funds from
many institutions, such as the government, international aid agencies, and corporate philanthropy
programs, as well as other domestic and foreign donor institutions. The Fiscal Agenda also
demonstrated how the weak relationship among the government, the public, and civil society
limited the growth and sustainability of the sector. The report included concrete proposal s for legal
reform.
In response to the calls for reform presented in the Fiscal Agenda, the government of Mexico (GoM)
has taken many steps to strengthen civil society over the past five years. Specifically:
1. Eligibility to receive tax -deductible donations (authorized donee status) and other tax
benefits under the LISR has been expanded to include additional categories of CSOs,
including civic activist organizations, legal aid providers that serve a broader cross –
section of the Mexican community, organizatio ns that serve the migrant and refugee
communities, and gender equity groups.
1 Sergio Garcia et al., Defining a Fiscal Agenda for the Development of Civil Society Organizations in Mexico (Incide Social,
Cemefi, ITAM, and ICNL, 2007).
2 Public benefit status is not a universal term under Mexican laws. CSOs may obtain “public benefit status” in accordance
with a number of laws from several different government agencies; the benefits bestowed upon these different types of
organizations var y greatly.

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2. The application process for becoming an authorized donee was streamlined. For
example, applicants may now submit some documents to the Tax Administrative Service
(the Servicio de Administración Tributaria or SAT) online using electronic signature
technology. In addition, the SAT has improved and expanded the information available
about the process for becoming an authorized donee.
3. In an effort to make professional support more read ily available to CSOs attempting to
become authorized donees, the SAT developed a registry of legal and accounting
professionals and offers continuing education courses for such professionals on issues
pertinent to authorized donees.
4. CSO transparency has b een improved through the introduction of an online reporting
mechanism for authorized donees; reports are available to the public to view.
5. In an effort to reduce some of the reporting requirements for authorized donees, the
SAT raised the threshold annual income for mandatory audits from 400,000 pesos to 2
million pesos in 2011.
6. The SAT published an opinion letter clarifying the provisions of the LISR affecting cross –
border donations with the United States. Through this letter, the Mexican government
provi des assurance to US donors and potential donors that authorized donees are
eligible to receive tax -deductible donations under the 1994 United States – Mexico
Income Tax Convention. This step facilitates the ability of US donors to obtain tax
deductions for their donations to Mexican authorized donees, making such donations
more attractive.
7. CSOs worked with a member of the Mexican Congress to produce and publish a bilingual
manual that explains the requirements for donors and recipients of cross -border in –
k ind donations between Mexico and the United States.
8. In order to make government funding more available to CSOs, some ministries have
adopted uniform criteria for funding applications, streamlined systems to process
applications, and improved the informati on made available about the process to receive
funding.
These reforms have been a move in the right direction. Other legislative changes, however, have
had a more ambiguous impact on CSO financial sustainability. This study was undertaken in
response to th e need to better understand the impact of these reforms and to identify the
remaining obstacles in the current fiscal framework. The study finds that there are still a number of
obstacles to more robust development of the sector and makes recommendations t o address them:
1. The lack of harmonization between the LISR and the Promotion Law, as well as other
laws affecting CSOs, results in gaps and inconsistencies that prevent some classes of
CSOs from applying for public benefit status and leave other CSOs vulnerable to

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unintended missteps and selective enforcement. A comprehensive effort to reform the
LISR is needed to resolve this problem.
2. Complex and onerous administrative procedures for authorized donees limit CSOs’
interest in pursuing authorized donee status. First, the law imposes a 5 percent cap on
the amount of tax -deductible donations and any interest income derived from these
donations that can be used for administrative expenses. The low cap, combined with the
complexity of determining wheth er an expense should be treated as administrative,
imposes a tremendous burden on authorized donees. The government and CSOs would
both be well -served by re -examining the need for this requirement.
Second, CSOs find the process for obtaining an accreditation letter from a qualifying
government agency – a requirement for authorized donee status – to be ambiguous,
varying greatly from agency to agency. The process of applying for authorized donee
status could be simplified by either eliminating the need for t he accreditation letter
entirely or identifying agencies with good practices and promoting adoption of similar
processes among all qualifying agencies.
3. Stakeholder capacity to comply with the laws and regulations that promote CSO
financial sustainability needs to be increased.
First, CSOs operate with limited staff, which hampers their ability to pursue fundraising
initiatives and to understand the regulations to which they are subject. Many
organizations remain unclear about the process to gain authorize d donee status and
many organizations are unable to comply with the requirements to maintain authorized
donee status. Developing or expanding training programs for CSOs on legal issues,
management, accounting, and evaluation may help address some of these weaknesses.
The SAT might also consider organizing regional workshops for CSOs across the country
to explain the fiscal reforms for authorized donees and encourage organizations to take
advantage of them.
Second, government regulators, particularly at the SAT, need additional capacity – in
terms of personnel, resources, and employees’ knowledge – to implement laws and
educate CSOs about the laws that affect them.
Finally, an insufficient number of lawyers and accountants have the knowledge needed
to provide CSOs with competent advice about navigating the legal and fiscal framework.
The SAT should continue to take steps to educate notaries, lawyers, and accountants in
order to ensure that they have the appropriate knowledge to assist CSOs in applying for
and maintaining authorized donee status. New training efforts focusing on authorized
donee status could build on existing programs that encourage lawyers to offer pro bono
services to CSOs with the aim of ensuring that volunteer lawyers are well -prepare d to
address this issue.

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4. Although the dialogue between government and CSOs has increased, there is still much
to be done in terms of improving the relationship. In order to improve CSO -government
engagement, leaders from both sectors should use existing m echanisms while also
creating new avenues. Such efforts should seek to engage a broad number of CSOs and
government officials.
5. The sector suffers from a weak public image that makes it difficult for CSOs to recruit
volunteers, attract donations, and influ ence public policy. CSOs must collect and
disseminate data that shows the substantial impact they have on Mexico’s development
in order to counter the sector’s negative image in society.
6. Mexico suffers from a weak culture of philanthropy. According to the Johns Hopkins
University (JHU) Comparative Nonprofit Sector Project, Mexico devotes just 0.04
percent of its GDP to charitable giving – the lowest percentage of any country studied .
3
In order to promote a culture of giving among Mexican citizens and corpo rations, tax
incentives need to be expanded, donors must be educated about incentives that exist,
and trust in the sector must be developed to increase understanding of the sector’s role
and impact in society.
This report is based on information gathered through a number of diagnostic tools, including (1)
desktop research and analysis of the laws, regulations, and policies making up the fiscal framework
governing CSOs in Mexico; (2) a survey of close to 900 CSO representatives about the practical
effects o f the laws and regulations on the sector; (3) a survey of lawyers and accountants serving
Mexican CSOs; (4) interviews with key government, academic, and CSO stakeholders; and (5) focus
groups that gave stakeholders an opportunity to share recommendations for future action.
This report is divided into four parts. The first section provides historical background and context.
The next section contains an overview of the legal framework. This is followed by a presentation of
the study’s findings of the impact of the legal reforms undertaken so far. Finally, the paper
concludes with a number of recommendations for future action.

3 Volunteering and giving as a share of GDP by country, 1995 -2002, ( data includes only charitable giving; it does not
include gifts to religious worship organizations), available at
https://ccss.jhu.edu/wp –
content/uploads/downloads/2011/10/Com parative-Data_2004_FINAL.pdf .

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I. IN TRODUCTION
A. BACKGROUND AND CONTE XT
Over the past decade, Mexico’s political and economic landscape has changed dramatically. Aft er
more than seventy years of one -party rule, opposition party candidate Vicente Fox was elected as
President in 2000 in the freest and fairest elections in Mexican history to date.
4 Since 2000, the
Mexican economy has grown significantly, nearly doubling its Gross National Income (GNI) from
2002 to 2010.
5
Progress in the area of legal reform, however, has not kept pace with these political and economic
advances. Instead of engaging in comprehensive legal reform, the government has adopted
piecemeal amendments to existing laws, creating a vast web of legislation that is extremely difficult
for citizens to navigate and nearly as difficult for regulators to enforce consistently. This is
particularly true with regard to the legal framework governing civil society organizations (CSOs).
6
The lack of a comprehensive CSO framework law and consistent guiding regulations creates a
number of challenges for CSOs, the government, donors, and other stakeholders.
T he legal framework governing Mexican CSOs explicitly recognizes the importance of the sector in
promoting the development of the country. However, CSOs struggle to determine their rights and
obligations under the many federal, state, and local laws that make up the CSO legal framework.
7 In
particular, the legal framework lacks a consistent definition of what constitutes a CSO or a public
benefit organization – a CSO that pursues objectives that are desirable and beneficial for society and
t herefore deserves access to state funding and preferential tax treatment.
8 This complicated – and
often contradictory – legal framework inhibits rather than encourages CSO growth and
sustainability.
9
In 2004, the Johns Hopkins University (JHU) Comparative Nonprofit Sector Project published
comparative data about the civil society sectors in thirty -six countries.
10 The data showed that the
size of the formal civil society sector in Mexico was extremely small relative to its population and
4 U.S. Department of State Bureau of Western Hemisphere Affairs Background Notes: Mexico, November 16, 2011,
available at: https://www.state.gov/outofdate/bgn/mexico/191338.htm (accessed November 12, 2012).
5 World Bank GNI per capita, Atlas method (US$9,240 in 2011, available at:
https://data.worldbank.org/indicator/NY.GNP.PCAP.CD/countries/1W -MX?display=graph . 6 The Federal Law for the Promotion of Activities Undertaken by CSOs (the Promotion Law) – a key law governing CSOs –
was passed in 2004. Since then, the Promotion Law has not been substantially improved or harmonized with the LISR;
instead, the government has made a series of small legislative fixes and administrative interpretations that have
complicated rather than clarified the framework.
7 For an in depth discussion on the various ways that CSOs are defined throughout the Mexican legal framework, see Ireri
Ablanedo, Las organizaciones de la sociedad civil en la legislación mexicana (Washington, D.C., 2009).
8 Id., p. 25. 9 See, for example, Fiscal Agenda and El marco fiscal y legal de las organizaciones de la sociedad civil: una guía breve de los
trámites legales y obligaciones fiscales (ITAM and Alternativas y Capacidades A.C., 2005).
10 See Lester M. Salamon and S. Wojciech Sokolowski (ed.), Global Civil Society: Dimensions of the Nonprofit Sector, Volume
Two, (Kumarian Press, 2004); and Lester M. Salamon, Helmut K . Anheier, Regina List, Stefan Toepler, S. Wojciech
Sokolowski (ed), Global Civil Society: Dimensions of the Nonprofit Sector , Volume One (1999) .

7

economy. 11 The stud y also found that the level of domestic philanthropy in Mexico was
exceptionally low , with Mexico devot ing just 0.04 percent of its GDP to charitable giving .
12
In response to these findings, a group of CSOs and academics came together in 2005 to identify and
analyze the obstacles to CSO development in Mexico. The working group convened six expert
forums involving 150 representatives of CSOs and government to present information, solicit input
on the challenges that CSOs face, and collectively develop recom mendations.
This group’s findings were published as Defining a Fiscal Agenda for the Development of Civil Society
Organizations in Mexico (Fiscal Agenda ) in 2007. The Fiscal Agenda identified a number of key
obstacles to CSO development and proposed changes and initiatives to support an effective and
self -sustaining Mexican civil society. Most significantly, the Fiscal Agenda found that the legal
framework that regulates CSOs in Mexico hinders rather than supports the growth of the sector. In
particular, th e Fiscal Agenda concluded that the legal framework does not support the financial
stability of the sector, noting that domestic sources of funding for Mexican CSOs have not increased
to fill the gap left by a steady decrease in foreign funding. Furthermore , the Fiscal Agenda found that
the relationship between government, civil society, and citizens is in need of serious repair.
The Fiscal Agenda considered how the tax laws affect three basic categories of CSOs:
1. Authorized donees – those organizations aut horized by the Ministry of Finance and Public
Credit (SHCP) to receive tax -deductible donations;
2. Formally constituted organizations that are not authorized donees; and
3. Informal groups without legal status.
13

The Fiscal Agenda also compared the benefits of being an authorized donee with the benefits of
registering under the Federal Law for the Promotion of Activities Undertaken by CSOs (Promotion
Law); organizations registered under the Promotion Law are sometimes referred to b y the acronym
for the Promotion Law registration number, or CLUNI.
The authors ultimately focused on identifying the challenges related to authorized donees, as they
determined that this status offers the greatest financial benefits for CSOs within the Mex ican legal
framework. Most importantly, authorized donees can receive tax -deductible donations.
In recent years, the government of Mexico (GoM) has taken several steps to address some of the
obstacles identified in the Fiscal Agenda . Through a process of consultation with CSO
representatives, the GoM has made the following reforms :
• Expanded eligibility for authorized donee status under the Federal Income Tax Law (Ley del
Impuesto s obre de la Renta or LISR) to include several additional categories of
11 Id., p. 430. 12 Volunteering and giving as a share of GDP by country, 1995 -2002, ( data includes only giving ; it does not include gifts to
religious worship organizations) , available at :
https://ccss.jhu.edu/wp –
content/uploads/downloads/2011/10/Comparative -Data_2004_FINAL.pdf . 13 Fiscal Agenda, p. 38.

8

organi zations identified as public benefit organizations under other laws (e.g., the
Promotion Law);
• Streamlined the application process to become an authorized donee, including making the
application available online, thereby reducing the time needed to complet e the process to a
few weeks instead of several months or even longer;
• Launched a new online reporting system that has helped to increase the transparency of
authorized donees;
• Improved the availability of information regarding the process for becoming an authorized
done, by, e.g., revising a comprehensive manual that describes the process and including
additional materials on its website that explain the process in greater detail;
• Issued a determination letter that confirms that authorized donees qualify for tax –
deductible donations from US donors under the terms of the 1994 United States – Mexico
Income Tax Convention, making such donations more attractive;
14 and
• Amended the LISR in 2010 to permit authorized donees to earn income from economic
activities u nrelated to the activities for which they were granted preferential status.
15 The
income from unrelated activities will not be taxed unless it exceeds 10 percent of the
organization’s total income; income from unrelated economic activity that exceeds 10
per cent of the organization’s total income will be taxed at the current corporate rate.
16

However, significant challenges remain. This study was undertaken, in part, in response to the need
to understand better the impact of these reforms and to identify the remaining obstacles presented
by the current fiscal framework.
B. METHODOLOGY
This report is based on information gathered through a study involving a number of diagnostic
tools. In an effort to obtain a broad assessment of the fiscal framework for CSOs i n Mexico, the study
sought participation from diverse stakeholders including CSO representatives, government
regulators, legislators, and academics. ICNL conducted a literature review and held consultations
with stakeholders to develop the themes and speci fic issues on which to focus the study. ICNL then
organized focus groups, interviews with key stakeholders, and surveys of CSO representatives,
lawyers, and accountants about their knowledge of and experience under the current legal
framework. Through this process, over 900 stakeholders were able to identify constraints and
opportunities in the legal and regulatory framework for CSOs, and to prioritize focus areas for
policy and legal reforms. The survey respondents were from all thirty -one Mexican states, plus the
federal district.
14 See, for example, SAT letter 600 -04 -05 -2008 -74888, Exp. 243, Reg. 13818/08 to the Instituto Tecnologico Autonomo de
Mexico, July 4, 2008. The United States – Mexico Income Tax Convention entered into force December 28, 1993 and most
provisions became effective January 1, 1994. See Article 22: Exempt Organizations, p . 23 available at:
https://www.irs.gov/pub/irs-trty/mexico.pdf . 15 This reform has proven unwelcome to some Mexican authorized donees, who argue that as a practical matter,
identifying and taxing unre lated income has placed new administrative and financial burdens on them.
16 The corporate tax rate for 2012 is 30 percent.

9

ICNL aimed to make this study as comprehensive as possible, but faced a few limitations. First, the
study focuses on the current legal and fiscal framework and some of the major issues this
framework presents for CSOs; it does not cover all issues affectin g the CSO sector. Second, this
study focuses on issues pertinent to groups registered as legal entities, while recognizing that much
of Mexican civil society consists of unregistered organizations. As a practical matter, the laws
governing authorized donee s, financial benefits for authorized donees and other CSOs, and related
issues only affect organizations that are legally registered.
II. OVERVIEW OF THE LEGA L FRAMEWORK
According to the 2011 CIVICUS report, which cites statistics from the Mexican Center for
Philanthropy (Cemefi), the Ministry of Interior, and the Federal and State Electoral Institutes, as
well as other academic research, there are approximately 35,000 to 40,000 non- governmental, not –
for -profit CSOs in Mexico.
17
Mexican CSOs are generally relatively young. As reflected in the chart below, n early all of the CSOs
surveyed for this study were legally established after 1970, with a sharp rise in the numbers
established in the late 1990s and early 2000s, followed by a sharp drop starting in the late 2000s.
This pattern may be related to a number of historical events, such as the 1985 Mexico City
earthquake, the country’s economic crisis in 1995, and events related to Mexico’s democratic
transition , including local elect ions in
1991 and 1993 and federal elections in
1994 and 1997 .
18 In 2000, the National
Action Party (PAN) ended the
Institutional Revolutionary Party’s (PRI)
decades -long hold on power. The surge
in security threats from drug cartels,
criminal violence, and reports of
government human rights abuses in
recent years have sparked the
emergence of new CSOs to address
these issues.

While the number of CSOs has increased over the past several years, the vast majority of
organizations remain concentrated in the Fe deral District and in or around other densely populated
17 A Snapshot of Civil Society in Mexico: Analytical Report on the CIVICUS Civil Society Index (Mexican Center for
Philanthropy (Cemefi), Citizens’ Initiative for the Promotion of a Culture of Dialogue, and Social Administration and
Cooperation: 2011), p. 29; Michael D. Layton, “Focos rojos en las cifras sobre sociedad civil organizada”, Este País 24 7
(November 1, 2011), available at
https://estepais.com/site/?p=35835 . There is disagreement, however, on the size of the
sector – perhaps attributable in part to the lack of a consistent definition for CSOs. Some governmental sources reportedly
rely on figures of up to 250,000 not -for -profit entities.
18 See, e.g., A Snapshot of Civil Society in Mexico : Analytical Report on the CIVICUS Civil Society Index , p. 9.
0
50
100 150 200 250
300
350 400 450 500 550
1930 1940 1950 1960 1970 1980 1990 2000 2010 2011
When was your organization
legally constituted?

10
cities. 19
According to the 2011 CIVICUS Index, 74.5 percent of authorized donees and 47.3 percent
of CLUNIs are located in the twenty most populous cities.
20
A. LEGAL FORMS
Mexico’s legal framework allo ws CSOs to be created in different forms to pursue legitimate aims,
including both mutual benefit and public benefit interests. In order to obtain legal status, Mexican
CSOs must register at the state or federal level. Several guides describe in detail the required steps
to gain legal status in Mexico.
21
Most CSOs in Mexico are organized under one of four legal forms: civil associations, private
assistance institutions or private beneficent institutions/associations, civil societies, or trusts.
Among the 881 CSOs that responded to the survey implemented for this study, over 85 percent are
organized as civil associations , as reflected in the chart below .

19 For more information on the geographic concentration of organizations in 2007, see Fiscal Agenda, p. 21-23. 20 A Snapshot of Civil Society in Mexico: Analytical Report on the CIVICUS Civil Society Index , p. 29. 21 See Building your organization in 16 st eps (Construyendo tu organización en 16 pasos), a comprehensive guide to the
legal registration process (focusing on legal formation as a civil association) in Spanish from Alternativas y Capacidades ,
at:
https://www.alternativasycapacidades.org/sites/default/files/16%20pasos%202a.edici%C3%B3n.pdf ; and Beyond
Borders: Observations for US organizations considering nonprofit incorporation in Mexico ( Border Partnership, 2010),
available at:
https://borderpartnership.hostcentric.com/BPP%20Beyond_Borders_Study.pdf .
Civil Associations
86.3%
Private Assistance
Institutions
7.3%
Civil Societies

3.7% Private
Beneficent
Associations
1.4% Private
Beneficent Institutions
0.5%
Other
0.9%
Which category best describes your organization?

11
CIVIL ASSOCIATIONS

A civil association 22 is a group of individuals who have come together v oluntarily for a definite time
to realize a common purpose that is not prohibited by law and that is not predominantly economic
in character.
23 Each state’s Civil Code regulates civil associations, outlines the purposes for which
they may operate, and estab lishes minimal governance requirements. The very broad definition
allows organizations to carry out a multitude of purposes, and is less restrictive than rules
governing other organizational forms. For example, civil associations are subject to fewer
restr ictions on how they may earn income. Civil associations also have greater flexibility to
determine their own internal governance matters.
PRIVATE ASSISTANCE INSTITUTIONS, PRIVATE BENEFICENT INSTITUTI ONS, AND
PRIVATE BENEFICENT ASSOCIATIONS
Private assistance institutions and private beneficent institutions and associations are formed in
accordance with state Laws on Private Assistance/Beneficent Institutions or Associations to
provide social and humanitarian assistance, such as food or medical services to the needy. These
organizations are closely regulated by state Private Assistance Boards or Institutes. The Boards or
Institutes coordinate activities, provide legal advice, and provide oversight to ensure that funds
devoted specifically to private assistan ce are used for the purposes defined in each organization’s
bylaws. In addition, the Boards or Institutes often serve as conduits for their member institutions to
receive additional benefits, such as exemption from Value Added Tax (VAT), authorization to
r eceive tax -deductible donations, and exemptions from some state and local taxes. Private
assistance institutions and private beneficent institutions/associations automatically qualify for
tax -exempt status because of both the nature of their public benefit activities and the continuous
government oversight to which they are subject.
CIVIL SOCIETIES (PAR TNERSHIPS)
A civil society (or partnership) is established in accordance with state civil codes by a contract in
which the founders mutually obligate themse lves to combine their resources or efforts in order to
realize a common purpose of a predominantly economic character that does not constitute
commercial speculation. Relatively few CSOs are formed as civil societies, in part because the
provisions offer l ess flexibility to members.
24 For example, the establishing contract for a
partnership may only be modified by unanimous agreement among its members.
25 This legal form
may be appropriate for a CSO that carries out regular economic activities for its own sustainability
as well as the sustainability of other not -for -profit entities.
22 For more on the process and requirements for establishing a civil association, see Construyendo tu organización en 16
pasos .
23United States International Grantmaking (USIG) project of the Council on Foundations in partnership with the
International Cente r for Not-For -Profit Law, available at
https://usig.org/countryinfo/mexico.asp . 24 Many professional organizations such as law firms are civil societies because they are organized as partnerships. 25 See Article 2698 of the Civil Code for the Federal District available at:
https://www.icnl.org/wp-content/uploads/Mexico_DF_Codigo_Civil_2011.pdf .

12
TRUSTS
Trusts
are governed by the General Law of Titles and Operations of Credit (LGTOC). A trust is
created when a donor dedicates property to a particular lawful purpose, wh ich may be either for
private or public benefit.
26 A trust may be created during the life of the donor (through a trust
instrument) or upon the death of the donor (through a will). The donor must designate a fiduciary
institution authorized under the LGTOC to carry out the obligations of the trustee.
27
B. FISCAL FRAMEWORK
The fiscal framework for CSOs in Mexico is part of a complex general legal framework that bestows
different benefits and obligations on different groups. Once a CSO has been registered, it may apply
for preferential status as an organization that provides some benefit to the public under either or
both the Promotion Law and the LISR. Each of those laws has its own eligibility criteria , application
procedures , programmatic or financial incent ives, and regulatory burdens.
28
While CSOs are governed by a combination of federal, state, and local laws, the scope of this study is
limited to the federal laws, regulations, and policies that most directly affect CSOs’ sustainability .
29
This section exam ines the laws, regulations, and provisions that establish tax -exempt status and
public benefit status, as well as those that provide for the tax treatment of CSO income and
donations.
INCOME TAX -EXEMPT STATUS
Article 93 of the LISR generally exempts not -for -profit organizations from paying taxes on income
from most sources.
30 After obtaining legal recognition at the state or federal district level, a CSO
seeking tax -exempt status must register as a “Persona Moral con Fines no Lucrativos” (a not -for –
pro fit entity) with the federal tax authority (Servicio de Administración Tributaria or SAT in
Spanish). Articles 95 and 102 of the LISR recognize organizations that fall into the following
consolidated list of categories as not -for -profit entities:
• Private assistance institutions or private beneficent institutions, and not -for -profit civil
associations or civil societies incorporated for the benefit of low -income individuals,
sectors, or regions and engaged in activities to improve the subsistence conditions and
development of indigenous communities and vulnerable groups by virtue of age, gender, or
disability;
26 See LGTOC §381. 27 LGTOC §385. 28 CSOs may also choose to apply for preferential status under a parallel system of state laws promoting civil society
organizations.
29 For more information on some individual state laws and regulations governing the CSO sector, see USIG Country
Report: Mexico, available at:
https://www.usig.org/countryinfo/mexico.asp . 30 Not -for -prof it entities in Mexico do not have to pay income tax on membership dues, donations, or income generated
from activities related to carrying out their missions, among other sources of revenue.

13
•
Organizations engaged in scientific or technological investigation and registered in the
Scientific and Technological Institution’s National Register;
• Civil associations and societies engaged in cultural activities, environmental preservation
activities, and grant making;
• Organizations authorized to teach in accordance with the General Education Law (Ley
General de Educación), as well as Parent Associations;
• Institutions incorporated by a presidential decree or law;
• Consumer cooperative associations;
• Mut ual insurance companies as well as agricultural and rural insurance funds, which do not
operate with third parties ;
• Investment companies specialized in retirement funds (except for investment companies
specialized in equity);
• Civil societies and limited liability companies organized for public purposes engaged in the
decentralized management of irrigation units and districts;
• Political parties; and
• Agencies of the federal, state, and local governments.
Notwithstanding the aforementioned, not -for -profit e ntities (except political parties, federal, state
and local governments, authorized donees, and investment companies specializing in retirement
funds) are obligated to pay income tax on revenues obtained from: (i) property transfers; (ii)
interest; and (ii i) awards.
31
Although the above list seems fairly comprehensive, several categories of organizations are still
ineligible for income tax exemptions and other preferential tax treatment, even though they are
not -for -profit and recognized as public benefit or ganizations under other Mexican laws.
32
PUBLIC BENEFIT STATU S
Not all tax -exempt organizations in Mexico have public benefit status. In most countries, the state
does not extend all benefits to all CSOs, instead extending certain benefits to a subset of these
organizations based on their purposes and activities.
33 By providing benefits, the state seeks to
promote certain designated activities, usually those related to the common good. CSOs pursuing
such activities are given various labels in different coun tries, including charities and public benefit
organizations. Charitable or public benefit status is fundamentally an issue of fiscal regulation.
34 To
promote public benefit activity, the legal framework links public benefit status to preferential tax
treatm ent or other forms of government support. In exchange for these benefits, organizations are
31 LISR Article 93 and Chapter IV. 32 See discussion under Remaining Obstacles. 33 For a more extensive discussion of international good practice in the granting of tax benefits and the role of such
benefits in improving the enabling environment for NGOs, see Open Society Institute and ICNL, Guidelines for Laws
Affecting Civic Organizations 2
nd Ed. (New York, NY: 2004), p. 77. 34 Id.

14
generally subjected to more stringent supervision to ensure that they are using their assets for the
public good.
35

The Mexican legal framework does not provide a s ingle definition of a public benefit organization.
Instead, Mexican legislation contains a myriad of references to “social groups” and “civic
organizations” and refers to a number of categories of organizations and activities that are “in the
public intere st.” These lists are not always congruent.
For the purposes of this study, we compare two federal laws – the Federal Income Tax Law (LISR)
and the Federal Law for the Promotion of Activities Undertaken by CSOs (Promotion Law) – that set
forth specific criteria to obtain public benefit status. Both laws recognize a number of activities that
are considered for the public’s benefit, bestowing certain benefits on CSOs that undertake these
activities and comply with specific rules and regulations. However, t he list of public benefit
activities recognized by the two laws only partially overlap. Most significantly, recognition under
one law as a public benefit organization does not provide recognition under the other law.
36
AUTHORIZED DONEES
In addition to establishing the criteria for tax -exempt status, the LISR identifies the types of public
benefit activities and/or organizations that are eligible to apply for authorized donee status.
Authorized donees enjoy a number of benefits. For example:
• Individual and c orporate donors to authorized donees may deduct some or all of those
donations from their taxes. By reducing tax liability, these tax deductions can be a powerful
incentive for taxpayers to donate to authorized donees.
• Authorized donees generally do not pa y federal income tax except on income derived from
unrelated business income that exceeds 10 percent of a CSO’s total income. This exemption
saves an organization from paying the corporate tax on its income.
37
• In most instances, authorized donees do not pay state income tax. The availability of state
tax exemptions varies by state.
• Authorized donees automatically qualify for tax -exempt donations from US donors under
the bilateral treaty.
38
• The SAT publishes a list of authorized donees every year. This list p rovides authorized
donees with greater public visibility , making it easier for potential donors to identify them
as possible recipients.
35 Id., p. 65 36 Ablanedo, Las organizaciones de la sociedad civil en la legislación mexicana , p. 44-45. 37 Other not- for-profit CSOs pay income taxes on unrelated income or income from providi ng services to non-members if
that income exceeds 5 percent of the CSO’s total income. See LISR Article 93.
38 See discussion on page 26.

15
To be eligible to receive authorized donee status, an organization must engage in one of the
following activities:

• pro vide aid to the needy;
39
• engage in educational activities as defined by the General Education Act;
• undertake scientific or technological research;
• engage in activities to protect the environment;
• support or promote culture or the arts;
• preserve national treasures;
• defend and promote human rights;
• grant scholarships; or
• make grants to other authorized donees.

An authorized donee,
regardless of its particular
legal form, must comply
with a number of
operational and financial
rules as set forth in LISR
and enforced by the SAT.
Specifically, an authorized
donee must first obtain a
letter of accreditation from
another government
agency stating t hat the
organization does in fact
pursue the goals for which
it was organized and
devote its assets exclusively to the pursuit of these goals.
40 It may not distribute assets to any
individual or entity except for payment of services rendered or transfers to other authorized
donees. It may not participate in political activities.
41 Authorized donees must also limit
administrative expenditures to 5 percent of tax -deductible donations and any interest income
derived from these donations. Upon the organization's dissolution, any remaining assets must be
transferred to another authorized donee as set forth in a mandatory irrevocable provision in the
organization's statutes.
39 Providing aid to the needy includes the following support: subsistence, medical, psychological, education and training
for employment, prevention and attention in disasters, intra -family violence, legal, disasters, and funeral assistance, those
working wi th refugees and migrants, and on gender equity issues. See LISR Article 95.
40 The SAT grants authorized donee applicants temporary status, providing them with a six -month window to obtain the
accreditation letter.
41 According to LISR Article 97 II, CSOs with authorized donee status “shall not be entitled to intervene in political
campaigns or to become involved in activities of propaganda or intended to influence legislation.”
The same article carves
out an exception for CSO publications or analyses that do not have a proselytizing nature, as well as for technical
assistance provided to government entities at their written request.

*Data from SAT, June 2012.
5,432
5,430 5,754
5,996 6,364 6,853
7,004
6,592
6,106
0
1,000 2,000
3,000 4,000 5,000
6,000
7,000 8,000
2004 2005 2006 2007 2008 2009 2010 2011 2012*
Authorized Donees

16
An authorized donee must adhere to the SAT’s administrative oversight and transparency rules.
Pursuant to amendments to the tax code made in 2007, an authorized donee must inform the SAT
about any transactions with related parties, and about services provided and goods acquired from
donors.
42
An authorized donee is generally required to undergo an annual audit, although the SAT
has exempted organizations with annual income less than two million pesos from this
requirement.
43 Authorized donees must renew their status every year. Authorized donee status
may be revoked by the SAT if an organization fai ls to meet its compliance obligations. In the first
half of 2012 alone, the SAT stripped 756 authorized donees of their status because they failed to
comply with reporting requirements.
44
Notwithstanding this reduction in the total number of authorized done es, organizational
applications for authorized donee status have increased tremendously over the last several years.
From January to July 2011, the SAT received almost 700 applications for authorized done status, a
12 percent increase in applications.
45 This may be a result of the SAT introducing a more
streamlined online application system; amendments to the tax regulations that expanded the
universe of organizations eligible for authorized donee status; or the reduction in the time that it
takes to proc ess applications from an average of nine months to three.
CSOS REGISTERED UNDER THE PROMOTION LAW (CLUNIS)
The Federal Law for the Promotion of Activities Undertaken by CSOs (Promotion Law) of 2004
recognized the importance of CSO activities for Mexico’s d evelopment and created the Federal
Registry of Civil Society Organizations. Each organization listed in the registry is assigned a Unique
Registry Code (CLUNI) number, which is a prerequisite to obtain government funding. The
Promotion Law is intended to e ncourage civic activity, not to regulate the sector. The Promotion
Law establishes a general mandate for governmental ministries to facilitate greater CSO
participation in public policy development and encourages government funding for the sector. It
also recognizes a number of activities as being for the public benefit, including:
• social assistance
• nutritional programs
• civic participation
• legal assistance
• rural and indigenous development
• promotion of gender equality
• support for services for the disabled
• community development
• defense and promotion of human rights
• promotion of sports
42 See LISR §97(VII). 43 At the time of publication, two million pesos equaled approximately US$151,400. See Secretaría de Haci enda y Crédito
Público, Resolución Miscelánea Fiscal para 2012, sec. I.2.15.1 (December 2011).
44 SAT Statistics as of June 2012, available at:
ftp://ftp2.sat.gob.mx/asistencia_servicio_ftp/publicaciones/donatarias/Estadisticas_180612.xls .
45 Interview with SAT official.

17
•
health and sanitation
• environmental protection
• environmentally sustainable urban and rural development
• promotion of education, culture, the arts, science and technology
• improving the economy
• civil protection
• support for the creation and strengthening of civil society

CSOs with CLUNIs are prohibited from partisan politicking and religious proselytizing. Although
CSOs with CLUNIs are eligible to apply for government fundi ng for certain activities, the receipt of
government funding is not guaranteed. For example, only CSOs with CLUNIs are eligible to compete
for funding to provide social services such as job training or medical services under the Co –
investment Development P rogram offered by SEDESOL, but just like any competitive award process,
applicants are not assured funding.
Besides being eligible to apply for government funding, CSOs with CLUNIs are entitled to:
• Engage with the Technical Council, a consultative body est ablished under the Promotion
Law to facilitate better CSO -government relations and to foster greater participation in
policy development; and
• Participate in planning, executing, and monitoring politics, programs, projects, and
processes undertaken by the F ederal Public Administration (FPA) .
46

CSOs with CLUNIs must observe the operational, accounting, and reporting rules set forth in the
Promotion Law. These include having an accounting system consistent with generally accepted
accounting rules, and submitt ing annual reports to the Commission on the Promotion of Activities
for CSOs that state accomplishments, financial information, and how public support and benefits
were utilized. In the case of dissolution, a CSO with a CLUNI is required to direct the remainder of
its assets to another CSO with a CLUNI .
46 The FPA encompasses all ministries and agencies of the Mexican federal government.

18

Authorized Donees vs. CLUNIs
Of the approximately 40,000 private, not -for -profit organizations in Mexico, as of
December 2011, over 15,000 organizations were registered as CLUNIs and just under
6,000 organizations held authorized donee status. Approximately 2,500 organizations
have both designations. The number of CLUNIs has increased significantly since 2006,
when there were just under 4,000. At the same time, the number of authorized donees
has remained
almost the same. Among survey respondents, 95.2 percent (820
organizations) have CLUNI status, while just 5 percent (45 organizations) reported
having authorized donee status.

Experts and CSO representatives point to a number of reasons why the number of
CLUNIs nearly quadrupled from 2006 to 2011 while the number of authorized donees
remained stagnant. The most often cited reason, as discussed below, is the lack of
understanding about the process to become an authorized donee. In addition, the
compliance obligations for authorized donees are more difficult to meet.
* Chart from Michael D. Layton, “Focos rojos en las cifras sobre sociedad civil organizada”, Este País 247
(November 1, 2011), available at https://estepais.com/site/?p=35835 . Data from SAT, INDESOL, and INEGI.

0
2,000 4,000 6,000
8,000
10,000
12,000 14,000 16,000
Authorized Donees and CLUNIs
Authorized Donees
CLUNIs

19
C.
EXEMPTIONS FROM VAT, CUSTOMS DUTIES, AND OTHER TAXES
VAT
All Mexican individuals and legally constituted organizations that engage in the transfer of goods,
provision of services, gra nt of temporal use or enjoyment of goods, or importation of goods or
services within the national territory of Mexico are obligated to pay value -added tax (VAT) at the
rate of 16 percent.
47 Not –for -profit CSOs are exempt from paying VAT on the services they provide
if the services fall within the following categories:
• educational services;
• health services;
• public shows;
• publishing books, magazines, newspapers;
• lotteries and raffles; and
• the importation of goods donated by foreign residents to organizations with authorized
donee status as authorized by the SAT.
CUSTOM DUTIES
Organizations with authorized donee status that receive goods donated from abroad may apply for
exemptions from import taxes for certain in -kind donations.
48
Some types of exempt in -kind donations of particular relevance to CSOs include:
• ambulances and mobile clinics,
• school buses and computers for educational institutions,
• fire engines,
• garbage trucks,
• medical equipment and laboratory instruments, and
• whe el chairs and orthopedic equipment.
FLAT BUSINESS TAX
In January 2008, the new Flat Rate Business Tax Law ( Impuesto Empresarial a Tasa Única, or IETU
in Spanish) went into effect in Mexico. The IETU was the key component of a major tax reform
undertaken b y President Calder ón. According to the Flat Tax Law, Mexican individuals, legal
47 Tax Law (Ley del Impuesto al Valor Agregad o (LIVA)) §1. Please note that the VAT rate for the transfer of goods or
services in the Mexico -US border region is 11 percent. Id. §2.
48 See Guia para Donativos en Especie a Mexico, International Community Foundation (2008), available at
https://ficbaja.org/portal/images/documentos/guia_donativos_pdf.pdf .

20
entities, and non-
residents with “a permanent establishment in Mexico” are obligated to pay the flat
business tax on income earned from the following activities:
• Transfer of goods;
• Provision of independent services; and
• The grant of temporary use or benefit of goods.

Revenue earned by authorized donees is exempt from the flat tax if it is also exempt under LISR.
49
III. IMPACT OF REFORMS: S TUDY FINDINGS
The Fiscal Agenda identified several problems in the legal environment for CSOs and offered a
number of suggestions on how to eliminate or reduce the burden s they posed. Since the publication
of the Fiscal Agenda and in consultation with CSOs, the government has institu ted a series of
regulatory reforms and policy changes in an attempt to improve the environment for CSOs. Some of
the changes directly addressed the obstacles identified in the Fiscal Agenda , while others have
indirectly addressed these issues. Here we offer an analysis of the impact of these changes on the
major obstacles identified in the Fiscal Agenda , and other important issues as identified by survey
respondents, interviewees, and focus group participants of this study.

A. AUTHORIZED DONEES
BECOMING A N AUTHORIZED DONEE
ELIGIBILITY
ISSUE: The Fiscal Agenda noted that eligibility criteria to receive tax -deductible donations
(authorized donee status) were too restrictive. The eligibility criteria prescribed in the LISR did not
include all of the categories of activities recognized as “in the public’s interest” as set forth in other
Mexican laws, including the Promotion Law and the Social Assistance Law.
50 These narrow
eligibility criteria were one factor keeping the number of authorized donees relatively small, and
many CSOs undertaking public interest work were not able to access important financial benefits
that could help sustain their activities.

49 Flat Tax Law, § 4. 50 See Ablanedo, Las organizaciones de la sociedad civil en la legislación mexicana , p. 28-36.

21
Obstacles to Becoming an Authorized Donee
Identified in the
Fiscal Agenda
The Fiscal Agenda identified the difficulties CSOs faced in obtaining authorized donee status, complying with
regulatory requirements, and becoming financially sustainable as obstacles to a stronger civil society. In particular:
• The confusing and often contradictory laws that govern the sector made it difficult for CSOs and donors
to understand their rights and obligations.
• For many organizations, the high financial and human resources costs of acquiring and maintaining
authorized donee status outweighed the benefits.
• Many organizations were not eligible for authorized donee status because the LISR only recognized
limited categories of activities as being eligible for tax benefits.
• The government and the public had a negative view of the sector as a whole.

REFORM: Eligibility for authorized donee status has been expanded to include additional CSO
activities. Since 2007, the SAT expanded the universe of CSOs eligible to apply for authorized donee
status to include the following:
• gender equity groups;
• organizations that support immigrant rights;
• legal aid providers that serve a broader cross section of Mexican citizens;
51 and
• organizations that promote civic participation.
52

The expansion of eligibility for authorized donee status is a step in the right direction. One SAT
official highlighted the expansion of categories of CSOs eligible for authorized donee status to
include those promoting civic participation as having a “tremendous impact”:
I’m talking about those organizations that are in charge of auditing
the authorities or evaluating S tate transparency, human rights, and
neighborhood improvements: paving, trash collection, and even animal
rights… All these examples are included within the Public Services and
Works category, so there is now diversity among the types of
organizations eligible to receive authorized donee status.
53
Despite the position taken by the SAT, there continues to be disagreement among CSOs regarding
the reach of the reforms and a sentiment that the categories still need to be further expanded.
According to a press release issued in July 2012 by Fortaleciendo Causas Ciudadanas, a coalition of
CSOs:
Despite the important contributions that CSOs make to Mexican
society, many [CSOs] cannot access the authorized donee regime .
Many, even, cannot be considered as non -profit legal entities, in
accordance with Title III of the Income Tax Law , including social
51 Resolución miscelánea fiscal para 2008 , Sección I. 3.9.6. 52 See Resolución miscelánea fiscal para 2008, Sec ción. I.3.9.3. 53 ICNL interview with key SAT official, September 2011.

22
organizations that aim to promote civic engagement, defend consumer
rights or freedom of speech and press, strengthen
other CSOs or
promote education. This outdated tax system does not encourage
philanthropy and denies the right to enjoy tax incentives to most
CSOs.
54
This issue was also raised by several focus group participants:
Article 5 of the Promotion Law [Ley de Fomento] describes all
activities that are recognized by the Mexican State as matters of public
interest and should be supported by government agencies, including
fiscal stimulus.
We have not yet been authorized to issue tax deductible receipts. We
had some problem s because our social purpose is not recognized by
Article 95 of the Income Tax Law…We have truly tried to expand the
social purposes [of the organization] in order to access the donee
registry.
APPLICATION PROCESS
ISSUE: According to the Fiscal Agenda , CSOs found the procedure for becoming an authorized donee
to be bureaucratic and expensive. In addition, information about the process was not adequately
accessible to stakeholders.
REFORMS: The SAT has adopted a number of new technologies in an effort to streamline the
application and reporting process es for authorized donee status. For example, applicants may
submit some documents required for authorization online using electronic signature technology.
While the increased use of technology may have helped to reduce some of the costs associated with
applying for authorized donee status and helped to speed up the SAT’s response time, the process
remains cumbersome. For example, one focus group participant complained that technical glitches
in the on- line system left her organization unable to access the SAT website for extended periods.
The SAT has had a guide about the process for becoming an authorized donee for a number of
years. In August 2008 and again in February 2012, the SAT revised the language in i ts handbook
Authorized Donees: Requirements, Benefits, and Tax Obligations,
55 supplementing this general
manual with more detailed descriptions of each step of the authorization process on its website.
The SAT now provides applicants with written instructio ns about the procedures that must be
followed throughout the authorization process, and has included the estimated amount of time each
step should take.
54 See July 13, 2012 Press Release, Organizaciones de la sociedad civil reiteramos al SAT nuestra demanda para que amplié
el régimen de donatarias autorizadas , available at:
https://www.causasciudadanas.org/2012/07/comunicado -de -oscs-
para -el -sat -sobre.html . 55 Donatarias Autorizadas: Requisitos, ventajas, obligaciones fiscales (SAT: 28/02/12), available at:
ftp://ftp2.sat.gob.mx/asistencia_ftp/publicaciones/folletos12/donautoriz_03052012.pdf .

23
These changes have helped to provide better information to stakeholders about the application
process, likely contributing to the increasing number of applications for authorized donee status
over the last two years.

Although there are now a number of re sources explaining the process to obtain authorized donee
status, the CSO survey respondents and focus group participants point to the need for additional
information about the process. According to one focus group participant:
One of the greatest difficul ties at the beginning was discovering where
we could find information about the right path to processing the
application to be able to issue tax -deductible receipts.

The lack of information available about the process was chief among the issues that have frustrated
respondents in their efforts to obtain authorized donee status , as shown on the following chart. T he
majority of survey respondents reported that their organizations have not ever pursued authorized
donee status because they did not have enough information about the process.
S urvey responses reflect the difficulties
CSOs experience when applying for
authorized done e status. When asked
whether they had ever applied for
authorized donee status, 59 percent of the
829 respondents to the question an swered
affirmatively. In response to a follow -up
question that asked whether the SAT
eventually approved the application for
authorized donee status, j ust 45 CSOs
surveyed responded affirmatively; the
majority of the remaining CSOs that
participated in the survey did not respond to th is follow -up question.
Notwithstanding recent efforts by the SAT to educate various ministries and standardize their
processes for issuing accreditation letters, CSOs participating in this survey identify the
accreditation let ter as a particularly significant source of confusion and delay. Of the 422 CSOs that
answered the survey question about obstacles encountered in soliciting the accreditation letter , 26
percent reported difficulties figuring out how to apply and 27 percent stated that the government
office took over 90 days to respond to the request for an accreditation letter.
Among those CSOs whose applications for authorized done e status were rejected, 60 percent
reported that the SAT required specific technical correct ions; 20 percent stated that the SAT
provided no explanation at all for rejecting the application; and another 20 percent assert ed that
the SAT’s reasons for rejecting the application were misguided.
Some SAT officials agree that they should do more to ma ke their guides and materials about the
application process for becoming an authorized done e more accessible to CSOs; however, a lack of
Not enough
information, 73%
Organization
is ineligible, 10% Prohibitive
cost, 4% Prohibitive
regulations, 13%
Why didn't your organization apply for
authorized donee status?

24
resources
– both financial and human – prevents the agency from undertaking additional activities.
In contrast, INDESOL , the agency that governs CLUNIs, has undertaken an active campaign to
educate CSOs about the process to become a CLUNI. In part, this may be explained by the different
objectives of the two agencies. INDESOL views the promotion of CSOs as an integral part of its
mission. The SAT, on the other hand, is focused on administration of the tax system; expanding the
number of authorized donees who can receive tax -deductible donations is not a principal goal of
the agency.
PROFESSIONAL SUPPORT
ISSUE: When the Fiscal Agenda was drafted, many CSOs found it difficult to navigate the process to
become an authorized donee without the assistance of legal or accounting professionals. This
problem was compounded by the fact that there were not enough lawyers and accoun tants with
knowledge of the fiscal framework for CSOs. Recognizing this problem, the Fiscal Agenda
recommended training for such professionals to ensure that they have the appropriate knowledge
to assist CSOs in this process.
REFORM: To address this probl em, the SAT developed a registry of legal and accounting
professionals to support authorized donees. In addition, the SAT offers continuing education classes
for legal and accounting professionals on issues pertinent to authorized donees.
Despite these efforts, CSOs may still experience difficulties locating or affording a knowledgeable
professional. Overall, close to 47 percent of respondents claimed that they changed legal or
accounting advisors because they lacked necessary expertise. One focus group par ticipant
described the down side of free legal assistance in navigating the authorized donee application
process:
We tried [to apply for authorized donee status] over the course of
three years without accomplishing anything. We were lucky to find
a legal firm with a pro bono department that took on our case and
resolved the application process in nine months. But some things
happened that seemed illogical to me. What absolutely caught our
attention is that in order to receive authorized done e status they
e liminated some of the activities that appeared in our Charter, like
cultural and recreational activities, despite the fact that Mexico
has signed an international treaty in which it clearly states that
disabled persons have the right to this type of activity. These
disappeared from our Charter, although we continue to do them.

25
REPORTING REQUIREMENTS

ISSUE: The Promotion Law and the LISR require organizations subject to them to provide reports.
However, the Fiscal Agenda note d that organizations are primarily required to report to the
government. Organizations had limited obligations to provide information to the public. Making
programmatic and financial information more accessible to the public could improve sectoral
transpar ency and accountability.
REFORM: In 2007, the SAT introduced an online reporting mechanism for authorized donees in an
effort to increase transparency. Authorized donees must submit reports in order to renew their
authorized donee status. R eports submitted through this system are available to the public.
The online reporting system increase s the accountability and transparency of authorized donees
and provides useful information to the public . Many Mexicans , however, do not know about the
website or are un able to access this type of technology. Moreover, at least one focus group
participant complained that the on -line reporting system has proven to be unreliable in practice:
We had always [submitted required reports] and never had a
problem, but they [the SAT] told the accountant that everything
was now on the I nternet and that she had to do it on -line. She tried
to do it on the I nternet, and the system was always down. She
returned to [the SAT] and they told her there was nothing they
could do; that i t had to be via I nternet. And then the time for
renewal ran out and they told her that there was no way to renew
the status; that she had to apply all over again. And that’s what
we’re doing now.
ISSUE: Authorized donees with annual income above a certain amount are required to undergo an
annual audit. The Fiscal Agenda noted that the limit should be higher, as the audit requirement
placed an unreasonable burden on smaller CSOs.
REFORM: In an effort to reduce the administrative and financial burdens on aut horized donees, the
SAT substantially raised the threshold annual income for mandatory , and costly, external audits
from 400,000 pesos to 2 million pesos in 2011.
56 This reform provides real relief for small and
medium- sized authorized donees
57, and removes one disincentive for CSOs that wish to apply for
authorized donee status but are uncertain whether the potential to receive tax -deductible
donations is sufficient to justify the associated costs.

56 Resolución Miscelánea Fiscal para 2012, Sec. I.2.15.1 (D ic. 2011) 57 While ICNL’s survey did not ask about the number of CSOs that would qualify for this relief, o ver 70 percent of survey
respondents reported annual budget s less than 500,000 pesos.

26
FISCAL FRAMEWORK GOV
ERNING AUTHORIZED DONEES
The fiscal f ramework governing authorized donees is very complex, leading to confusion among
CSOs, donors, and other stakeholders about their rights and obligations.
TAX TREATMENT OF DONATIONS
ISSUE: According to the Fiscal Agenda , many CSOs felt that greater tax incentives would encourage
greater Mexican philanthropy .
58 At the same time, however, the GoM believed that tax exemptions
for donations were too generous.
REFORM: Prior to 2007, an individual or corporation in Mexico could deduct 100 percent of the
donations m ade to an authorized donee from gross taxable income. In 2007, however, Mexico
introduced fiscal reforms, including the introduction of a flat tax (IETU) for both individuals and
corporations. The IETU limits deductions for donations to organizations with authorized donee
status to 7 percent of the donor’s taxable income (utilidad fiscal) as set forth in the LISR .
59
The charitable deduction was preserved in the flat tax only as a result of civil society
representatives’ efforts to educate the legislature ab out the importance of maintaining this
incentive to donate. The GoM argued that the introduction of a flat tax necessarily brings with it the
elimination of nearly all previously available exemptions and deductions. However, the legislature
was persuaded b y the evidence presented by civil society groups about both the need to preserve
the tax deduction for donations to authorized donees and international examples of similar flat tax
rates with deductions.
CROSS- BORDER DONATIONS
ISSUE: According to the Fiscal Agenda , “The provisions regarding cross- border in-kind and cash
donations are unclear, a situation which fosters arbitrary application of the related provisions and
causes delays and complications, ultimately discouraging these donations.” The situation regarding
cross -border donations was complicated in 2002 when Mexico significantly restructured its Tax
Code. Among the provisions that were relocated and renumbered was the LISR provision cited in
the United States – Mexico Income Tax Convention to identify the category of CSOs eligible to
receive cross -border, tax -deductible donations. Because the provision cited in the Convention no
longer referred to authorized donees, US donors were unsure of their ability to claim a deduction
for donations t o such organizations.
REFORM: The Border Philanthropy Partnership , the International Community Foundation (ICF),
and Fundación Internacional de la Comunidad (FIC) worked with a member of the Mexican
Congress , Lic. Carlos Torres Torres from Baja California , to produce and publish a bilingual guide
that explains the tax treatment of cross -border in -kind donations to authorized donees.
In addition to this guide, the SAT published an opinion letter in 2008 clarifying the provisions of the
LISR affecting cross -border donations with the United States. With this letter, the SAT confirms that
58 See Fiscal Agenda , p. 55. 59 See Flat Tax Law § 5(VIII) , LISR § 31.

27
Mexican authorized donees are equivalent to the class of CSO identified in the United States –

Mexico Income Tax Convention.
60 This means that US donors can make tax -deductible donations to
such organizations, thereby reestablishing a useful incentive for US donors to support Mexican
authorized donees.
Despite the reforms related to both the tax treatment of donations and cross -border donations,
some stakeholders still struggle to understand the fiscal framework. Of the CSOs surveyed, 39.6
percent reported that their organizations’ staff had little knowledge of the tax laws governing CSOs,
and 6.8 percent reported that they have no knowledge at all about the tax laws governing C SOs in
Mexico.
B. PUBLIC FUNDING
ISSUE: The criteria for accessing public funds vary dramatically from ministry to ministry.
According to the Fiscal Agenda , “creating uniformity of criteria for access and operating rules for
public funds available to CSOs from a variety of ministries and public institutions is necessary in
order to ensure equity in distribution of such funds.”
61 Very few organizations receive public
funding.

REFORM: Some ministries, including the Ministry of Social Development, SEDESOL, have adopted
uniform criteria for funding applications. These ministries have also adopted a streamlined system
to process applications from CSOs seeking eligibility to receive govern ment funding and have
extensively overhauled their websites to provide applicants and the public with much more
information about the process to receive funding, among other improvements. For example, CSOs
with CLUNIs are able to apply for funding entirely through the INDESOL website.
Even with these improvements, o ver 40 percent of respondents stated that they do not receive
government funding . As the chart below indicates, o f the respondents that have not receive d public
funding, 57.8 percent reported th at they had attempted to receive public funds without success , 25
percent said that they did not know that they were eligible, and 13 percent said they did not want
to have to deal with the legal requirements and restrictions that c ome with public funding.
60 See, for example, SAT letter 600 -04 -05 -2008 -74888, Exp. 243, Reg. 13818/08 to the Instituto Tecnológico Autónomo de
México, July 4, 2008.
61 Fiscal Agenda , p. 56.

28

C.
ECONOMIC ACTIVITY
ISSUE: As the Fiscal Agenda stressed, the creation of a strong, independent, and vibrant CSO sector
depends in part on the ability of CSOs to access diversified funding sources. In addition to grants
and donations, these include mem bership dues, investment income, and income from economic
activities. Economic activities can be defined as “regularly pursued trade or business involving the
sale of goods or services.”
62
According to international best practices, CSOs should be allowed to engage in and earn income
from economic activities as a means of supporting their missions. Of course, the law usually sets
limits on the extent to which a CSO may engage in economic activity. The most basic restriction
included i n most laws governing CSOs around the world is the non- distribution provision, which
states that CSOs may earn a profit, but are prohibited from distributing that profit to any
individuals, including members, founders, officers, and employees. Thus, all pr ofits must be used to
support the CSO’s operations. In some cases, the laws permitting CSOs to engage in economic
activities may also impose an express limitation that a CSO only use the income to support its
statutory goals. Further limitations may includ e, for example, that the economic activities be related
to a CSO’s mission, or that the economic activities be incidental or accessory to the mission.
The income derived from economic activities is a critical source of income for Mexican CSOs.
63
62 Survey of Tax Laws Affecting Non- Governmental Organizations in Central and Eastern Europe, 2nd edition , p. 16 (ICNL:
2003) .. Note that what constitutes economic activity is frequently undefined in countries’ laws.
63 See Michael Layton, “Philanthropy and the Third Sector in Mexico: The Enabling Environment and Its Limi tations,”
NORTEAMÉRICA. Year 4, number 1, January -June 2009, p. 99; see also JHU study and Fiscal Agenda .

If you have not received governm ent or public funding, why not?
148
63
33
20
14
10
7
7
020 406080100 120140160
Ap p lied w ithout success
Did n’t know w e w ere eligib le
P refer not to d ea l w ith lega l req uirements a nd restrictions
O ther fund ing is sufficientNev er a p p lied
Not congruent w ith our mission O rga niza tion la cks ca p a city
O ther

29
REFORM:
A 2010 amendment to the tax law permits authorized donees to earn income from
economic activities unrelated to the purpose for which they are authorized to receive tax –
deductible donations.
64 This income will not be taxed unless it exceeds 10 percent of the
organization’s total income. Income from unrelated economic activity that exceeds 10 percent of
the organization’s total income will be taxed at the current corporate rate.
65
Passage of thi s amendment was controversial. Many in the CSO community interpreted the law
before amendment to permit an authorized donee to earn income from unrelated economic
activities so long as it did not constitute “a substantial part of its income,”
66 which some C SOs
interpreted to mean up to 49.9 percent of their income. They thus perceived the amendment as a
new limitation on the amount of tax -free income they could earn from unrelated economic activity.
The amended law has also been criticized because it does no t clearly define what is considered
related and unrelated business activities. The law is also silent on how to calculate the 10 percent
limit. For these reasons , some Mexican authorized donees argue that identifying and taxing
unrelated income has placed new administrative and financial burdens on them.
As a result of an advocacy campaign by civil society groups, the office of the President granted a
two -year tax holiday on the amount earned above the 10 percent limit until December 2013.
67 It is
not yet cl ear what impact this amendment will have once implemented.

64 LISR Art. 93. LISR Article 93 also provides that authorized donees are not required to pay income tax on economic
activities that are related to the objectives for which they were granted authorized donee status. Distinguishing between
related and unrelated activities, however, can be complicated for both CSOs and the SAT.
65 Corporate tax rate for 2012 is 30 percent. See LISR regulations 2012. 66 Interviews with M. Layton and C. Castro (September and November 2011). 67 Presidential Decree of May 2010 extending stimulus tax holiday until December 2013, available at:
https://dof.gob.mx/nota_detalle.php?codigo=5213835&fecha=12/10/2011 .
.
Sources of Income for Mexican CSOs

The majority of CSOs surveyed for this study, 57.2 percent, reported that they sell products or
charge fees for services. Of those CSOs that do not sell products or charge fees for their services:
• 42.5 percent believed that su ch economic activities would be inconsistent with their
missions;
• 32.3 percent reported that they did not have the organizational capacity to do so; and
• 16.3 percent reported that they did not want to deal with the tax consequences related to
selling pro ducts or charging fees for services.

30
IV.
REMAINING OBSTACLES AND RECOMMENDATIONS
Although a number of reforms have been implemented to strengthen civil society since 2007 when
the Fiscal Agenda was published , several obstacles remain to fostering a strong, independent, and
financially sustainable civil society sector in Mexico.

A. HARMONIZATION OF THE LAWS AND POLICIES OF THE FISCAL FRAMEWORK
The fiscal framework in Mexico is made up of complicated laws and policies that are often
contradictory, making it very difficult for stakeholders to identify their rights and obligations under
the law and to take advantage of existing benefits. In addition, the fiscal framework is not
consistently applied. In particular, the lack of harmonization b etween the LISR and the Promotion
Law , as well as other laws affecting CSOs , results in gaps and overlaps that leave CSOs vulnerable to
unintended missteps and selective enforcement. For example, the Promotion Law recognizes CSOs
that foster economic development as in the public interest ; however, these same groups are not
eligible for authorized done e status under the LISR. A coalition of CSOs called Fortaleciendo Causas
Ciudadanas (Strengthening Citizens’ Causes) contends that CSOs dedicated to the promotion of civic
participation, consumer rights, freedom of expression and the press, strengthening other CSOs, or
promoting education fall outside of the definition of not -for -profit legal entities set forth in Title III
of the LISR and are therefore not eligible for fiscal incentives, including authorized donee status .
68
Piecemeal legislative reform efforts designed to address the lack of consistent treatment of
categories of CSOs across these separate laws have unfo rtunately compounded the confusion. For
example, the Mexican legislature adopted a provision in the 2012 Revenue/Budget Act that allow s
organizations eligible to receive benefits under the Promotion Law also to receive tax -exempt
status temporarily under the LISR .
69 In effect, this provision harmonizes the two eligibility regimes
for the purposes of income tax exemptions during fiscal year 2012 only. Some organizations argued
that, in addition to extending tax -exempt status to CSOs eligible under the Promoti on Law, this
temporary provision also permits Promotion Law-eligible organizations to apply for authorized
donee status, with the corresponding tax incentives for donations. During the implementation of
this study, ICNL spoke with one of the drafters of th e temporary provision , Roberto Cantu. Mr.
68 See July 13, 2012 Press Release, Organizaciones de la sociedad civil reiteramos al SAT nuestra demanda para que amplié
el régimen de donatarias autorizadas (available at:
https://www.causasciudadanas.org/2012/07/comunicado -de -oscs-
para -el -sat -sobre.html ). Some of these assertions are not easily reconciled with the letter of recent reforms. For example,
CSOs promoting civic participation are eligible to apply for authorized donee status, though they are required to first
enter into an agreement with a government agency to carry out a particular activity. (See Resolución Miscelánea Fiscal
para 2012, Sec. I.2.15.1 (Dic. 2011).) Similarly, CSOs dedicated to human rights are eligible for authorized donee status,
and freedom of expression and the press are fundamental human rights that would seemingly fall within that category. It
may be that the SAT is interpreting the authorized donee eligibility provisions strictly, and that in practice, CSO statutes
are deemed ineligible if they specify promotion or defense of a particular right rather than human rights in general. It is
also possible that CSOs are not aware of the recent reforms regarding eligible activities.
69 The 2012 Revenue/Budget Act includes a provision that says that all organizations that undertake activities listed
under Article 5 of the Promotion Law will be consi dered Public Assistance Institutions for purposes of Article 95 of the
Income Tax law for fiscal year 2012. See Causas Ciudadana: Promueven ampliar regimen de donatarias autorizadas en Ley
de Ingresos de la Federación 2012 available at:
https://www.causasciudadanas.org/2011/10/dictamen -ley -de- ingresos -de –
la.html .

3
1
Cantu said that the legislative intent was only to extend tax -exempt status to the additional
organizations – not to make them eligible to become authorized donees .
70 As a practical matter,
observers have noted that th is expansive interpretation of the recent reform has not been pursued ;
as of May 2012, only one CSO has reportedly applied for authorized donee status citing the law.
71
Without a clear legal framework, stakeholders do not have a clear understanding of their rights and
obligations under the law. Consistency and certainty are needed in all areas of the legal framework
to ensure greater acceptance of the rule of law by citizens. Clear and simple laws and policies
agreed to and known by all parties could dram atically improve the fiscal framework and the overall
legal environment for CSOs by making the application of the law less arbitrary. Therefore, a
comprehensive reform effort to amend the LISR is needed to resolve this problem , as the temporary
efforts taken so far only act to compound the problem.
B. STANDARDIZATION AND SIMPLIFICATION OF AD MINISTRATIVE
PROCEDURES
While much has been done to simplify administrative procedures related to the process of
becoming and remaining an authorized donee, additional obstacles remain. Two significant issues
that were identified in the Fiscal Agenda have not yet been addressed : the extremely low 5 percent
cap on administrative expenditures and the nebulous accreditation process necessary to obtain
authorized donee status.
Administrative Cap: Article 110 of the Income Tax Law Regulations (RISR) establishes that in no
case may an authorized donee cover administrative costs us ing more than 5 percent of its tax –
deductible donations and any interest income derived from these donations. A n authorized donee
may cover administrative costs without limitation using income from sources other than donations
(for example, income from economic activity or public funding) . In essence, the administrative cap
unfairly penalizes authorized donees that are successful in raising a significant portion of their
income from tax -deductible donations.
72
An additional problem stems from the fact that t he definition of administrative expenses is
awkwardly drafted and contains a lengthy and non -exclusive list including rental fees, office
products, utilities, taxes, and legal fees, while also noting that paymen ts necessary to fulfill the
authorized donee’s social objectives fall outside of the definition.
73 This vague definition has led to a
great deal of confusion among CSOs about what they should classify as administrative expenses. It
70 ICNL interview with Roberto Cantu, November 2011 (Mexico City). 71 ICNL interview with SAT officials, June 2012 (Mexico City). 72 Although only 5 percent of survey respondents are authorized donees and therefore affected by this restriction, over a
third (35.5 percent) of respondents listed donations from individuals as a primary source of funding.
73 For the purposes of this provision, administrative costs considered to fall within this non -exclusive list are those related
to office and administrative expenses: remuneration of personnel; renting property and furniture; telephone; electricity;
paper pr oducts; maintenance and conservation; federal and local taxes and rights; and legal contributions and fees.
Payments that the authorized donee must make to fulfill its social objectives directly fall outside of the definition of
administrative expenses.

32
is not clear, for example
, whether payments to administrative personnel, external auditors,
institutional capacity building consultants, or other expenses that might help strengthen an
authorized donee would fall within the definition of administrative expenses. Some CSOs find it
difficult to cover such costs, along with other listed administrative expenses, while respecting the 5
percent cap.
The authorities argue that th e 5 percent limit was established to prevent abuses by CSOs. However,
the low ceiling on administrative expenses, combined with the complexity of deciding whether to
categorize expenses as administrative, impose s a tremendous burden on CSOs . Some CSOs argue
that decisions about limits on expenditures devoted to administrative activities should be made by
individual organizations’ management and donors. Ultimately, insistence on this unrealistic limit
serves to undermine CSO compliance with the letter of the law. The government and CSOs would
both be well -served by re -examining the need for this requirement. If they choose to retain a cap on
administrative spending, those costs should be clearly defined, and the limit should be compatible
with sound CSO administrative practices.
Accreditation Letter: To verify that a CSO does in fact undertake the activities for which it seeks
authorized donee status, the SAT requires CSOs to obtain a letter of accreditation from a qualifying
government agency, in which the agency affirms that the CSO conducts the activities. This system
was put in place because the SAT lacks the exper tise and resources to investigate applicants that
assert statutory objectives corresponding to a broad range of eligible activities. However, there is
no universal criterion for the issuance of the accreditation letter; thus, the process – along with
costs and delays – varies from agency to agency.
There may be alternatives to the accreditation letter that more efficiently accomplish the goal of
preventing tax -deductible donations to ineligible CSOs. The tax authorities of many countries rely
on periodic reporting regarding programs, activities, and expenditures to ensure that public benefit
organizations continue to carry out public benefit activities.
The SAT could thus consider eliminating the accreditation letter requirement altogethe r. Rather
than devoting scarce resources to attending to accreditation requests, agencies could inform the
SAT if, during their routine oversight activities, they learn that an authorized donee is not carrying
out eligible activities.
If the accreditation letter requirement is maintained, then the government and CSOs could identify
agencies with good practices in handling the accreditation process, and promote adoption of similar
processes among all issuing agencies.

C. STAKEHOLDER CAPACITY BUILDING
Study participants pointed to the lack of stakeholder capacity – particularly among CSOs and the
government – as the source of a number of obstacles .
• Many CSOs operating in Mexico do not have the tools or resources needed to operate a
successful organization , and operate with very limited staff. Under -resourced organizations

33
may find it difficult to learn about the regulations that govern their rights and obligations,
develop appropriate ad
ministrative structures, and implement effective institutional
assessm ents and evaluations of their work, among other things.
CSO survey respondents cited a lack of institutional capacity as the primary reason for not
developing fundraising initiatives that target the public. Of the CSO respondents that
reported no fundrais ing activities, the main reasons for failing to pursue such initiatives
included a disinclination to deal with the associated legal requirements (42 percent) and a
lack of fundraising capacity within their organizations (33 percent).
Investing in the capa cities of CSOs could benefit donors as well as CSOs and beneficiaries.
While donors benefit from more capable and reliable partners on the ground, CSOs benefit
from needed capacity and institution building. Longer -term donor commitments to CSOs
could also translate into longer -term engagement between CSOs and their beneficiaries.
CSOs have need for t raining on legal issues, management, accounting, and evaluation. This
could include joint training and capacity building events, establishment of forums for
con sultation and dialogue, and scaling up partnerships between local governments and
CSOs. There are already a number of CSOs that have implemented training programs,
including Fortalece Legal, a CSO dedicated to training CSOs and law students in the laws
gov erning the sector. Other CSOs, including Alternativas y Capacidades, as well as
universities, including Universidad Iberoamericana and the Instituto Tecnol ógico y de
Estudios Superiores de Monterrey (ITESM) , have introduced similar courses covering the
law s governing CSOs . Such efforts could be expanded. The SAT might also consider
organizing regional workshops to explain the fiscal reforms for authorized donees to CSOs
across the country and encourage organizations to participate in them.
• At the same time, government regulators, including the SAT, lack adequate resources to
effectively implement and enforce the laws. Several stakeholders , including focus group
participants, pointed to the lack of capacity among government regulators – the S AT
specifically – as a reason for the widespread confusion among CSOs and other stakeholders
about the fiscal framework. Although the SAT has taken important steps to improve its
capacity to effectively regulate authorized donees, the agency is not adequat ely equipped
with personnel or resources to ensure compliance with its own rules.
74 As an example, the
SAT made a number of improvements to the authorization process, as previously discussed,
which reduced its response time to applications for authorized do nee status dramatically.
However, as noted above, the number of applicants for authorized done status has
increased in recent years. This trend is continuing, suggesting that the SAT’s capacity may
soon face strains. The SAT’s capacity must be expanded so it can implement the laws
governing authorized donees more effectively.
• Another obstacle that stakeholders have consistently identified is the lack of lawyers and
accountants knowledgeable about issues affecting the sector and available to provide advice
74 Interview with SAT officials.

34
about navigating the fiscal framework. Nearly half –
46.7 percent – of CSOs surveyed
reported that they have had to change their legal or accounting advisors because of their
lack of knowledge.
Although the SAT has instituted continuing education workshop s for these professionals,
the number of qualified professionals willing to support CSOs is still too small. A number of
professionals who participated in th e focus group cited the lack of knowledge of CSO-
related issues as one reason why there are so few professionals that assist CSOs; however,
they also noted their belief that professionals are not able to make a sustainable living
working in this area.
The SAT should continue to take steps to educate experts like notaries about the process for
becoming a n authorized donee in order to ensure that they have the appropriate knowledge
to assist CSOs. Several CSOs , including the Appleseed Foundation and the Cyrus Vance
Center for International Justice, independently support programs to encourage lawyers to
off er pro bono services to CSOs in Mexico.
75 New training efforts focusing on authorized
donee status could build on existing programs that encourage lawyers to offer pro bono
services to CSOs with the aim of ensuring that volunteer lawyers are well- prepared to
address this issue.
D. GOVERNMENT -CSO ENGAGEMENT
Some groups of CSOs collaborate effectively with policy makers and positive steps have been taken
to improve engagement between CSOs and the government . For example, there are some
institutionalized mechanisms to foster communication between CSOs and the government, like the
Technical Council established under the Promotion Law . However, both the government and CSOs
agree that there should be more frequent and constru ctive dialogue between the two sectors . In
addition, the number of CSOs engaged in such dialogue should be expanded. As a result of long-held
opinions, government and some CSOs have a weak understanding about each other’s objectives and
activities. The absence of a consistent government policy towards civil society , reflected in the
inconsistent definitions of public benefit organizations in the Promotion Law and the LISR,
compounds misunderstandings between CSOs and government officials . One focus group
pa rticipant remarked on the sometimes tense relationship:
People in the Third Sector often feel persecuted or as tax
delinquents because they start with good intentions, wanting to
help, and the government accuses them of tax crimes…
While full consensus bet ween government officials and civil society is an unrealistic goal,
misunderstandings rooted in lack of communication could be overcome. In order to improve CSO –
g overnment engagement , leaders from both sectors could explore creative options for dialogue.
E xisting mechanisms, such as the Technical Council and the P rivate Assistance Boards , should be
75 See, for example, Red Pro Bono Mexico at: https://probono.org.mx .

35
strengthened
to promote dialogue between the sectors , but other avenues should also be created to
increase engagement. CSO and government representatives might b uild on the experience of multi-
sector working groups to address discrete issues, for example, how best to address the requirement
of an accreditation letter for authorized donee applicants – a requirement that has been
administered differently by various government agencies.
76 The working groups could identify best
agency practices and document the costs and benefits of the requirement for CSOs, the SAT, and the
accrediting agencies. The dialogue might not lead to elimination of the requirement, but it coul d
contribute to a more accurate understanding of its impact across the CSO sector. Such efforts should
seek to engage a broad number of CSOs and government officials.
E. WEAK PUBLIC IMAGE OF CSOS
As a sector, CSOs in Mexico suffer from a weak public image . In a CIVICUS/C emefi study, 54.6
percent of CSOs surveyed said that cases of corruption among civil society are “frequent,” or “very
frequent.”
77 Half of the CSOs surveyed for this study cited the public’s negative perception of CSOs
as a reason for the relatively low level of donations made to civil society in the country. In addition,
there is “a limited understanding of what civil society organi zations do, what their aspirations are,
and what impact they can have in the promotion of equitable development in Mexico and in the
world.”
78 As a result of this negative public image , many potential Mexican donors – both
individuals and institutions – do not support CSOs .
Further exacerbating the problem, CSOs are not recognized for the valuable work they do. The 2008
ENAFI survey found that 92 percent of Mexicans said that neither they nor anyone in their families
"received support from a foundation or charity or any nonprofit institution." In fact, CSOs channel
more than 1.4 billion pesos a year to social projects.
79 In some fields, such as assisted living facilities
for the elderly, CSO representatives argue that services provided by the sector far surpass those
provided by the federal government. It appears, then , that many Mexican citizens fail to associate
particular service providers with the civil society sector . This weak public image makes it difficult
for CSOs to recruit volunteers, attract donatio ns, and influence public policy.
CSOs must improve the reputation of the sector , as well as of individual organizations, by
disseminating information about the value and impact of the sector’s work. CSOs have started to
analyze data that shows the tremend ous impact they have on Mexico’s development.
However, this
data has not been disseminated widely. To improve the sector’s public image, CSOs must conduct
research and disseminate data and information to donors, policy makers, and the public about the
pos itive impact they have on Mexican society.
80
76 See discussion on page 32 . 77 CIVICUS Civil Society Index Analytical Report for Mexico , p. 49. 78 Michael Layton, “Flat Taxes, Santa Claus, and Charity: T he Need to Strengthen Civil Society in Mexico,” International
Journal for Not -for -Profit Law Volume 9, Issue 4, August 2007.
79 Fiscal Agenda , p. 17 . See also Las organizaciones de la sociedad civil en la legislación mexicana . 80 See Michael Layton, “Philanthropy and the Third Sector in Mexico: The Enabling Environment and Its Limitations,”
NORTEAMÉRICA. Year 4, number 1, January -June 2009.

36
F.
PHILANTHROPIC CULTUR E IN MEXICO
Throughout this study, stakeholders have identified the lack of a formal philanthropic tradition in
Mexico as one of the principal barriers to CSO financial sustainability.
81 T he Johns Hopkins
University (JHU) Comparative Nonprofit Sector Project study found that the level of domestic
philanthropy in Mexico was exceptionally low compared to other countries studied . At just 0.0 4
percent , Mexico dedicated the lowest percentages of GDP to philanthropy of all countries studied.
82
Among the close to 570 respondents to a question in ICNL’s survey, over 60 percent claimed that
Mexicans do not traditionally donate to CSOs , as seen in the following chart.

E ven at the highest levels of g overnment and society, the effectiveness of philanthropy is often
questioned. President Calderón has said that “Social justice must come before charity as a cardinal
virtue and philanthropic actions a re not sufficient to meet the challenge of reducing poverty and
inequality in Mexico.”
83 Carlos Slim, the richest man in Mexico and the world (according to Forbes
Magazine), has said about his philanthropic vision:
“Our concept is more to accomplish and solve things, rather than giving; that
is, not going aroun d like Santa Claus…. Poverty isn't solved with donations.”
84
The nature of Mexico’s philanthropic culture is likely shaped by the pervasive distrust that exists at
a societal level in the country. The recent spike in violence associated with drug traffick ing has only
81 Id., p. 103-105. 82 Volunteering and giving as a share of GDP by country, 1995 -2002, (Data includes charitable giving only; it does not
include gifts to religious worship organizations), available at:
https://ccss.jhu.edu/wp –
content/uploads/downloads/2011/10/Comparative -Data_2004_FINAL.pdf . 83 Michael Layton, “Flat Taxes, Santa Claus, and Charity: The Need to Strengthen Civil Society in Mexico” citing
“Inconforma a FCH queja de filántropos,” Reforma (Mexico City), July 6, 2007.
84 Id., citing “Billionaire Pokes Fun at Philanthropy,” Mexico City, March 13, 2007 (Associated Press),
https://www.cbsnews.com/stories/2007/03/13/business/printable2563316.shtml .
356
347
284 250
100
0
50
100 150 200 250 300 350 400
Mexicans
traditionally do not
make donations to CSOs Limits on tax
deductions for donations Negative public
opinion about CSOs Lack of individual or
corporate resources Other

In your opinion, what are the main barriers for Mexicans to make
donations to Mexican CSOs? Please check all that apply.

37
made the situation worse. Mexicans have been “left increasingly unsure [about] who among their
neighbors, co
-workers and other fellow citizens might have criminal ties.”
85 The 2008 ENAFI study
found that just 14 percent of respondents had high levels of trust in their co -workers, while 3 0
percent reported “little” or “none .”
86 According to surveys conducted in 2008 in the 34 nations of
the Organization for Economic Cooperation and Development, a group that includes most of the
world’s biggest ec onomies, Mexico ranked near the bottom in the percentage of citizens who
“express high levels of trust in others.”
87 This low level of trust applies to the CSO sector as well.
The 2008 ENAFI study shows that 5 7 percent of respondents had little or no confid ence in CSOs.
88
In addition, some donors continue to provide charitable contributions to groups that are not
authorized donees. A recent study about Corporate Social Responsibility (CSR) practices by
Alternativas y Capacidades and ITAM found that only half of surveyed companies require CSOs to
be authorized donees as a condition for granting donations, and many corporate donors do not
even require grantees to be legally formed entities, implying that current tax incentives do not
seem to figure prominently into the practices of roughly half of surveyed donors.
89

Finally, it is clear that many donors are simply unaware of the incentives available to them.
According to the ENAFI study, only a third of respondents knew of available incentives, and only 4
perce nt actually took advantage of them.
90 Given the above, CSOs may not have the necessary
incentives to undertake the extra work to become a legal entity or to apply for authorized donee
status, especially considering the burden of complying with the laws and regulations .

In order to promote a culture of giving among Mexican citizens and corporations, a three -pronged
approach is necessary. First, incentives for donors should be expanded. Although only half of
corporate donors currently take advantage of tax incentives for donations to authorized donees,
limits on tax deductions for donations are seen by many as an important barrier to donations, as
the chart on page 3 7 indicates. Second, donors and potential donors must be educated to increase
awareness of fi scal incentives. In particular, u nderstanding of the authorized donee system must be
increased among both CSOs and donors in order to increase its perceived value. In addition, it is
likely that US -based donors and potential donors are uninformed about the 1994 United States –
Mexico Income Tax Convention . They might shift their giving practices to donate – or donate more –
to Mexican authorized donees if they knew of the tax benefits available to them . CSOs should make
85 Ni ck Miroff, “For Mexico’s Middle Class, Drug War Deepens Trust Deficit”, Washington Post, June 1, 2012.
https://www.washingtonpost.com/world/the_americas/for -mexicos -middle -class -drug -war- deepens -trust –
deficit/2012/06/01/gJQAePtu7U_print.html . 86 2008 ENAFI survey, question 33. 87 ESS (European Social Survey); ISSP (International Social Survey Programme); OECD (2008), Growing Unequal? Income
Distribution and Poverty in OECD Countries (
www.oecd.org/els/social/inequality ), available at https://www.oecd –
ilibrary.org/sites/soc_glance -2011 -en/08/01/g8_co1- 01.html?contentType=&itemId=/content/chapter/soc_glance –
2011-26-en&containerItemId=/content/serial/19991290&accessItemIds=/content/book/soc_glance -2011 –
en&mimeType=text/html . 88 2008 ENAFI surv ey, question 43 k. 89 Michael Layton, “ Philanthropy and the Third Sector in Mexico: The Enabling Environment and Its Limitations, p. 101 ,”
https://www.cisan.unam.mx/Norteamerica/pdfs/n07/n 0704.pdf citing Carrillo Collard, Patricia, Michael D. Layton, and
Monica Tapia, 2008, “Filantropía Corporativa ‘a la mexicana’,” Foreign Affairs en Español, vol. 8, no. 2.
90 2008 ENAFI survey, question 39.

38
an effort to educate current and pote
ntial donors about the benefits provided to them by the treaty.
Third , it is critical to increase understanding of the impact and diversity of the sector in order to
build trust. Without this social capital, organizations will continue to struggle for fina ncial
sustainability.
V. CONCLUSION
ICNL hopes that this assessment will be helpful to stakeholders evaluating the impact of Mexico’s
fiscal reform agenda. We further hope that it will inform continued fiscal reforms to improve the
sustainability of CSOs and promote increased philanthropy.

© 2012 International Center for Not-for -Profit Law (ICNL).
All rights reserved.