Digital payment systems in local and cross-border transactions into LATAM: tax and regulatory implications

Kay (Kyeong Eun) Heo
Northwestern Pritzker School of Law, Chicago
kyeongeun.heo@law.northwestern.edu

Report on a session at the 17th IBA/ABA US and Latin America Tax Practice Trends Conference in Miami

Wednesday 18 June 2025

Session Co-Chairs
Bibiana Cruz DLA Piper, San Juan
Juan Carlos Garantón-Blanco Torres, Plaz & Araujo, Caracas

Speakers
María Victoria Romeo Uber, Buenos Aires
Carlos Enrique Naime Haddad  Chevez Ruiz Zamarripa, Mexico City
Juan David Velasco Baker & McKenzie, Bogotá
Rafael Gregorin Trench Rossi Watanabe, São Paulo

Introduction

This session examined how Latin American jurisdictions are redesigning their tax and regulatory architecture to capture value from digital payment flows, particularly in cross-border contexts. Rather than relying on physical presence or treaty-based permanent establishment tests, governments are implementing systems that define nexus through behavioural proxies such as IP location, SIM registration and transactional metadata. The speakers presented updates from Mexico, Colombia, Argentina and Brazil, highlighting how legal obligations are increasingly enforced through soft law mechanisms, withholding layers and metadata reporting requirements. Common themes included the emergence of significant economic presence (SEP) regimes, jurisdictional tax stacking and regulatory fragmentation that shifts compliance risk onto intermediaries without providing clear legal certainty.

Panel discussion

The panel was structured as a country-by-country walkthrough of how Latin American jurisdictions are approaching the taxation and regulation of digital payment systems, especially in relation to cross-border flows. Each speaker addressed legal definitions, licensing constraints, platform liabilities and enforcement infrastructure currently being deployed at the national level.

Mexico

Carlos Enrique Naime Haddad described Mexico as one of the most assertive jurisdictions in embedding tax obligations into platform architecture. Since 2020, non-resident providers of digital services to Mexican customers must register with the tax authority (SAT) and obtain a local tax ID, appoint a legal representative and file monthly reports disclosing transaction volume, withheld taxes and gross receipts. These obligations are enforced even without a permanent establishment.

Naime detailed how VAT at 16 per cent is imposed on digital services provided to Mexican users based on a nexus determined through IP address, SIM card location and user billing data. For platforms that facilitate transactions between third-party providers (Mexican individuals) and end users – such as rideshare, lodging or food delivery platforms – the platform must withhold VAT (8 per cent, or up to 16 per cent if individuals are not registered with SAT) and income tax (ISR) at rates ranging from 1 per cent to 4 per cent, depending on the activity and the taxpayer’s status. If the individual is not tax registered, a flat 20 per cent ISR rate applies.

Importantly, SAT treats platforms as compliance nodes. The enforcement framework includes potential suspension or blacklisting of digital service providers for failure to register with SAT or comply with withholding or reporting obligations. In addition to national taxes, Naime noted that certain states (notably Mexico City) have imposed their own digital infrastructure levies, adding a further 2 per cent on fees collected for digital transactions related to delivery of packages, food or any type of merchandise.

Colombia

Juan David Velasco explained that Colombia has implemented one of the region’s most comprehensive unilateral digital tax regimes. Under the SEP rules enacted in 2022, foreign digital service providers become subject to income tax if they meet any of the following:

• annual Colombian-sourced revenue over COP1.3bn (around US$390,000);
• more than 300,000 users; or
• if payments are made using Colombian currency or cards.

SEP taxpayers must elect between two options: (1) apply a 10 per cent withholding on gross revenue (collected by local payers), or (2) register voluntarily with National Directorate of Taxes and Customs (DIAN) and pay a 3 per cent flat tax under a self-assessment model.

Velasco emphasised that this regime is designed to bypass the permanent establishment concept under existing treaties. No local incorporation is required, and no treaty protection applies. The nexus is triggered digitally, via user and transaction metadata. Resolution 199/2024 aligns Colombia’s reporting obligations with the OECD Model Rules for Platform Operators, mandating granular disclosures on transaction value, user identity and service category.

Velasco acknowledged that while DIAN has had some success in collecting from high-volume platforms, administrative burdens remain significant. He noted the practical challenges of ensuring creditability of the Colombian SEP tax in foreign jurisdictions, especially where treaties are in place but effectively ignored. Enforcement has increasingly relied on metadata cross-matching, particularly between payment processors and platform-side declarations.

Argentina

María Victoria Romeo provided an overview of Argentina’s Fintech regulatory framework.

Argentina currently lacks a comprehensive Fintech law. Instead of a unified legal framework, regulation has emerged through sector-specific agencies such as the Central Bank (BCRA) and the National Securities Commission (CNV). The government’s stance has shifted from one of deregulation and market stimulation to a more interventionist approach, particularly since 2019. The BCRA established the ‘Innovation Roundtable’ to engage in dialogue with the Fintech sector and has since issued several key resolutions targeting payment service providers (PSPs), including regulations on crypto operations and the obligation to pass interest earned on deposited funds back to customers.

A pivotal development was BCRA Communication ‘A’ 7495, which requires all PSPs operating in Argentina to be locally incorporated under national company law. Foreign Fintechs must either establish a local entity or register as a branch to legally offer services such as digital wallets and payment processing. In addition to legal incorporation, they must also register with the BCRA and comply with operational, technical and reporting obligations. These requirements highlight the growing complexity and formalisation of the regulatory environment Fintechs must navigate in Argentina.

Concerning tax obligations and the role of Fintechs as withholding agents, Romeo noted that Fintech companies in Argentina are subject to significant tax compliance burdens, especially in their role as withholding agents for VAT and local gross turnover tax (IIBB). Under the VAT system, digital services provided by foreign entities are taxable when effectively used in Argentina, determined by criteria such as IP address, billing information and SIM card location. PSPs must act as collection agents in specific cases.

Local jurisdictions have increasingly extended IIBB to digital services provided from abroad, relying on broad interpretations of ‘digital presence’ and ‘economic use’. This creates overlapping tax obligations and legal uncertainty for Fintechs, especially when provinces require PSPs to act as withholding agents and apply taxes. In response, some countries in the region (eg, Uruguay and Paraguay) have implemented direct tax registration and payment regimes for foreign entities without triggering permanent establishment risks, offering potential models for reform in Argentina.

Brazil

Rafael Gregorin described Brazil as a jurisdiction operating under a sophisticated regulatory regime. The Central Bank has enabled several payment tools, including Pix (instant payments) and open banking. At the same time, although the Brazilian internal revenue service relies on modern electronic systems, it continues to enforce a legacy tax model that imposes high compliance costs on taxpayers.

Additionally, taxpayers must deal with several different taxes: for instance, on payments carried out to companies abroad, which may apply federal income tax (15–25 per cent depending on remittance and treaty status), CIDE (10 per cent on technical services), IOF (3.65 per cent on financial transactions), and ISS (up to 5 per cent municipal service tax). Gregorin noted that enforcement increasingly occurs through remittance control mechanisms – where Brazilian financial institutions withhold tax on outbound payments – and retroactive audits based on service classifications.

Brazil’s proposed tax reform (PEC 45 and PEC 110) aims to unify taxes into a single VAT-like structure (CBS/IBS) with destination-based logic. If enacted, platforms may be obligated to register and collect/remit VAT on different transactions, likely through a split-payment mechanism.

He also highlighted criminal exposure for platforms that fail to withhold or remit taxes properly. Under current law, non-remittance can lead to prosecution, with potential liability extending to officers in certain cases. Gregorin emphasised that foreign operators must understand not just the formal tax statutes but the operational enforcement logic deployed at the payment-processing layer.

Conclusion and final remarks

The session made clear that while Latin America’s legal frameworks remain fragmented, the region is rapidly converging toward a model of tax enforcement rooted in digital scale, metadata and platform infrastructure. Traditional concepts such as permanent establishment, residency or formal establishment are increasingly secondary to operational indicators like user volume and transaction visibility. For digital platforms, this creates new obligations regardless of physical presence.

Legal teams will need to shift from entity-level defence strategies to compliance models attuned to metadata governance, API-level enforcement logic and regulatory interface design. As jurisdictions adapt, soft law instruments and behavioural proxies are becoming the primary instruments of sovereign tax enforcement.