Streaming Platforms Urge Review of Mexico's "Tax Blackout" Ahead of USMCA Evaluation
International online music companies, represented by the Digital Media Association (DIMA), have called on the Office of the United States Trade Representative to assess Mexico’s so-called “tax kill switch” as part of the upcoming 2026 USMCA (T-MEC) review. The mechanism, in effect since 2020, allows Mexican authorities to instruct telecom operators to block non-resident digital services that fail to comply with local obligations, such as registering with the tax authority (SAT), obtaining a tax ID (RFC), appointing a legal representative, acquiring an e.signature, and declaring and paying VAT. The industry argues that the measure is disproportionate, creates uncertainty, and could violate national treatment and non-discrimination commitments in cross-border services and telecommunications.
According to DIMA, the blocking—which applies only to foreign providers—undermines the predictability needed by digital services operating within global supply chains. The association also argues that projected 2026 changes in digital tax enforcement, which would require continuous and real-time access to certain operational data for tax purposes, could strain USMCA’s Intellectual Property chapter, as it involves confidential information and trade secrets.
The Mexican government’s stance, reiterated several times since the 2020 reform, has been that this scheme seeks to create a level playing field between domestic and foreign actors, close tax collection gaps in the digital economy, and prevent unfair competition. The SAT has stressed that most major platforms have registered and are compliant, and that blocking is a last-resort measure. Across Latin America, several jurisdictions have opted to tax digital services with VAT and, in some cases, established administrative or technical penalties for noncompliance; however, not all include full network disconnection as a main enforcement tool.
The debate is significant for Mexico. The audio streaming market has become one of the most dynamic in the region, with a large user base consuming music, podcasts, and audiobooks, and a growing proportion of paid subscribers. Global platforms’ leadership coexists with local offerings and an ecosystem of labels, aggregators, and rights managers that depend on predictable payment flows. For creators, a stable regulatory environment affects royalties and long-term planning; for consumers, it impacts catalog diversity and pricing.
The trade context adds pressure. The 2026 USMCA review will follow years of friction over energy, agriculture, and labor issues, and comes as nearshoring has deepened North American production integration. Digital policy and data management will be sensitive topics: the US and Canada have strongly defended free data flows with privacy safeguards, while Mexico aims to strengthen tax collection from digital segments without closing off the market. A dispute over the “tax blackout” could escalate to formal consultations or, if unresolved, to a trade panel, though there remains room for legislative tweaks or guidelines that could address concerns without undermining tax enforcement.
Beyond trade, there are operational implications. Implementing tax-based service blocking places added burdens on telecom operators and may lead to litigation over due process, timelines, and technical criteria. For platforms, compliance costs—from securing legal representation to adapting billing—are part of doing business; the real risk is abrupt disconnection. For consumers, any reduction in competition or service interruptions could mean fewer choices and upward price pressure.
The fiscal front is also crucial. Following a large deficit in 2024, driven by increases in public investment and support for state-owned enterprises, Mexico’s 2025 budget package aims to stabilize public finances without a sweeping tax reform. Against this backdrop, improving tax collection efficiency—including VAT on digital services—looks like a low political-cost option. The challenge is to calibrate the tools: effective incentives and penalties, legal certainty, and international cooperation, rather than sanctions that could be seen as discriminatory or excessive.
In summary, the tension between Mexico’s legitimate goal of taxing the digital economy and the obligation to avoid unjustifiable trade barriers will be a key test in the USMCA review. An adjustment that preserves tax collection, ensures confidentiality, and removes doubts of discriminatory treatment could provide certainty to companies, creators, and users, and prevent an expanding market from being caught in an unnecessary trade dispute.
Final observation: The issue will be decided by the balance between effective tax collection and regulatory predictability. If Mexico and its partners can agree on clear, proportional rules with due process, the regional digital ecosystem will emerge stronger; if not, the “blackout” could become a source of friction that harms investment, competition, and culture.
