Transfer Pricing in Mexico
Concept and Regulation in Mexico
Principle of Full Competence: Concept
- Title II For Legal Entities – Chapter IX On Moral Obligations – Article 76 sections IX and XII.
- Title IV For Individuals General Provisions – Article 90 Paragraph 11.
- Title V For residents abroad with income from sources of wealth located in national territory – Second paragraph of Article 153.
- Title VI For foreign entities controlled subject to preferential tax regimes of multinational companies and operations carried out between related parties – Chapter II Of multinational companies and operations carried out between related parties – First paragraph of Article 179 of the Income Tax Law.
Criteria to Identify Related or Linked Parties
According to paragraphs 5 to 7 of Article 179 of the LISR, one or more will be considered related parties when:
Two or more persons are considered related parties when one participates directly or indirectly in the administration, control, or capital of the other, or when one person or group of persons participates directly or indirectly in the administration, control, or capital of said persons. In the case of joint ventures, its members are considered as related parties as well as persons who, according to this paragraph, are considered related parties of said member. Related parties of a permanent establishment are considered the head office or other permanent establishments of the same, as well as the persons mentioned in the previous paragraph and their permanent establishments. Companies or entities subject to preferential fiscal regimes with respect to the taxpayer residing in Mexico.
Transfer Pricing Methods in Mexico
- Uncontrolled comparable price method.
- Resale price method.
- Additional cost method.
- Utility partitioning method.
- Residual method of utility partitioning.
- Transactional profit margin method of the transaction.
Comparability Analysis in Mexico
According to the third paragraph of Article 179 of the Law, in order to determine whether a transaction among related parties is comparable to a transaction carried out by independent parties, the following comparability criteria shall be considered:
- Characteristics of the transactions.
- The functions or activities, assets and risks assumed in the operations.
- The contractual terms.
- Economic circumstances.
- Business strategies.
Functional Analysis
Formal Documentation Requested by the Authority
In accordance with Articles 76 and 76-A of the Income Tax Law, the Supporting Documentation, as well as the informative affidavits that must be filed.
Informative Statement of Transactions with Related Parties – Annex 9 of the Multiple Informative Statement (DIM)
According to Section X of Article 76 of the LISR, taxpayers must submit Annex 9 of the Multiple Informative Statement (DIM) for transactions recorded with both national and foreign related parties. The information required in this Statement includes identification details of all related parties, as well as the type and amount of transactions conducted with each. Additionally, information on the transfer pricing methodology used for each transaction must be provided, including the determined value ranges if comparables were used. Details on searches conducted in the study, adjustments made during the period, and confirmation of the availability of the transfer pricing study are also requested.
Annual Informative Statements of Related Parties:
In line with the measures outlined in BEPS Action 13, and as established in Article 76-A of the LISR, three types of additional annual informative statements were adopted for those taxpayers who engage in transactions with related parties as indicated in articles 32-A, second paragraph, and 32-H, sections I, II, III, IV, and VI of the CFF, as well as taxpayers established in article 76, sections IX and XII, in relation to article 179, first and last paragraphs of the LISR. (Described in the section of this subsection titled “Obliged to keep and/or present the supporting documentation and informative statements”). These Statements are:
- Master Informative Statement: should contain the organizational structure of the taxpayer’s multinational group, description of the activities of the companies forming the group, description of the group’s intangible assets, financial activities with related parties, as well as the financial and tax situation of the group’s companies.
- Local Informative Statement: Must contain the description of the organizational structure, strategic and business activities, as well as its transactions with related parties, as well as the financial information of the obligated taxpayer and the operations or companies used as comparables in their analyses.
- Country-by-Country Informative Statement: Must include information at the tax jurisdiction level about the global distribution of income and taxes paid. Indicators of the location of economic activities in the tax jurisdictions where the multinational business group operates in the corresponding fiscal year and additionally a list of all the entities comprising the multinational business group. It is important to highlight that the country-by-country informative return must be submitted by the taxpayers mentioned in said article when they are in any of the two situations described below:
- They must be multinational controlling legal entities, for which they must meet the following requirements:
- Being residents in Mexico.
- Having subsidiaries defined in terms of financial reporting standards, or permanent establishments, located abroad, according to the situation.
- Not being subsidiaries of another company resident abroad.
- Being required to prepare, present and disclose consolidated financial statements in financial reporting standards terms.
- Reporting in the consolidated financial statements the results of entities resident in one or more other countries or jurisdictions.
- Having obtained in the immediately preceding fiscal year consolidated revenues for accounting purposes equal to or exceeding the $12 billion pesos.
- Being legal entities resident in Mexican territory or resident abroad with a permanent establishment in the country, who have been designated by the controlling legal entity of the multinational corporate group resident abroad as responsible for providing the Country-by-Country Informative Affidavit.
- They must be multinational controlling legal entities, for which they must meet the following requirements:
Furthermore, it indicates that in cases where the Mexican tax administration cannot obtain the information corresponding to the Country-by-Country Report through information exchange mechanisms, it may require such a statement from the subsidiaries of a foreign company resident in Mexico or from non-residents who have a Permanent Establishment in Mexico.
Supporting Documentation in Mexico
- Identification data of the related parties.
- Information on the functions, assets and risks assumed by the taxpayer in the transaction.
- Information and documentation of transactions with related parties and their amounts for each related party and for each type of operation according to the classification, as well as with the comparability data and elements established by article 179 of the LISR..
- The applied methodology, including information and documentation on comparable operations or companies for each type of operation, as well as the detail in the application of adjustments that, where applicable, have been made in terms of article 179, third paragraph of the LISR.
- Taxpayers, who carry out business activity, whose income in the immediately preceding fiscal year has not exceeded $13’000,000.00.
- Taxpayers whose income derived from the rendering of professional services has not exceeded $3’000,000.00 in such fiscal year.
On the other hand, those taxpayers not listed in the preceding paragraphs a) and b); as well as those in the situation referred to in the penultimate paragraph of article 179 of the LISR and those who are contractors or assignees in terms of the Hydrocarbons Revenue Law, are obliged to have supporting documentation.
Obligations to Present Transfer Pricing Documentation
The conditions that obliged taxpayers must meet are established in Article 76-A Title II Chapter IX of the LISR, which points to:
Legal entities that engage in transactions with related parties and are required to have their financial statements audited by a registered public accountant according to Article 32-A of Title II of the Federal Tax Code (CFF); that is, whose declared accumulable income in the last immediate preceding fiscal year was equal to or greater than $1,779,063,820, as well as those that at the end of the immediately preceding fiscal year have shares placed among the general investing public on the stock exchange.
The amount of the quantity established in the previous paragraph will be updated in January of each year with the update factor corresponding to the period from December of the penultimate year to December of the last year immediately before the one for which the calculation is made, in accordance with the procedure referred to in Article 17-A of this Code.
(Paragraph amended DOF 12-11-2021)
Legal entities that conduct transactions with related parties and present information on their fiscal situation according to Article 32-H sections I, II, III, IV, and VI as follows:
Those who in the immediately preceding year declared in their normal income statements accumulable income equal to or greater than $974,653,950.00, as well as those that at the end of the immediately preceding fiscal year have shares placed among the general investing public on the stock exchange and are not found in any other case indicated in this article.
The amount of the quantity established in the previous paragraph will be updated in January of each year with the update factor corresponding to the period from December of the penultimate year to December of the last year immediately before the one for which the calculation is made, in accordance with the procedure referred to in Article 17-A of this Code.
(Amount of the paragraph updated by fiscal miscellaneous resolution DOF 05-01-2022, 27-12-2022).
- Commercial societies that belong to the optional tax regime for groups of societies; that is, those that meet the requirements established in Chapter VI Title II of the LISR to be considered as integrating and integrated societies.
- State-owned entities of the federal public administration.
- Foreign-resident legal entities that have a permanent establishment (PE) in Mexico; only for activities they perform in those PEs.
- Taxpayers who are related parties of the subjects established in Article 32-A second paragraph of the CFF.
- Legal entities that conduct business activities with related parties and whose income in the immediately preceding year exceeded $13,000,000. Also obligated are residents in Mexico who have registered operations with societies or entities subject to preferential tax regimes, as well as those acting as contractors or assignees in terms of the Hydrocarbons Revenue Law. This according to Article 76 section IX and as indicated in the penultimate paragraph of Article 179 of the LISR.
- Legal entities that conduct transactions with related parties according to Article 76 section XII.
- Legal entities, individuals, and multinational companies, taxpayers of the LISR, who conduct transactions with related parties in relation to the first and last paragraph of Article 179 of the LISR.
Expiration of Transfer Pricing
Filing Schedule by Type of Obligation
Type of obligation | Expirations Mexico – Fiscal Year 2023 |
---|---|
Local Information Statement | May 15, 2024 |
Master Information Statement | December 31, 2024 |
Country by Country Report | December 31, 2024 |
Regarding the study or documentation of transfer pricing, it must be retained by the taxpayer and made available to the Tax Administration upon request through written communication for the purposes of reviews or audits.
According to the update in the DOF (Official Federal Gazette) 12-11-2021, which amends Article 76 A of the LISR, taxpayers must annually provide the following statements concerning related parties (also called supporting documentation):
- Master informative statement of related parties from the multinational business group.
- Local informative statement of related parties.
- Country-by-country informative statement from the multinational business group.
Offices in Mexico
- Av. Obrero Mundial 903 Mezzanine B, Delegación Benito Juárez, Ciudad de México – México
- contacto@tpcgroup-int.com
- + 52 (558 ) 526 6970
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