Transfer Pricing in Mexico began in 1998, since then the legislation in this area has been reformed and expanded.
Mexico has adapted its tax regulations according to the guidelines indicated in the actions of the BEPS Plan (Base and Erosion and Profit Shifting) of the Organization for Economic Cooperation and Development (OECD), in order to combat tax avoidance or evasion.
Mexico’s adoption of Action 13 of the BEPS Plan is of great importance, regarding supporting documentation, which allows the different Tax Agencies around the world to exchange information of multinational groups through the Country-by-Country Reports (CBC Report).
This regime is currently regulated in articles 76, 76-A, 179 and 180 of the Income Tax Law (ITL), as well as in some articles of the Federal Fiscal Code.
Likewise, there is special legislation on this matter regarding maquila and hydrocarbons.
Also known as the Arm’s Length principle, it is a fundamental pillar to follow in relation to Transfer Pricing.
This principle states that prices agreed among related related parties must be agreed at market value, i.e. as if they had been made by independent parties.
In Mexican law, this principle is regulated in Section XII of Article 76 of the Income Tax Law.
The aforementioned article states that in the case legal entities entering into transactions with related parties abroad, they must determine their cumulative income or authorized deductions, considering prices that would have been used with independent parties in comparable situations.
According to the fifth paragraph of Article 179 of the Income Tax Law, one or more are considered to be related parties when:
The following shall also be considered related parties:
For the analysis of transactions among related parties, Mexican legislation has provided for six methods, which according to Article 180 of the Income Tax Law, are as follows:
It also establishes a hierarchy regarding the use of the methods, indicating that the Uncontrolled Comparable Price Method should be applied first, and that the other methods above may only be used to the extent that the first method is not appropriate.
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:
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.
In accordance with section X of Article 76 of the Law, states that the information on transactions with related parties abroad, carried out in the immediately preceding year, shall be filed together with the annual fiscal year affidavit, in accordance with the forms indicated by the tax authority.
This declaration is included in Annex 9 of the Multiple Informative Declaration (DIM).
Nevertheless, according to article 76-A incorporation to the Law, with the measures indicated in BEPS Action 13, three types of additional informative annual affidavits were adopted for those taxpayers indicated in sections I, II, III and IV of article 32-H of the Federal Tax Code.
Such taxpayers are the following:
As for the statements indicated above, these are divided into the following:
This Affidavit shall contain a description of the company’s organizational structure, activities and related operations. Likewise, the financial information of the obligated taxpayer and of the comparable companies or operations must be included.
This affidavit must contain information on the multinational group, such as its structure, description of the activity, intangibles and financial and tax position.
Such affidavit must contain information at the tax jurisdiction level on the worldwide distribution of income and taxes paid.
It must also contain indicators of the location of the economic activities in the tax jurisdictions in which the multinational corporate group operates in the corresponding fiscal year.
A list of all the entities comprising the multinational corporate group as well, and their permanent establishments, including the main economic activities of each of the entities comprising the multinational corporate group.
Likewise, regarding those required to file this last affidavit, it should be noted that in addition to being in any of the situations described above, they must be in one of the following situations:
Regarding the filing date of such affidavits, those will have to be filed until December 31 of the fiscal year immediately following the year in which the transactions were carried out.
Section IX of Article 76 of the Law states that it is necessary to have Supporting Documentation that the transactions carried out with related parties residing abroad have been carried out at market value.
For this purpose, the documentation must contain:
Nevertheless, taxpayers who meet any of the following requirements are exempt from the obligation to have such documentation:
Sanctions related to non-compliance with Transfer Pricing rules are regulated in Articles 76, 81 and 83 of the Mexican Federal Tax Code.
Pursuant to the tenth paragraph of article 76, when there is an omission in the payment of taxes due to non-compliance with Transfer Pricing rules, the fine may amount from 27.5% to 37.5% of the omitted tax.
Likewise, Section XVII of Article 81 of the referred Code establishes the fine for not filing a affidavit referred to in Section X of Article 76, or filing it with errors, which will amount from $77,230.00 to $154,460.00.
In the case of the infraction for not filing or incomplete filing of the informative affidavits referred to in Article 76-A of the Law, Section XL of Article 81, states that a fine of $154,800.00 to $220,400.00 will be imposed.
In addition, an infraction will also be incurred according to section XV of Article 83 of the Tax Code if the transactions with related parties residing abroad are not identified in the accounting, which will be sanctioned with a fine of $1,750.00 to $5,260.00.
The last paragraph of Article 179 of the Income Tax Law states that the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, approved by the OECD Council, shall be used as an interpretation criterion for Transfer Pricing matters.
A website sets out the conditions to be met by taxpayers’ voluntary contributions so that these can be deductible.
The financing transaction presents complexities when carried out between related parties. There are a series of regulations such as article 28.
In Mexico, the Income Tax Law 2022, which incorporates notable changes in transfer pricing, has entered into force. We will review these relevant points in
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