MEXICO Law and Practice Contributed by: Edgar Klee and Joel Gonzalez Lopez, Haynes and Boone, S.C.
4.6 Local Transfer Pricing Rules and OECD Standards Mexico follows OECD standards with minimum vari - ations. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures Transfer pricing audits in Mexico have become signifi - cantly more aggressive and thorough in recent years. It is now common for the Tax Administration Service to initiate transfer pricing audits and, where new infor - mation becomes available, to reopen audits relating to earlier fiscal years. Although Mexico has a robust legal framework governing MAPs, in practice it can be difficult to obtain the tax authorities’ agreement to initiate such procedures. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments Compensation adjustments are valid in Mexico follow - ing certain rules and steps. Proper documentation is also a must in these cases. 5.2 Local Branches and Local Subsidiaries In Mexico, there are no substantial differences between the taxation regimes applicable to local branches and those applicable to local subsidiaries of non-local corporations. 5.3 Capital Gains of Non-Residents Capital gains derived from the sale of shares in a Mexican corporation by a non-resident are generally subject to tax at a rate of 25% on the gross proceeds (ie, the purchase price). Alternatively, taxpayers may elect to be taxed at a rate of 35% on the net gain, provided that certain requirements are satisfied, such as appointing a local legal representative and obtain - ing an auditor’s opinion confirming the calculation of the net taxable amount. Indirect transfers may also be subject to taxation where the accounting value of the foreign entity being sold is composed of more than 50% immovable prop - erty located in Mexico.
Profit Attribution to Permanent Establishments (PEs) For multinational corporations with a presence in Mexico, attributing profits to a permanent establish - ment can be complex. It involves evaluating the func - tions performed, risks assumed, and assets employed by the PE within the overall business structure. Advance Pricing Agreements (APAs) Inbound investors may consider seeking APAs with the Mexican tax authorities to provide certainty on transfer pricing matters. However, the APA process can be time-consuming, and negotiating terms that satisfy both parties can be challenging. APAs offer a viable mechanism for taxpayers and authorities. They allow taxpayers to request a transfer pricing ruling regarding the sale of intangible assets and related transactions, such as royalty payments for licences. These agreements can be unilateral, involv - ing only the Mexican tax authority, or bilateral, negoti - ated between the authorities of Mexico and the related entity’s jurisdiction. While APAs provide technical support and tax cer - tainty, unilateral APAs often face scrutiny and poten - tial challenges from authorities regarding valuation variables and royalty payments. Bilateral APAs offer greater balance but can take two to three years to resolve. Recent amendments to the Mexican Federal Tax Code have introduced a suspension of audit time - lines during the APA process, allowing authorities to initiate audits post-APA if deemed necessary. Country-by-Country Reporting (CbCR) In line with international standards, Mexico requires the filing of country-by-country reports for multina - tional groups exceeding certain revenue thresholds. Ensuring alignment with global reporting requirements and addressing potential discrepancies is essential. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements Limited risk distribution arrangements are valid agree - ments in which supply chains have been structured and restructured. This type of transaction is normally reviewed and scrutinised by the tax authorities.
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