MEXICO Law and Practice Contributed by: Jesús Aldrin Rojas, Miguel Ángel García Piña and Esteban Ollervides Toribio, QCG Transfer Pricing
2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules Article 179 of Mexico’s Income Tax Law defines the criteria for related-party status, which include: admin - istration, control, direct or indirect ownership, joint ventures, related parties of joint ventures, permanent establishments and their related parties, as well as preferential tax regimes when engaging in transac - tions with Mexican residents. The rules are flexible, which can create some uncer - tainty for taxpayers. For example, key terms such as “control” or “administration” are not explicitly defined, leaving room for interpretation. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods The transfer pricing methods outlined in Article 180 of Mexico’s Income Tax Law (LISR) are as follows: • Uncontrolled Comparable Price Method (CUP); • Resale Price Method; • Cost Plus Method; • Profit Split Method (contribution profit split); • Residual Profit Split Method; and • Transactional Net Margin Method (TNMM). Domestic legislation establishes a hierarchy in the selection of the method, favouring first the uncon - trolled comparable price method. In any case, the selection of the method implemented must be justi - fied. 3.2 Unspecified Methods Mexican legislation does not provide for unspeci - fied transfer pricing methods. Only the six methods expressly set forth in Article 180 of the LISR are rec - ognised for transfer pricing purposes. No alternative or unspecified methods may be applied outside this statutory list. 3.3 Hierarchy of Methods Mexico establishes a hierarchy favouring the Uncon - trolled Comparable Price Method (CUP) under Article
180, Section I of the LISR. Where the CUP method cannot be reliably applied, the taxpayer must justify the selection of an alternative method based on the nature of the transaction, the availability of compara - ble information, and the results of the functional anal - ysis. In all cases, the selection must be adequately supported in the transfer pricing documentation. 3.4 Ranges and Statistical Measures Article 180 of the LISR prioritises the use of the inter - quartile range, calculated as defined in Article 302 of the LISR Regulations. Alternative methods to the interquartile range may be considered within the framework of a mutual agreement procedure under treaties or as authorised by the Tax Administration Service (SAT) through general rules. It is important to note that tax authorities, through Non-Binding Criterion 34/ISR/NV (“Modifications to the Value of Related-Party Transactions Within the Interquartile Range”), have highlighted the possibility of making adjustments and subjecting such modifica - tions to tax audits. 3.5 Comparability Adjustments The implementation of comparability adjustments is provided for in Article 179 of the LISR. It is important to emphasise that the specific adjustment formulas considered by the SAT were published digitally on the official website. In the event of submitting a transfer pricing adjust - ment, a complementary tax return must be filed.
4. Intangibles 4.1 Notable Rules
Mexico does not have notable rules specifically relating to the transfer pricing of intangibles, but it is important to consider Non-Binding Criterion 33/ ISR/NV regarding the execution of activities classi - fied as “unique and valuable contributions” (activities involving intangibles or aimed at the development of intangible assets). These activities may influence the selection of the transfer pricing method to be applied, typically the contribution profit split method.
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