MEXICO Law and Practice Contributed by: Jesús Aldrin Rojas, Miguel Ángel García Piña and Esteban Ollervides Toribio, QCG Transfer Pricing
4.2 Hard-to-Value Intangibles Mexico does not have any special rules contemplating the use of after-the-fact evidence to reprice transac - tions involving hard-to-value intangibles. However, if intercompany transactions involve the transfer of hard-to-value intangibles, such transactions must be reported as they qualify as a reportable scheme. 4.3 Cost Sharing/Cost Contribution Arrangements The Miscellaneous Tax Resolution, under Rule 3.3.1.27, requires that costs arising from shared func - tions be supported by a cost contribution agreement in accordance with Chapter VIII of the OECD Transfer Pricing Guidelines. 5. Adjustments 5.1 Upward Transfer Pricing Adjustments Mexican legislation permits taxpayers to make upward transfer pricing adjustments after filing their annual tax returns, provided that certain conditions and formali - ties are met. Under Article 179 of the Mexican Income Tax Law (LISR), taxpayers may perform compensatory adjust - ments to increase taxable income or decrease deduc - tions in order to ensure that related party transactions comply with the arm’s length principle and fall within the range of prices agreed upon by independent par - ties in comparable transactions. Conditions for Validity The following conditions must be met for the adjust - ment to be valid. Timing of the Adjustment The adjustment must correspond to the same fiscal year as the underlying transaction. This means it must be accrued and documented within the same fiscal period, even if it is recorded in the accounting books at a later date. Supporting Documentation The adjustment must be supported by a robust trans - fer pricing study. This study should include a func - tional analysis, a comparability analysis, the selected
methodology, and clear evidence supporting the cal - culation of the adjustment. Accounting and Tax Reporting The adjustment must be reflected in the taxpayer’s accounting records, affect the fiscal results of the rel - evant fiscal year, and be reported through comple - mentary tax returns if the annual tax return has already been filed. Limitations Limitations applicable to compensatory adjustments include the following. Compensatory adjustments are generally limited to upward adjustments that increase the taxable base in Mexico, whether through higher income or higher profit. Downward adjustments, which reduce taxable income or increase tax losses, are not expressly pro - hibited by law, but they are rarely accepted by the Mexican tax authorities. The Mexican tax authority (SAT) typically rejects downward adjustments due to their adverse impact on tax collection and the challenges involved in audit - ing their reasonableness. For downward adjustments to be considered, they generally must arise within the framework of a Mutual Agreement Procedure (MAP) under an applicable tax treaty, or be supported by exceptionally strong docu - mentation demonstrating compliance with the arm’s length principle. Conclusion The Mexican regulatory framework allows taxpayers to make upward transfer pricing adjustments after filing their annual tax returns, provided that the adjustments are attributable to the same fiscal year, are fully docu - mented, and are properly reflected in both accounting records and tax filings. While downward adjustments are not explicitly prohibited, they are rarely accepted in practice and typically require heightened scrutiny or the involvement of international dispute resolution mechanisms to be considered valid.
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