MEXICO Law and Practice Contributed by: Jesús Aldrin Rojas, Miguel Ángel García Piña and Esteban Ollervides Toribio, QCG Transfer Pricing
Loss of VAT creditability Pursuant to Article 5 of the Value Added Tax Law, where deductions are disallowed for income tax pur - poses due to transfer pricing non-compliance, the taxpayer also loses the right to credit the value add - ed tax associated with the disallowed intercompany In summary, maintaining proper transfer pricing docu - mentation not only mitigates tax and penalty exposure but also constitutes an essential element in preserv - ing deductibility, maintaining tax neutrality, and effec - tively defending against assessments issued by the tax authorities. 8.2 Transfer Pricing Documentation Historically, Mexico has required taxpayers to docu - ment and demonstrate that their intercompany trans - actions comply with the arm’s length principle. With the 2022 tax reform, Article 76-A of the LISR was introduced, requiring taxpayers to file three standard - ised returns aligned with BEPS Action 13. expenses. Summary The first is the Local File, which contains detailed information on related-party transactions, including transactional data, functional analyses, and compa - rability analyses for each controlled transaction. The second is the Master File, which provides an over - view of the multinational group’s global operations, transfer pricing policies, and the allocation of income and economic activity across jurisdictions. The third is the Country-by-Country Report (CbCR), which discloses, for each jurisdiction in which the group operates, revenue, profit before tax, income tax paid and accrued, accumulated earnings, number of employees, tangible assets, and stated capital. These returns must be filed electronically no later than 31 December of the year immediately following the fiscal year to which the information relates. A signifi - cant change introduced by the 2022 reform was the extension of transfer pricing documentation obliga - tions to domestic related-party transactions, which were previously not subject to the same reporting requirements.
failed to file tax returns, including the informational obligations derived from Article 76-A of the LISR. Where a transfer pricing arrangement qualifies as a reportable scheme under Articles 199 to 202 of the CFF, failure to disclose it gives rise to additional and significant penalties. Tax advisers may be subject to fines ranging from MXN62,390 to MXN24,952,660 for non-disclosure or incomplete disclosure, pursuant to Article 82-B, Section I. Taxpayers may lose the tax benefit associated with the undisclosed scheme and may also be subject to an additional penalty rang - ing from 50% to 75% of the tax benefit obtained or expected, aggregated across all fiscal years involved, in accordance with Article 82-D, Section I. Transfer Pricing Documentation Obligation Transfer pricing documentation is not only a formal compliance obligation but also a prerequisite for the deductibility of expenses under Article 27 of the LISR. • Section V – deductions for payments made to related parties resident abroad must be supported by documentation demonstrating that the transac - tions were carried out on an arm’s length basis. • Section XVIII – such documentation must be avail - able no later than the date on which the annual tax return for the corresponding fiscal year is filed. This documentation must include, among other ele - ments, a detailed functional analysis, the selection and application of the transfer pricing method, a compa - rability analysis, and technical support for the agreed pricing conditions. Failure to prepare or adequately support this documentation may result in the denial of deductions, adjustments to taxable income, and additional adverse consequences. Additional Tax Consequences of Non-Compliance Deemed dividend As noted in 5.2 Secondary Transfer Pricing Adjust- ments , secondary transfer pricing adjustments may result in a deemed dividend. Where taxable income is determined as a consequence of adjustments to related-party transactions, such income may be char - acterised as a deemed dividend under Article 140, Section VI of the LISR.
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