MEXICO Law and Practice Contributed by: Jesús Aldrin Rojas, Miguel Ángel García Piña and Esteban Ollervides Toribio, QCG Transfer Pricing
The 2024 reform, published in November 2023, further strengthened documentation requirements by intro - ducing materiality standards for related-party transac - tions and supplementary documentation. Under these rules, taxpayers are required to demonstrate not only that pricing is at arm’s length, but also that the under - lying transactions have economic substance and were effectively carried out. 9. Alignment With OECD Guidelines 9.1 Alignment and Differences In general terms, the Mexican transfer pricing regime aligns with the OECD framework and even allows for the supplementary application of the OECD Transfer Pricing Guidelines in cases not expressly addressed by Mexican law, as provided in the last paragraph of Article 179 of the Income Tax Law (LISR). This arti - cle was significantly amended as part of the 2022 tax reform, which clarified the scope of this supplemen - tary application. 9.2 Arm’s Length Principle Mexico follows only the arm’s length standard. 9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project In general terms, Mexico has been an early adopter of many of the recommendations set out in the BEPS Plan. These recommendations have influenced the issuance of specific regulations, for example Arti - cle 76-A of the LISR, as well as non-binding criteria, including those discussed in 11.3 Unique Transfer Pricing Rules or Practices , and have also shaped the rationale behind ongoing transfer pricing disputes. In addition, Mexico has implemented the disclosure of reportable schemes under Action 12 of the BEPS Plan and has updated the concept of permanent establish - Mexico has formally expressed its commitment to the Inclusive Framework on BEPS and has actively par - ticipated in discussions on the implementation of Pillar Two, including the 15% global minimum tax. In addi - tion, Mexico has been a proponent of the Amount B proposal under Pillar One, which relates to the deter - ments in line with Action 7. 9.4 Impact of BEPS 2.0
mination of a pre-established profit for routine market - ing activities, and has closely followed developments regarding the implementation of Pillar Two. However, with respect to implementation, the country’s position remains on standby, largely due to the stance taken by the United States. 9.5 Pillar One Amount B Although Amount B of Pillar One represents a simplifi - cation of transfer pricing compliance for routine distri - bution and marketing transactions, there has, to date, been no reform allowing for adaptation or transition toward Amount B. This remains the case despite the fact that its implementation is included in the OECD Transfer Pricing Guidelines for Multinational Enter - prises and Tax Administrations, in their latest 2022 version, where it appears as an annex to Chapter IV. 9.6 Entities Bearing the Risk of Another Entity’s Operations There is no specific legislation on this matter in this jurisdiction. 9.7 Allocation of Profits to Permanent Establishments (PEs) Mexico has domestic rules governing the allocation of profits to permanent establishments. Under Mexican income tax law, permanent establishments are taxed as separate taxable units. Only the income attribut - able to the activities carried out in Mexico is subject to Mexican taxation. Although Mexican legislation does not expressly adopt the Authorised OECD Approach, permanent establishments and their head offices are treated as related parties for transfer pricing purposes. As a result, the arm’s length principle applies to the attri - bution of profits. Profits must be determined based on the functions performed, assets used, and risks assumed by the permanent establishment, which in practice leads to an approach that is broadly aligned with the Authorised OECD Approach. In addition, amendments introduced in 2020 to the Income Tax Law aligned Mexico’s definition of a per - manent establishment with BEPS Action 7, particularly in relation to dependent agent permanent establish - ments. These changes expanded the circumstances
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