MEXICO Law and Practice Contributed by: Jesús Aldrin Rojas, Miguel Ángel García Piña and Esteban Ollervides Toribio, QCG Transfer Pricing
Digital Record: 2013543 Source: TFJA Journal, Seventh Epoch, Year III, No. 29, September 2014, p. 6863.4 Heading: Transfer pricing. The tax authority cannot reject the TNMM if the taxpayer justifies its selection and stable profits are demonstrated. This precedent consolidates the recognition of the TNMM as a valid method in sectors with low profit variability, provided that its selection is properly justi - fied in accordance with comparability guidelines. Digital Record: IX-P-SS-206 Source: TFJA Journal, Ninth Epoch, Year II, No. 17, May 2023, p. 78 Heading: Income Tax. The guidelines on transfer pric - ing issued by the Organization for Economic Co-oper - ation and Development (OECD) establish the tempo - ral delimitation of advance pricing agreements as an essential element. This precedent affirms temporality as an essential feature of advance pricing agreements, with the aim of providing greater specificity in the determination of transfer pricing for a defined number of years and ensuring legal certainty in their application. 15. Foreign Payment Restrictions 15.1 Restrictions on Outbound Payments Relating to Uncontrolled Transactions There are no specific regulations restricting outbound payments relating to uncontrolled transactions. 15.2 Restrictions on Outbound Payments Relating to Controlled Transactions While there are no explicit restrictions on outbound payments in controlled transactions, certain provi - sions operate as indirect limitations. The thin capitali - sation rules under Article 28, Section XXVII of the LISR restrict the deductibility of interest paid to related par - ties abroad where the taxpayer’s debt to equity ratio exceeds 3:1. In addition, rules derived from BEPS Action 4 impose further limits on the deduction of net interest expenses, which in practice constrain the amount of intercompany financing costs that can be deducted in cross border related party transactions.
These precedents have provided greater clarity regarding taxpayer rights and the foundational stand -
ards required of the tax authority. 14.2 Significant Court Rulings
In recent years, courts have issued rulings that have significantly shaped the interpretation and application of transfer pricing provisions in Mexico. These deci - sions have been instrumental in defining the technical and legal limits of transfer pricing methods, clarifying the burden of proof, and reinforcing adherence to the arm’s length principle. Some notable examples are outlined below. These precedents have raised the analytical standard required of both the tax authority and taxpayers, align - ing Mexican practice more closely with international standards of transparency and economic reasonable - ness. Digital Record: 2024896 Source: TFJA Gazette, Seventh Epoch, Year III, No. 20, November 2013, p. 1192 Heading: Transfer pricing. The tax authority must spe - cifically substantiate and justify the selection of the method used to compare agreed prices and condi - tions. This ruling requires the tax authority to rigorously sub - stantiate and justify its chosen methodology, thereby limiting the arbitrary use of alternative transfer pricing methods. Digital Record: 2020107 Source: TFJA Journal, Eighth Epoch, Year III, No. 19, February 2018, p. 565 Heading: Transfer pricing. The taxpayer is responsi - ble for proving the materiality of services rendered by related parties. This decision reinforces the need for adequate docu - mentation and evidence demonstrating the effective provision of services in order to support their deduct - ibility.
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