Early Adoption of Transfer Pricing Rules
Mexico is recognized for its early adoption of transfer pricing regulations, particularly in implementing Action 13 of the OECD’s BEPS Action Plan. Action 13 requires taxpayers to file master, local, and country-by-country reports.
Laws & Regulations
Advance Pricing Agreement (APA)
Unilateral and bilateral APAs are available in Mexico, but the process is resource-intensive and does not guarantee approval.
Transfer pricing audits in Mexico have significantly increased, emphasizing the economic substance, transfer pricing methodology, and the nature of certain payments. Consistency in the information disclosed across various reports is also a focus.
Transfer Pricing Documentation
Economic Analysis – Benchmark Study
While there is a preference for local comparables, limited public information leads to the selection of comparables in North America. Tax authorities may accept this approach if it’s supported by the lack of reliable local information. Identifying internal uncontrolled transactions is also crucial.
Inter-company (IC) Legal Agreement
Inter-company legal agreements are essential for formalizing relationships but are of lower importance since the OECD’s 2017 Guidelines prioritize the “conduct of parties.”
Taxpayers are required to submit financial statements in their transfer pricing documentation.
Transfer pricing documentation should be prepared annually and is considered part of a company’s accounting records.
Penalties and Interest Charges
Various penalties apply if intercompany transactions are not at arm’s length. Mexico offers a penalty reduction if supporting transfer pricing documentation exists. Penalties are also imposed for not reporting related party transactions and not submitting informative returns.