Mexico – Country Profile by the OECD

Which mechanisms are available in Mexico to prevent and/or resolve transfer pricing disputes?

Advance Pricing Agreements (Bilateral, Unilateral, Multilateral)
Mutual Agreement Procedures
Administrative or statutory dispute settlement/resolution processes
Conclusive Agreements with the Procuraduría de la Defensa del Contribuyente (PRODECON)

Transfer Pricing methods used to analyze transactions between related parties

Which standard is used in your jurisdiction for the application of transfer pricing methods?

Hierarchy of methods
Article 180 of the Mexican Income Tax Law (MITL) states that taxpayers must first apply the method set forth in (I) of such Article (i.e. the CUP method), and may only use the methods indicated in (II), (III), (IV), (V) and (VI) (i.e. Resale Price, Cost Plus, Profit Split, Residual Profit Split methods and TNMM, respectively) thereof when the method set forth in (I) is not appropriate for determining if the transactions were performed at arm’s length.
Mexico’s approach to method hierarchy is not in conflict with “the most appropriate method” approach of the OECD Transfer Pricing Guidelines (TPG), given that it considers applying the guidance in paragraph 2.2 of the TPG, which inherently implies undertaking an applicability test for each method considering several factors, among other tests.

Is there a preference in your jurisdiction for domestic comparables over foreign comparables?

Although in principle there is a preference for local comparables, it must be mentioned that Mexico has limited local comparables, and in practice, foreign comparables are often relied on.

Does your tax administration use secret comparables for transfer pricing assessment purposes?

Yes, any information to which the tax authority has access may be used. However, the use of secret comparables is case-specific (only to on-site visits/audits). References can be found in articles 46, IV and 69 of the Federal Fiscal Code. (https://www.diputados.gob.mx/LeyesBiblio/pdf/CFF.pdf)

In addition to transfer pricing guidelines, are there any other rules that are relevant for the tax treatment of transactions involving services?

Yes; pro-rata expenses paid to foreign parties/service providers are deductible from a Mexican tax standpoint only if the information specified in the Miscellaneous rule 3.3.1.27 is provided. As such, and in general terms, taxpayers must have evidence as well as information demonstrating that the services (i) were actually rendered, (ii) provided a benefit to the Mexican taxpayer, (iii) were not duplicative services, and (iv) that the amount for the consideration was at arm’s length.

Please briefly explain the relevant requirements related to filing of transfer pricing documentation

The documents associated with the three-tiered approach of TP documentation must be filed by May 15^th(Local File) and December 31^st (Master File and Country by Country Report) of the succeeding required year, and the contents of these documents are in line with BEPS Action 13 Report/TPG Chapter V. Furthermore, according to Miscellaneous Rule 3.9.12., the Master File may be submitted in English.
Specific TP informative return must be filed as of March 31st of the succeeding fiscal year.
The annual tax return must be filed as of May 15^th of the succeeding fiscal year.

8. In addition to transfer pricing guidelines, are there any other rules that arerelevant for the tax treatment of financial transactions?

In Line with BEPS Action 4, Mexico has implemented measures that limit interest deductions that exceed 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA), with no changes to this percentage foreseeable in the coming years, applicable only to taxpayers with interest expenses exceeding MXN 20,000,000 in a given fiscal year. Additionally, Mexico has thin capitalization rules to limit interest deductions.