Transfer pricing for Mexico in fiscal year 2023

I) Documentation-related obligations (TP study)

Sections IX and XII of article 76 of the Income Tax Law (LISR) establishes an obligation for taxpayers to prepare and maintain documentation proving that their income transactions or deductions with related parties have complied with the arm's length principle_[1], as well as the legal requirements regarding transfer pricing (TP study).

a) Exemptions

Under section IX, paragraph II of article 76, and for the purposes of section XII_[2], the taxpayers who are exempt from complying with this obligation include:

1. Taxpayers who carry out business activities whose income in the immediately preceding year did not exceed MX$13,000,000.
2. Taxpayers whose income derived from the provision of professional services did not exceed MX$3,000,000 in said year.
3. Taxpayers will have the obligation, even if they do not exceed the income thresholds established in the previous paragraphs if they are considered to carry out transactions with companies or entities subject to preferential tax regimes (article 179 penultimate paragraph of the LISR).

Note: However, the tax authority (TA) may require documentation that proves that the transactions carried out with related parties complied with the arm's length principle.

Filing date: 

The TP study must be available before filing the tax returns or at the time it´s requested by the TA.

b) Related parties

Article 179, paragraphs V and VI of the LISR indicates what taxpayers are considered related parties, and therefore obliged to have the information regarding any intercompany transactions they carried out to comply with the arm's length principle and facilitate reviews by the TA.

c) Transfer pricing methods

Article 180 of the LISR establishes the transfer pricing documentation methods (accepted by the OECD) for prices, amounts or compensation margins determination between related parties in accordance with the arm's length principle.

Section VI, paragraph III of article 180 of the LISR establishes the hierarchical order to be followed in the application of transfer pricing methods for the documentation of transactions between related parties.

d) Auditing powers

The auditing powers in relation to TP are established in section IV of article 46 (TP audits) of the Federation´s Fiscal Code (CFF). If taxpayers do not have a TP study available, they may be subject to infractions and fines for non-compliance of the documentation obligation.

II) Submission of informational tax returns or fiscal opinion

a) Multiple Informative Return (DIM) Annex 9

In accordance with the provisions in section X of article 76 of the LISR, taxpayers who carried transactions with related parties (both domestic and foreigners) must submit the TP informational tax return´s Annex 9 of the DIM_[3].

Likewise, the omnibus (RMF) rule 3.9.19. provides the option of not submitting the informational tax return´s Annex 9 of the DIM of transactions as established in section X of article 76, and section X of article 110 of the LISR.

Filing date: 

Until March 31 of the immediately following year to the reported tax year (together with Tax Situation Informative Return or “ISSIF”). Until May 15 of the immediately following year to the reported tax year (alone or together with the Certified Tax Report Presentation System or “SIPRED”).

b) Tax Situation Informative Return (ISSIF)

In accordance with the provisions of article 32-H of the CFF, taxpayers meeting requirement of any of the following scenarios have the obligation to submit the ISSIF; which includes information on transactions carried out with related parties:

1. Taxpayers with taxable income equal to or greater than MX$974,653,950_[4] in the immediately preceding year or who at the end of the immediately preceding year have shares placed on the stock market.
2. Companies registered under the optional tax regime for groups of companies under Chapter VI, Title II of the LISR.
3. Parastatal entities of the federal public administration.
4. Foreign companies that have a permanent establishment in the country (for activities carried out inside the establishment).
5. Mexican companies that carry out operations with foreign related parties.
6. Taxpayers who are related parties of the entities listed in article 32-A (2nd paragraph) of the CFF.

The TA does not require taxpayers to submit the ISSIF if they fall under section V of article 32-H of the CFF when the total amount of transactions carried out with foreign residents in the fiscal year is less than 100 million pesos_[5].

Likewise, taxpayers obligated to file ISSIF under section VI of article 32-H of the CFF, shall only file it if they carried out transactions with the entities listed in paragraph two of article 32-A of the CFF, and provided that the amount of the operation exceeds 13 million pesos for the performance of business activities, or 3 million pesos in the case of the provision of professional services_[6].

Filing date:

Before March 31st of the immediately following year to the reported tax year.

c)  Certified Tax Report Presentation System (SIPRED)

The taxpayer may choose to file the SIPRED under article 32-A of the CFF in the following scenarios: i) when their taxable income is equal to or greater than 140'315,940.00 pesos_[7]; ii) when the value of their assets is greater than 110,849,600.00 pesos[8]; iii) that at least 300 of their workers have provided their services in each of the months of the immediately preceding year.

In accordance with the second paragraph, it is mandatory for taxpayers who pay taxes under Title II of the LISR, i) who in the immediately preceding fiscal year declared in their regular filings taxable income for income tax purposes equal to or greater than 1,779,063,820.00 pesos or ii) who at the end of the immediately preceding fiscal year have shares placed among the general investing public, on the stock market.

Filing date: 

Before May 15th of the immediately following year to the reported tax year.

d) BEPS informative returns

Article 76-A of the LISR establishes that taxpayers identified in articles 32-A, paragraph two and 32-H, sections I, II, III, IV and VI of the CFF that carry out transactions with related parties, in addition to the provisions of article 76, sections IX and XII, and in relation to article 179, first and last paragraphs, of the LISR, must submit to the tax authorities the annual related parties informative returns mentioned below:

• Master File: Entities required to submit a Master File, that belong to a multinational group and meet any of the conditions indicated in sections I, II, III, IV and VI of article 32-H and paragraph two of article 32-A of the CFF (certified tax report). This informative return does not apply to domestic business groups that do not have foreign related parties.
• Local File: Companies that meet any of the conditions indicated in sections I, II, III, IV and VI of article 32-H and paragraph two of 32-A of the CFF (certified tax report).
• Country by Country (CbC) report: Only the taxpayers who meet any of the following conditions need to submit it: i) controlling multinational legal entities; ii) legal entities resident in the national territory or abroad with a permanent establishment in the country that have been designated by the controlling legal entity of the multinational business group resident abroad as responsible for providing the country-by-country informative return.

Filing date

Master File: Before December 31st of the immediately following year to the reported tax year.

Local File: Before May 15th of the immediately following year to the reported tax year.

Country by country: i) Before December 31st of the immediately following year to the reported tax year; ii) taxpayers belonging to foreign business groups whose fiscal year does not coincide with the calendar year (January-December 2023) may submit it no later than the immediately following year to the reported tax year.

e) Foreign residents with a source of wealth in Mexico

Under article 153 of LISR, foreign residents with a source of wealth in Mexico are required to determine the income, profits, revenue and, when appropriate, deductions, derived from transactions carried out with related parties, considering the prices, compensation amounts or profit margins that they would have used or obtained with or between independent third parties in comparable transactions.

f) Companies that carry out maquila operations

Under article 182 of the LISR, companies that carry out maquila operations will be considered to comply with the provisions of articles 179 and 180 of the LISR and that the foreign entities they are operating on behalf of, do not have a permanent establishment in the country, when the maquiladora companies determine their taxable profit as the highest amount resulting from applying the following:

1. 6.9% of the total value of the assets used in the maquila operation during the fiscal year.
2. The fixed assets value will be the outstanding amount to be deducted, calculated in accordance with section II, paragraphs i to iii, of article 182 of the LISR.
3. 6.5% of the operation´s total operating costs and expenses.

Likewise, in paragraph three of article 182 of the LISR, companies with a maquila program that apply the provisions of this article, must submit, on an annual basis, the informative return of their maquila operations reflecting that the taxable profit for the year represented, at least, the greater amount resulting from applying the provisions of sections I and II of article 182.

On the other hand, domestic entities who carry out other activities in addition to the maquila operation referred to in article 181 of the LISR, may benefit from the provisions of this article only for the maquila operation.

Exemptions: 

Domestic entities who have chosen to apply the provisions of article 182 of the LISR will be exempt from the obligation to submit the informative return indicated in section X of article 76 (Annex 9) of the LISR, only for the maquila operation.

Filing date: 

No later than June of the reported year. If such declaration is not submitted or does not reflect the provisions of said paragraph, the provisions of article 182 won´t be applicable.

g) Permanent establishment

Article 2 of LISR considers a permanent establishment to be any place of business in which business activities are carried out, partially or totally, or where independent personal services are provided. Taxpayers under this scheme are required to:

• Present the information of the transactions they carried out with related parties_[10].
• Submit the tax situation informative return (ISSIF)_[11].
• Provide the TA with the annual related parties informative returns (Master File, Local File and CbC)_[12].

III) Violations and fines

If the TA determines that the taxpayer omitted information or has not complied with its TP obligations, in accordance with the provisions of the Mexican legislation, the taxpayer will be subject to fines according to the type of infraction incurred. Below are some of the penalties for non-compliance

Table 1

Transfer pricing: infractions and fines fiscal year 2023

_{Source: based on information obtained from the CFF, last reform DOF 05-31-2023 and Annex 5 of the 2023 RMF, published on December 27, 2022.}

_{[1] The arm's length principle is internationally accepted by the Organization for Economic Cooperation and Development (OECD) and consists of ensuring that intercompany prices must be consistent with the prices agreed by independent companies in comparable operations carried out under similar circumstances, so that the intercompany relationship should not affect the determination of prices.}

_{[2] Rule 3.9.2 of the Miscellaneous Tax Resolution (RMF) for 2023.}

_{[3] Rule 3.9.19. of the RMF for 2023.}

_{[4] Amount updated in the RMF for 2023 (Annex 5).}

_{[5] Rule 2.16.3. of the RMF for 2023.}

_{[6] Rule 2.16.5. of the RMF for 2023.}

_{[7] CFF (Last reformed 05-31-2023).}

_{[8] Idem.}

_{[9] Idem.}

_{[10] Section X of article 76 of the LISR.}

_{[11]  Section IV of article 32-H of the CFF.}

_{[12] Article 76-A of the LISR: "The taxpayers indicated in articles 32-A, paragraph two and 32-H, sections I, II, III, IV and VI of the CFF that carry out transactions with related parties, in addition to the provisions of article 76, sections IX and XII, and in relation to article 179, first and last paragraphs of the LISR".}