Mexican tax rules dealing with transfer pricing adjustments entered into force beginning January 1 2017. These rules deal only with primary adjustments and all the formalities related to them, especially those to meet the requirements for deductions. Primary adjustments can even be recognised on a cashless basis. Unfortunately, at this stage secondary adjustments are not covered in these rules. Ricardo Rendón and Yoshio Uehara explain the changes.
Since the implementation into Mexican legislation of the transfer pricing (TP) regime, the Mexican Income Tax Law (MITL) has established that taxpayers who undertake transactions with related parties are required for the purposes of said law, to determine their taxable income and deductions taking into account the prices that would have been used in comparable transactions with or between independent parties. In other words, related party transactions have to be carried out at arm's length.
When a related party transaction is not at arm's length, the taxpayer should adjust the price or consideration of such transaction in order to comply with the arm's-length principle. Nevertheless, the MITL does not provide any provision or guideline to implement transfer pricing adjustments.
The only provision related to TP adjustments is article 184 of the MITL, which establishes that when the tax authorities of a country with which Mexico has entered into a tax treaty for the avoidance of double taxation assess an adjustment to the prices or considerations of a taxpayer resident in such country, the Mexican related party may perform the corresponding adjustment. This is, the MITL recognises the application of adjustments provided that the primary adjustment is determined by a competent authority of a country with which Mexico has entered into a tax treaty, and provided that the Mexican tax authorities accept such adjustment.
Certainly, this should not be understood as Mexican taxpayers not being allowed to carry out a TP adjustment for Mexican tax purposes, rather it is possible to say that tax uncertainty exists when implementing such adjustments.
In order to obtain tax certainty, taxpayers may request rulings from the Mexican tax authorities that provide legal certainty for diverse tax implications, and have even entered into mutual agreement procedures (MAPs) in order to obtain a higher level of comfort from a tax perspective.
Administrative rules for TP adjustments
For several years, taxpayers have been discussing with the tax authorities the need of tax provisions or at least administrative rules or any guideline for transfer pricing adjustments. Finally, on December 23 2016, the...