Transfer pricing law changes enter into effect

In September 2021, Mexico introduced an economic package for the year 2022 that included proposed changes to the country’s transfer pricing regime. Those changes, which can be broadly categorised as changes to the type of information that must be provided to the tax authorities and the introduction of additional reporting obligations, are in effect as of 1 January 2022.

Type of information

The changes introduced by the legislation include the following amendments to the transfer pricing documentation rules.

The tax legislation modifies existing law to provide that domestic related-party transactions will be subject to the same documentation requirements that apply to related-party transactions with nonresidents.

A functional analysis must be carried out that includes information regarding the functions, assets and risks of the taxpayer and any related parties involved in the transaction.

Under the new rules, the transfer pricing report must include a list of all adjustments that were performed to improve the comparability of the chosen comparables.

The new rules require that taxpayers identify in their accounting records information regarding intercompany transactions with both domestic and nonresident related parties.

The information regarding the comparable businesses used in the transfer pricing study must be contemporaneous for the tax year under analysis. In the event that information from the three prior fiscal years is used, the taxpayer must provide an explanation regarding the transaction’s business cycle, which may cover more than one year.

Finally, the new rules provide that the arm’s length range can only be adjusted using the interquartile method.

Reporting obligations

Regarding taxpayers’ reporting obligations, the new rules provide that:

All related-party transactions – both domestic and with nonresidents -- must be reported to the tax authorities. Only cross-border transactions were reported previously.
The obligation to file a tax audit report for large taxpayers, which must be prepared by a Certified Public Accountant, had been repealed eight years ago. But the 2021 legislation reintroduced this requirement for 2022. Moreover, the related parties of these companies will have to file a local file with the Mexican tax authorities.
Mexican legislation clearly sets forth that the provisions in the OCED transfer pricing guidelines should be considered, a requirement that extends to the updated version of the guidelines that the OECD published in January 2022.
Finally, the Mexican tax authorities are trying to unify the due dates of transfer pricing filing obligations. Under the new rules, the information return reporting transactions with related parties, as well as the local file, must be filed no later than May 15 of the fiscal year immediately following the tax year in question. However, the term was extended to July 15 for 2022.

Argel Romero Dominguez
argel.romero@bdomexico.com