On 3 April 2017, the Mexican Tax Ombudsman (PRODECON) released the final transfer pricing regulations (final regulations), providing guidance on the master file, local file and country-by-country (CbC) report. The final regulations will be effective once published by the Mexican Tax Authorities (SAT) in the Official Gazette.
The final regulations allow a foreign related party to prepare the master file and Mexican taxpayers to file the master file in English or Spanish as long as it is consistent with the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) Action 13. The final regulations include new requirements and definitions that a Mexican taxpayer will have to take into account when filing the local file. The local file must be filed in Spanish, except for the business description of comparable companies and agreements, which may be provided in English or Spanish. Taxpayers with an Advance Pricing Agreement (APA) or subject to the maquiladora rules will have the option to not file the local file.
Article 76-A of the Mexican Income Tax Law (MITL) establishes the obligation for Mexican taxpayers to submit three new transfer pricing information returns before 31 December of the following year – the master file, local file and CbC report (for fiscal year 2016, these returns should be filed by 31 December 2017).
Mexican taxpayers, including subsidiaries of foreign multinational groups, with revenues greater than $644,599,005 Mexican pesos (approx. US$34 million) must file the master file and the local file. Mexican multinational controlling entities with consolidated income of $1.2 billion Mexican pesos (approx. US$630 million) must file the CbC report.
Failure to comply with the filing of the new transfer pricing information returns could result in penalties and the cancellation of the import-export registration.
In October 2016, the PRODECON submitted the proposed transfer pricing regulations for public comment. On 3 April 2017, the PRODECON issued final regulations on filing of the master file, local file and CbC report.
The final regulations are not effective until published by the SAT in the Official Gazette.
The final regulations allow Mexican taxpayers to file the master file jointly with the entities of the multinational group. The final regulations establish specific submission dates for filing the master file, depending on whether there is a difference in book year closing between the foreign multinational entity preparing the transfer pricing information return and the Mexican taxpayer.
The final regulations allow the master file to be filed in English or Spanish, as long as the document complies with BEPS Action 13.
The final regulations also define certain terms, such as “value drivers,” “supply chain,” “business model,” “geographic markets,” “business restructuring” and “transfer pricing policies.” The new definitions are intended to clarify the information required by the SAT.
If the Mexican taxpayer prepares the master file locally, the information provided must align with the new definitions and specific requirements included in the final regulations.
The final regulations require Mexican taxpayers to file the local file in Spanish. The final regulations, however, allow Mexican taxpayers to file information on agreements reached with related parties and the business description of comparable companies in English or Spanish.
Additionally, the final regulations set new compliance requirements related to:
- The detailed description of the development, enhancement, maintenance, protection and exploitation of intangibles (DEMPE) functions performed by the entities involved in the transaction
- The complete detail of the calculations executed by the taxpayer related to the profit level indicators for the tested party and comparable companies
- Sources and databases for searching relevant information of comparable companies
- Date of preparation of the local file and tax ID number of the people (preparer and adviser) involved in completing the local file
Finally, the final regulations exempt taxpayers with an APA or maquiladoras from filing the local file.
The final regulations related to the local file exceed the current requirements established in the MITL on the filing of transfer pricing documentation.
The final regulations include some clarifications and definitions for the CbC report. Furthermore, the final regulations allow Mexican taxpayers to file just one transfer pricing information return jointly with the entities of the multinational group.
Mexican taxpayers should monitor the publication of the final regulations and should review the means and formats for filing the information returns.
Taxpayers should start preparing the information requested for the local file in order to comply with the new transfer pricing information returns applicable to fiscal year 2016. Taxpayers also should start discussing with their head office the information required to comply with filing the master file.
EYG no. 01813-171Gbl