TRANSFER PRICING IN MEXICO

DANIEL SANCHEZ
SENIOR ECONOMIST
APRIL 14, 2010

ONESOURCE TRANSFER PRICING

AGENDA
• INTRODUCTION TO TRANSFER PRICING IN
MEXICO
• MAQUILA, NON-MAQUILA AND DOMESTIC
TRANSACTIONS
• DEVELOPMENT OF TRANSFER PRICING
METHODS
• MULTIPLE INFORMATIVE RETURN AND
AUDITED FINANCIAL STATEMENTS

2
MAQUILA

A maquiladora or maquila is a factory in Mexico that

imports raw materials and equipment on a duty-free
and tariff-free basis for assembly or manufacturing
and then re-exports the assembled product to the
originating country.

• 5% of total assets (Safe Harbor)

• Advanced Pricing Agreement

3
REGULATORY ENVIRONMENT
AMENDMENTS
• Art 50 Section XIV → Art 86 Section XII
(Documentation Requirements)
• Art 64-A → Art 215
(General Terms and Types of Transactions)
• Art 65 → Art 216
(Accepted Methods)
• Art 216-Bis
(Exclusively referring to maquiladoras and
their documentation options)
OECD GUIDELINES
• The Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations published in
1995 by the OECD or their subsequent
amendments will be applicable to the terms
contained in these Articles, as long as they are
congruent with the included in the MITL.

– “Para la interpretación de lo dispuesto en este Capítulo, serán aplicables las Guías

sobre Precios de Transferencia para las Empresas Multinacionales y las
Administraciones Fiscales, aprobadas por el Consejo de la Organización para la
Cooperación y el Desarrollo Económico en 1995, o aquéllas que las sustituyan, en
la medida que las mismas sean congruentes con las disposiciones de esta Ley y
de los tratados celebrados por México.”
MAQUILA, NON-MAQUILA
AND DOMESTIC
TRANSACTIONS
MAQUILADORA
(PERMANENT ESTABLISHMENT)

Parent Co.
US

MEX M&E PE Management

and Control

Inventories
Maq.

Double Taxation
DOCUMENTATION REQUIREMENTS
• ART 86 SECTION XII
- The taxpayer’s legal denomination, address, tax
residence and tax identification number of the related
parties with whom transactions are carried out, as well as
the documentation that demonstrates the direct and
indirect participation between the related parties (i.e.,
contracts, stockholders registry, etc.).
- Information regarding the functions, assets used and
risks assumed by the taxpayer for each type of
transaction.
MAQUILA, NON-MAQUILA AND DOMESTIC
TRANSACTIONS
• Maquila
– Required to comply with Art 86 Section XII, Article 215,
Article 216 and 216-Bis (excludes Article 86, Section XIII)

• Non-Maquila
– Required to comply with Art 86 Section XII, Section XIII,
Article 215 and Article 216 (excludes Article 216-Bis)

• Domestic Transactions
– Required to comply with Article 86 Section XV to prove
intercompany pricing is at arm’s length

9
 DEVELOPMENT OF
TRANSFER PRICING
METHODS
DEVELOPMENT OF TRANSFER PRICING
METHODS
• Article 216 of the MITL states that a taxpayer may apply any
of the transfer pricing methods included in the MITL:
– Traditional transactional methods:
• Comparable Uncontrolled Price Method
• Resale Price Method
• Cost Plus Method
– Profit based methods:
• Profit Split Method
• Residual Profit Split Method
• Transactional Operating Profit Margin Method/CPM/TNMM

• After 2006 Mexico adopted a hierarchy of methods similar to

that of the best method rule with a preference towards
traditional transactional methods.
ARTICLE 216-BIS
• Section I – Transfer Pricing Study including 1% of
the foreign-owned M&E
– 1% of the foreign owned assets used in the maquila
operation
• Section II – Safe Harbor
– Maquila’s minimum taxable income is the highest of:
• 6.9% of the maquila and foreign-owned assets used in the
maquila operation (including inventories)
• 6.5% of the operating cost and expenses
• Section III – Transfer Pricing Study considering an
arm’s-length return on assets used in the maquila
operation
– Maquila assets, foreign-owned assets and inventories
MULTIPLE INFORMATIVE
RETURN AND AUDITED
FINANCIAL STATEMENTS
MULTIPLE INFORMATIVE RETURN
DECLARACIÓN INFORMATIVA MÚLTIPLE
• Section XIII of Article 86 states that taxpayers that
have transactions with non-resident related parties
must submit an informative annual return before
the Tax Administration Service.
• Maquiladoras are exempt from this obligation.
MULTIPLE INFORMATIVE RETURN
• INFORMATION OF OPERATIONS WITH FOREIGN
RELATED PARTIES

Jointly with the income tax return of the fiscal year or by recent
miscellaneous resolution with the audited financial statements, on
the official form approved by the tax authorities, taxpayers shall
report the information of operations with foreign related parties
performed in the fiscal year

FISCAL YEAR OFFICIAL FORM

(APPROVED BY TAX AUTHORITIES)
2000-2002 Form 55 of the DIM
2003 Section 11, Annex 4 of the DIM
2004 - current Annex 9 of the DIM
TRANFER PRICING QUESTIONNAIRE
• IF THE TAXPAYER DOES NOT COMPLY WITH
THESE DISPOSITIONS, SPECIFY IN THEIR
FINANCIAL STATEMENTS
• IF THE TAXPAYER DOES NOT COMPLY WITH
THESE DISPOSITIONS, SPECIFY IN THE
AUDITED STATEMENTS
• VERIFIED THAT THE TRANSFER PRICING
DOCUMENTATION, EVIDENCED THE INTENT
TO APPLY THE FIRST METHOD OF ARTICLE
216 (CUP) FOR EACH TRANSACTION
PENALTIES AND SURCHARGES
• Unpaid income tax restated by inflation
• Surcharges
• Penalties ranging between 70% and 100% of the
unpaid income tax
GENERAL CONCEPTS
Tax authority and law
Regulations, rulings and
guidelines
Acceptable methods
Penalty on transfer pricing
assessment
Reduction in transfer pricing
penalties
Tax return disclosures
Servicio de Administración Tributaria (SAT); Mexican Income
Tax Law Articles 2 (second to last paragraphs), 86 (Secs XII,
XIII, XV), 215, 216, 216-Bis
Annual Miscellaneous Tax Provisions for Maquiladora
companies, APA filing, Informative Return for Export-Oriented
Manufacturing Companies (IMMEX), Multiple Informative
Return Annex 9, and Statutory Tax Report Filing System
(SIPRED).
CUP, Resale Price, Cost Plus, Profit Split, Residual Profit
Split, Transactional Operating Profit Margin Method (TOPMM).
Ordinary penalties apply – 40 percent of tax deficiency if paid
before notice of deficiency is issued, 55 to 75 percent in other
cases, adjusted for inflation and interest.
50 percent reduction if transfer price documented showing
good faith
1. Annual Tax Return.
2. Multiple Informative Return Annex 9
4. Informative Return for Export-Oriented Manufacturing
Companies (IMMEX)
5. Tax Certificate or Statutory Filing System (SIPRED).
GENERAL CONCEPTS
Documentation requirements Contemporaneous documentation must show that prices with
each domestic and foreign related party set on a transaction-
by transaction basis are at arm’s length. (Documentation
requirement effective 1997, transactional analysis effective
2000.)
Deadline to prepare Documentation must be prepared by due date for filing income
documentation tax return (March 31).

Deadline to submit Upon request.

documentation
Acceptable languages for Documentation must be in Spanish.
documentation
Advance pricing agreement Federal Fiscal Code Article 34-A.
(APA) available?
Are foreign comparables Yes.
acceptable to local tax
authorities?
Nature/extent of relationship Direct or indirect management, supervision, or ownership in
between parties to a transaction another company.
required for transfer pricing rules
to apply
 THANK YOU

FOR MORE INFORMATION PLEASE

CONTACT

Michelle Katnik
michelle.katnik@thomsonreuters.com
646.424.5210