Since 1997, Mexican tax authorities have recognised the arm's-length principle for benchmarking related-party transactions, establishing for such purposes the transfer pricing provisions.

Certain aspects regarding transfer pricing were introduced to the Mexican Income Tax Law (MITL) in 2001, 2002 and 2006, such as the transactional approach, recognition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD Guidelines) for transfer pricing interpretation purposes, as well as the hierarchy for the application of the methods.

Currently, the Mexican transfer pricing provisions contained in Article 76, Section XII of the MITL state that corporations that undertake transactions with related parties are required to determine their accumulated income and authorised deductions, taking into account the prices that would have been established with or between independent parties in comparable transactions (i.e., related-party transactions must comply with the arm's-length principle).

Article 179 of the MITL sets out that two or more persons or entities are related parties when one of them participates directly or indirectly in the management, control or capital of the other, when a person or group of persons participates directly or indirectly in the management, control or capital of such people, or when there is a link between them in accordance with the customs legislation. In this sense, individuals may also be a related party to another person and therefore are subject to the Mexican transfer pricing provisions.

The MITL establishes that for the interpretation of the Mexican transfer pricing provisions the OECD Guidelines approved by the Council of the Organisation for Economic Co-operation and Development in 1995, or those that substitute them, will be applicable as long as they are consistent with the provisions of the MITL and the treaties entered into by Mexico.

The Mexican transfer pricing provisions contained in the MITL do not specify the definition of the arm's-length principle; however, the OECD Guidelines, as a source of interpretation for transfer pricing issues, state that the arm's-length principle is reached if the conditions between related parties were made or imposed for their business or financial relations and do not differ from those that would have been used with or between independent parties.

Additionally, Article 179 of the MITL states that tax authorities may determine the accumulated income and authorised deductions of the taxpayers that have not been determined in transactions carried out between related parties, taking into account the prices that would have been established with or between independent parties in comparable transactions. Moreover, if the tax authorities determine that a taxpayer undertook transactions with related parties on a non-arm's length basis, it is considered that the price or amount of the consideration that independent parties would have established is the median of the price, amount or margin range obtained from the application of any of the transfer pricing methods.


In general terms, the contemporaneous transfer pricing documentation for transactions carried out with Mexican and foreign related parties is not submitted to the tax authorities, unless it is formally required to do so in an audit process.

Notwithstanding, there is certain documentation that taxpayers must file before the Mexican tax authorities regarding transactions carried out between related parties; the principal filings that Mexican taxpayers must submit are described in this section.

When taxpayers undertake transactions with non-resident related parties, Article 76, Section IX of the MITL states that taxpayers must procure and maintain the supporting documentation that demonstrates that the amount of their accumulated income and authorised deductions derived from such transactions were made on an arm's-length basis. Such evidentiary documentation shall contain the following:

  • a the name, domicile and tax residence of the related parties with which the transactions were undertaken, as well as the documentation showing the direct and indirect relation between the related parties;
  • b information regarding the functions or activities, assets and risks assumed by the taxpayer per type of transaction;
  • c information and documentation on the main transactions with related parties and the amounts thereof by each party in a relationship and per type of transaction; and
  • d the method applied in accordance with Article 180 of the MITL, including the information and documentation on comparable operations and enterprises, per type of transaction.

As can be seen from the aforementioned provision, taxpayers are not required to submit such documentation, but to procure and maintain it.

In practice, and derived from a statutory criterion issued by the tax authorities,2 the requirement to procure and maintain supporting documentation which demonstrates that transactions carried out with related parties were made on an arm's-length basis applies for both domestic and foreign transactions, that is, the evidentiary documentation must include all transactions undertaken between related parties.

Article 76-A of the MITL, which has been in force since fiscal year 2016, states that taxpayers that in the immediate previous year obtained operating revenues equal to or exceeding 644,599,005 Mexican pesos,3 as well as those that in such year had shares exchanged in the stock market, companies who applied for the optional tax regime for corporate groups, state companies of the federal public administration and foreign residents with permanent establishment in Mexico that undertook transactions with related parties, would be required to file no later than 31 December of the next year the following transfer pricing information in line with the OECD's Base Erosion and Profit Shifting (BEPS) Action Plan 13:

  • a the master file - information on the business multinational enterprise group, including an overview of the multinational enterprise group, overall transfer pricing policies, global allocation of revenue and economic activities;
  • b the local file - information on related parties, including specific transfer pricing information on the group in Mexico; and
  • c a country-by-country report on the business multinational enterprise group, which includes aggregate tax jurisdiction-wide information related to global allocation of revenue, taxes paid and indicators of the location of economic activities, among others.

Article 76-A of the MITL states that Mexican taxpayers that qualify as multinational controlling entities (the ultimate holding resident in Mexico) should not submit this report if the annual consolidated revenue of the multinational enterprise group in the immediate previous fiscal year is lower than 12 billion Mexican pesos.

Non-controlling Mexican taxpayers may still be required to file such return when appointed by the foreign parent company. In addition, the Mexican tax authorities could request other foreign tax authorities to file the country-by-country report through an information exchange mechanism.

Specific administrative rules for master and local files as well as the country-by-country report were published in April 2017.

In addition, Mexican taxpayers that undertake transactions with non-resident related parties are required to file Appendix 9 of the Multiple Information Statement (DIM4), which requests information on the related party, percentage of profit or loss obtained by operation, rate or percentage agreed (interest, royalties, commissions, among others), income statement by operation, type of range used, interquartile range and SIC codes used. The transfer pricing analyses required on the aforementioned documentation must be performed for each type of transaction carried out by the taxpayer and must be submitted before the Mexican tax authorities on an annual basis.


Article 180 of the MITL establishes that for the purposes of the transfer pricing provisions the following methods should be applied:

  • a comparable uncontrolled price method (CUP);
  • b resale price method (RPM);
  • c cost plus method (CPLM);
  • d profit split method (PSM);
  • e residual profit split method (RPSM); and
  • f transactional net margin method (TNMM).

As can be seen, the MITL establishes six transfer pricing methods, differentiating the PSM from the RPSM, which in the OECD Guidelines are considered as a single method.

Article 180 of the MITL also states that for the determination of prices for transactions carried out with related parties, taxpayers should consider the CUP as the first option and only use any of the other methods when it is proven that the CUP is not appropriate to determine that the transaction complies with the arm's-length principle. Likewise, it has to be demonstrated that the method used is the most appropriate or the most reliable according to the available information, giving preference to the RPM and CPLM. These provisions are established in accordance with the OECD Guidelines.

In practice, the RPM is applied generally to distributing companies that do not apply complex productive processes to the products they distribute, because it compares the gross margins obtained for the distribution of products.

Likewise, the CPLM is mainly used to analyse manufacturing and rendering of services transactions since it compares the markup obtained over the cost of goods sold by independent parties in comparable transactions, in connection with the markup obtained over the cost of goods sold by a company.

The PSM and RPSM are usually applied when intercompany transactions are broadly related, and for this reason it is not possible to segregate financial information related to the operation. Additionally, the RSPM is applied to analyse transactions that involve non-routine intangible assets.

The TNMM consists in identifying the transactions between related parties and determining the operating margin that comparable entities would have obtained in comparable independent transactions. This method takes into account transactional factors such as assets, sales, costs of goods sold, operating expenses and cash flows. The TNMM is mainly used to analyse transactions with a significant level of costs and expenses.

In order to determine the most appropriate transfer pricing method and the suitable profitability factor, the business approach of the transaction and its business cycle should be considered.

Article 179 of the MITL establishes that the operations or companies used in the application of a transfer pricing methodology should be comparable, when there are no important differences between them that distort the price or amount of the consideration or margin established. In order to determine such differences, it is necessary to take into account relevant elements that are required according to the method used, such as the characteristics of the operations, the functions or activities, including the assets used and risks assumed in the transactions of each of the related parties involved, as well as the contractual terms, economic circumstances and business strategies.

In general, the Mexican tax authorities consider public information when exercising their power of scrutiny over taxpayers' transfer pricing methodologies; consequently they can request key information on resident and non-resident companies, as well as the use of import summaries information.

In practice, taxpayers and the Mexican tax authorities consider it reasonable to use foreign information for comparable companies and comparable transactions purposes, given the lack of publicly available information regarding Mexican companies and transactions.

Derived from the above, in order to verify whether taxpayers fulfil their obligations, Mexican tax authorities perform an analysis that focuses on the functions performed, assets used and risks assumed on the transactions examined specifically.


Article 179 of the MITL recognises that transactions between related parties that involve the exploitation or transfer of intangible assets should be determined on an arm's-length basis, taking into consideration the type of intangible (patent, trademark, trade name or transfer of technology), as well as the duration and degree of protection of such intangible.

In accordance with the transfer pricing provisions the RPSM should be used to analyse intercompany transactions that involve non-routine intangible assets, which in general terms consist in the determination of a minimum profit generated by each company involved in a transaction to determine the minimum profit that each party must generate by routine contributions. The excess profit of the routine profit is defined as the residual profit, which is attributable to intangible assets owned by one or more of the parties involved in the transaction. Such residual profit is split among the parties according to the relative value of the intangible property that each party involved contributed to or utilised in the transaction.

In practice, financial valuation methodologies are utilised in order to establish arm's-length considerations for transactions carried out between related parties that involve intangible assets. It is important to point out that the application of financial valuation methods to determine market value of assets reflects the prices at which independent third parties would be willing to acquire such asset. In this sense, the price of an asset determined with a valuation methodology would be consistent with CUP application, and the value of an asset established with the mentioned methodologies would comply with the arm's-length principle.

As discussed, the Mexican transfer pricing provisions included in the MITL regarding intangible assets are limited and do not provide broad guidelines for transactions between related parties involving such assets. However, and as previously mentioned, for Mexican tax purposes the OECD Guidelines are a source for interpretation regarding the transfer pricing issues that may arise.

In order to have a broader understanding of the intangible assets analysis, Mexican transfer pricing provisions regarding intangible assets should be complemented with Chapter VI of the OECD Guidelines, which was contemplated in Action 8 of the OECD's BEPS Action Plan. However, queries arise regarding certain valuation in hard to value intangibles methodologies, which are mentioned in Action 8 of the OECD's BEPS Action Plan (i.e., ex ante and ex post approaches).

The ex ante approach relates to the relevance, enforceability and sustainability of a project in order to make an investment; on the other hand, the ex post approach is given once the investment is concluded, the latter being given when there is no available information before the implementation of the project in question.

The Mexican tax authorities, when exercising their power of scrutiny on taxpayers when choosing CUP or RPSM to analyse transactions involving intangibles, usually focus on the differences between the projected income of taxpayers used in such methodology and their actual income.


As part of the effort by the Mexican government to provide relief and support to taxpayers that must contend with a complex tax system that has excessive formal requirements that undergoes periodical amendments, in 2014 the Federal Tax Code was amended introducing a new settlement procedure called ‘conclusive agreement', which is filed before the Mexican Taxpayers' Ombudsman (PRODECON), which acts as a mediator between the taxpayer and the tax authorities.

This procedure is intended to allow taxpayers to submit evidence before the tax authorities to clarify the alleged omissions identified during the audit procedure, before a tax deficiency is assessed, allowing both parties (taxpayer and tax authorities) to reach an agreement in which alleged omissions are clarified or the omitted tax paid. In such case the agreement is binding and could not be challenged by the parties.

In the event a petition of a conclusive agreement is filed, the audit procedure is suspended and in the event an agreement is not reached or only a partial agreement is signed, the audit procedure will continue from the stage at which it was suspended.

Additionally, during the audit process, it is possible to reach an agreement directly with the tax authorities by adjusting the considerations settled between related parties in accordance with the arm's-length principle.


Article 67 of the Federal Tax Code states that the power of the tax authority to determine tax omissions, as well as to impose penalties for violations of the tax provisions, is extinguished within five years from the date on which the annual return of the tax year assessed was filed or ought to have been filed. Thus, the time limit for the tax authorities to open a transfer pricing investigation is five years from the given fiscal year.

Typically, during a transfer pricing audit, the Mexican tax authorities have one year to carry out the review of the annual tax return in assessment and to request information from the taxpayer. Likewise, the tax authorities have two years to issue an official letter of observation or a final act with the results of the transfer pricing audit.

During a transfer pricing audit, the tax authorities may determine whether a transaction carried out by a taxpayer with related parties was made on an arm's-length basis or not. As mentioned above, if the tax authorities determine that the transactions under consideration were made on a non-arm's length basis, they would make a transfer pricing adjustment.

Once the official letter of observations or final act with the results of the transfer pricing audit is received, the taxpayer will have two months to appeal and present evidence or liquidate the tax assessment. In the event the taxpayer presents additional evidence or appeals, the tax authorities will have six months to determine the final tax regarding the transfer pricing adjustments.

In practice, the tax authorities review a series of economic indicators based on the taxpayer's transactions with its related parties, such as the leverage level, in order to start an audit process.

Nowadays, the number of transfer pricing audits has increased due to the alignment of the Mexican transfer pricing provisions with the OECD's BEPS Action Plan. The Mexican tax authorities have publicly announced that they are carrying out auditing programmes to review taxpayers that may be involved in aggressive tax planning strategies.

Various multinational enterprises have restructured their operations in Mexico under the supply chain concept, by establishing a contract manufacturer or a limited risk distributor, or both, as well as the provision of various services, deriving from the transfer of profits to non-resident entities. These taxpayers may be audited by the Mexican tax authorities, seeking to change this structures to return the taxable profits back to Mexico.

Taxpayers that are licensees and pay royalties for the use of trademarks and other intangibles, which at the same time incur advertisement and promotion expenses, are also likely to be audited by the tax authorities, stating that such expenses must be absorbed by the licensor.

The Mexican tax authorities also focus on auditing pro rata expenses,5 verifying that such expenses' deductions fulfil the requirements issued by the tax authorities, which in practice are very difficult for taxpayers to comply with.


i Procedure

There are two legal remedies by which taxpayers could challenge a tax deficiency assessment. The first is by filing an administrative appeal before the tax authorities, and the second option is through an annulment complaint before the Federal Tax Court.

Administrative appeal

Before going to court the taxpayers could challenge a tax deficiency through an administrative appeal, which must be filed within a 30-business-day term following the date the tax assessment is notified to the taxpayers, in which it would be able to file additional evidence in order to demonstrate that such assessment is illegal.

After all the evidence is submitted, the tax authorities are compelled to issue a resolution within a three-month period.

One of the benefits of the administrative appeal is that according to the Federal Tax Code, taxpayers are not compelled to file any kind of security (such as bond deposit, administrative seizure, among others) to the tax authorities before such mean of defence is resolved.

In the event of obtaining an unfavourable resolution, taxpayers may file an annulment complaint before the Federal Tax Court within a 30-business-day term following the date the resolution to the administrative appeal is notified.

Annulment complaint

The annulment complaint must be filed before the Federal Tax Court within a 30-business-day term following the tax assessment or the resolutions to the administrative appeal were notified.

Against a favourable or unfavourable resolution to the taxpayer's interest, the tax authorities or the taxpayer may, respectively, file an appeal or an amparo lawsuit, within a 15-business-day term following the date the decision is notified, which will be definitely decided by a Collegiate Tribunal.

In the event of filing the annulment complaint the taxpayer should file a security before the tax authorities in one of the forms established in the Federal Tax Code (bond, deposit, administrative seizure, payment, among others) within a 30-business-day term following the date the ruling letter was duly notified to the company, or within a 10 business-day term of the administrative appeal being resolved.

Taking into consideration the facts and circumstances, the best alternative to challenge ruling letter SF/TDF/SF/A/0101/2016 would be filing an administrative appeal, because that allows the company to provide additional evidence and avoid posting a guarantee for the tax deficiency.

ii Recent cases

There are some cases being discussed concerning transfer pricing disputes in regard to the following fees: (1) research and development; (2) cost sharing; (3) services fees; (4) information and technology; (5) advertising and promotion; and (6) travel and training expenses, all paid to related parties.


In general, there are certain transactions whereby the taxable basis may be eroded between different jurisdictions among which transfer pricing adjustments are included. In this regard, it is important to enforce laws to implement transfer pricing adjustments, in order for taxpayers to be certain of their transactions and for tax administrations to identify elusive practices. It is important to mention that such adjustments may lead to an increase in revenue, decrease in deductions, decrease in revenue and an increase in deductions for each of the entities involved in the underlying transactions.

The only provision related to transfer pricing adjustments included in the MITL is Article 184, which establishes that tax authorities of a country with which Mexico has a treaty to avoid double taxation may determine an adjustment to the prices or considerations of a taxpayer resident in such country; in this sense, the Mexican related party may perform the corresponding adjustment. That is, the MITL recognises the application of corresponding adjustments when 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 a Mexican taxpayer not being allowed to carry out a transfer pricing adjustment for Mexican tax purposes, but 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 security from a tax perspective.

Article 184 of the MITL establishes a mechanism by which a Mexican taxpayer can apply a corresponding adjustment derived from a primary adjustment, determined for a foreign-based related party that is resident in a country with which Mexico has entered into a tax treaty.

This mechanism consists of filing an amended tax return in Mexico to recognise the corresponding adjustment. Such an adjustment will only be recognised by the Mexican tax authorities to the extent that they fully agree with it. The said adjustment would not compute for tax return submission limitation purposes.

Derived from the above, the MITL recognises the application of corresponding adjustments, although at this stage it only recognises those derived from primary adjustments that have been carried out by the tax authorities in a country with which Mexico has a tax treaty. Such recognition may be obtained by means of an MAP involving the Mexican and foreign tax authorities. Therefore, in a non-tax treaty context this situation may lead to double taxation.

Recently the Mexican Tax Authority issued specific rules with respect to primary and corresponding adjustments.

Note that current Mexican legislation does not include secondary adjustments, so in the event Mexican taxpayers need to apply these adjustments, there are no rules that give them certainty of their application.


It is fundamental to point out that there are international mechanisms between jurisdictions in order for taxpayers to avoid double taxation; in addition to tax treaties between jurisdictions to avoid double taxation, the most used mechanism is the MAP. MAPs allow designated representatives from the governments of the contracting states to interact with the intent to resolve international tax disputes.

Most MAP issues regarding transfer pricing in these cases have been issues of transfer pricing where associated companies of a multinational enterprise group incurred economic double taxation due to an adjustment to their income from intra-group transactions by one or more tax administrations.

Currently, in order to file an MAP application, Appendix 1-A of Fiscal Miscellaneous Resolution for 2017 establishes the requirements to be fulfilled in order to file a request for the initiation of an application procedure.

In this matter, Action 7 of the BEPS Action Plan states, among other measures, the inter-country agreement to adopt a series of minimum standards in tax treaties to avoid treaty shopping.6 The implementation of such standards will deny treaty benefits to certain commonly used holding structures.

Derived from Action 6 of the BEPS Action Plan, countries have agreed to include anti-abuse provisions in their tax treaties, including a minimum standard to provide a minimum level of protection against treaty shopping. The minimum standard requires countries to include a statement in the preamble of their tax treaties that they are not intended to be used to generate double non-taxation.

Often transfer pricing transactions may be treated as or mistaken for customs inquiries in Mexico. Transfer pricing provisions included in the MITL are considered only for the purpose of the Law - that is, transfer pricing provisions included therein apply only for income tax purposes.

The Mexican Customs Law (MCL) establishes that import and export taxes are computed on the customs value. The MCL establishes specific methods for determining the customs value in cases where a related-party transaction may have an impact on the customs value.

In this sense, transfer pricing methods and customs methods, in general, are different, although in some cases are similar in their application. Therefore, in general terms, transfer pricing analysis or documentation is not valid for customs valuation purposes, and vice versa.


Mexican legislation follows the OECD Guidelines regarding transfer pricing issues. Adjustments have recently been made in order to adequately adopt the BEPS Action Plan.

Regarding dispute resolution mechanisms, in Mexico the conclusive agreement has proven very effective in the audit process, since it is an alternative to mediation between the taxpayer and the tax authorities.

Currently, owing to the specialisation of the Mexican tax authorities in transfer pricing matters, a new risk model is being implemented in order to address audit processes from a transactional and business perspective, focusing on the substance and not on the form and presentation as used to be the case in the past.

It will be important to bear in mind that the number of transfer pricing audits has increased due to the mentioned alignment of the Mexican transfer pricing provisions with the OECD's BEPS Action Plan. Additionally, the Mexican tax authorities have publicly announced that they are carrying out auditing programmes to review taxpayers that may be involved in aggressive tax planning strategies, and have shown particular interest in transfer pricing matters.

1 Oscar Campero P San Vicente is a partner, Alejandra Castillón Contreras is an associate and Constanza Martínez-Carrera Cervantes is a senior consultant at Chevez, Ruiz, Zamarripa y Cia, SC.

2 Statutory criterion 00/2012/ISR.

3 Amount will be updated for every fiscal year.

4 DIM is an annual filing for companies, regarding their main information for tax purposes.

5 The expenses incurred abroad on a pro rata basis by a Mexican taxpayer will not be considered deductible for income tax purposes. However, the consideration as deductible expenses incurred on a pro rata basis may not apply if certain requirements are met, such as the demonstration that the services that generated such expense have been effectively rendered, the price or consideration has been determined on an arm's-length basis, there is a reasonable relationship between the expenses incurred, and the benefit obtained or expected to be obtained has been obtained, among others.

6 Treaty shopping involves strategies through which a person who is not a resident of a state attempts to obtain the benefits of a tax treaty concluded by that state.