Introduction
Transfer pricing refers to the prices set for the transfer of goods or services between related parties. The OECD recommends that these prices follow the Arm’s Length Principle, meaning they should be consistent with what independent parties would agree under similar conditions.
In Mexico, transfer pricing obligations are primarily regulated under the Income Tax Law (LISR), particularly Articles 76, 179, and 180. These provisions require companies to demonstrate that their intercompany transactions comply with fair market conditions.
Legal and Regulatory Framework
- Article 76, IX LISR: Requires taxpayers to keep documentation proving that income and deductions are consistent with those of independent parties.
- Article 179 LISR: Establishes the obligation to determine taxable income and deductions using transfer prices comparable to independent transactions.
- Article 180 LISR: Provides six acceptable methods for transfer pricing analysis, including the Comparable Uncontrolled Price method, Resale Price method, Cost Plus method, Profit Split methods, and Transactional Net Margin method.
Small taxpayers with annual revenues below MXN 13 million for business activities or MXN 3 million for professional services may be exempt from preparing full documentation.
Transfer Pricing Documentation
Taxpayers engaging in related-party transactions must prepare an annual Transfer Pricing Study. This study should include:
- General information on related parties (name, tax residence, domicile).
- A functional analysis detailing functions, assets, and risks.
- A description and quantification of intercompany transactions.
- The transfer pricing method applied and the comparable data used.
Failure to maintain proper documentation may result in significant penalties.
Informative Returns and Annex 9 (DIM)
One of the main compliance obligations is Annex 9 of the Multiple Informative Return (DIM), which requires taxpayers to disclose both local and cross-border related-party transactions.
- Deadline: May 15 of the year following the fiscal year.
- Information required: Identification of related parties, transaction amounts, applied transfer pricing method, tax adjustments, and whether a transfer pricing study is available.
Additional filings include:
- ISSIF (Tax Situation Report) for entities with revenues exceeding MXN 1 billion.
- Statutory Tax Audit Annexes for companies with revenues above MXN 1.8 billion.
- BEPS Reports (Local, Master, and Country-by-Country files) for multinational groups.
Penalties and Sanctions
Failure to comply with transfer pricing obligations may result in heavy fines under the Federal Tax Code (CFF), including:
- Between MXN 99,590 and 199,190 for not filing informative returns.
- Between MXN 199,630 and 284,220 for incomplete or incorrect BEPS reports.
- Between MXN 2,260 and 6,780 per transaction for not properly identifying related-party operations in accounting.
Conclusions
The 2022 tax reform reinforced the obligation for all taxpayers engaging in related-party transactions—whether local or international—to prepare and maintain transfer pricing documentation.
Complying with these obligations helps companies:
- Demonstrate adherence to the Arm’s Length Principle.
- Ensure tax and financial transparency.
- Minimize the risk of audits and penalties.
- Strengthen their market position through compliant and efficient structuring of intercompany operations.
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