Transfer pricing: Relevant changes for 2022 in Mexico

As previously discussed, the 2022 tax reform, relevant changes in transfer pricing were incorporated into the Income Tax Law (MITL) and the Federal Tax Code (FTC) that entered into force in January 2022.

Again, the following are the most relevant implications:

Changes in deadlines

Derived from the changes incorporated into articles 76, section X and 76-A of the MITL and 32-H of the FTC, the filing dates for obligations such as Annex 9 of the Multiple Informative Return (DIM) of transactions with related parties and the Local File are modified. These must be submitted by May 15 of the immediate subsequent fiscal year.

The following is a summary of the applicable deadline for each obligation based on this reform for 2022:

• Transfer Pricing Information

As can be seen from the previous table, for the fiscal year 2021, the deadline to submit the Local File informative return was no later than December 31 of the immediate subsequent fiscal year, therefore these dates are advanced to May 15, leaving Annex 9 of the DIM in the same manner, being that for the latter the filing date was March 31 or July 15, depending on whether or not the taxpayer filed a Tax Opinion. In the case of the Master File and the Country-by-Country Report, both dates remain the same, that is, December 31 of the immediate subsequent fiscal year.

• Other compliances

In addition to the above-mentioned transfer pricing informative returns, taxpayers who are required to submit the Tax Situation Information (ISSIF) or the Tax Opinion must disclose transfer pricing information as part of the related party transactions sections. For these obligations, the deadlines to be considered based on the abovedmentioned reform are the following:

From the foregoing, it can be seen that the deadline for the ISSIF remains on March 31 of the immediate subsequent fiscal year. However, for the filing of the Tax Opinion, the deadline is also advanced from July 15 to May 15 of the immediate subsequent fiscal year.

As a consequence of the addition of section VI to Article 32-H of the FTC, the related parties of the taxpayers required to submit a Tax Opinion are now also required to file ISSIF. In relation to the above, on June 9, 2022, rule 2.16.5 of the Miscellaneous Tax Resolution was published in the Official Gazette of the Federation, which limits this obligation to those taxpayers that are related parties of entities obliged to submit a Tax Opinion and have had transactions with such related party that exceeds the amounts of $13,000,000 MXN for the performance of business activities or $3,000,000 MXN in the case of provision of professional services. This rule refers only to the obligation of filing ISSIF.

Taxpayers obligated to comply with the Local File Informative Return and Master File

Article 32-H of the FTC incorporates section VI, which establishes that the related parties of taxpayers required to submit a Tax Opinion are also required to submit the Local File Informative Return and Master File. It is important to specify that the taxpayers that are required to submit a Tax Opinion for fiscal year 2022, are those with taxable income higher than $1,650,490,600 MXN in fiscal year 2021, as well as public companies.

This change means that taxpayers who were not required to file such informative returns in prior years could be obligated to these filings starting as of 2022.

In this regard, it should be noted that the taxpayers who were already required to file the Local Information Return are those with taxable income greater than $842,149,170 MXN, who belong to the integration regime, state-owned enterprises, as well as foreign entities that have a permanent establishment (EP), solely for the activities carried out in said EPs.

Likewise, it is important to consider that the Local File Informative Return is different from the contemporary transfer pricing documentation, although the former is based on the latter, the scope of the Local File Informative Return exceeds the information related to intercompany operations, such as the activities of the multinational group and DEMPE functions. Additionally, it is mandatory to file it before the Tax Authorities, while the contemporary transfer pricing documentation only needs to be kept.

Disclosure of domestic transactions

On previous years, the MITL established differences between the documentary requirements on transfer pricing for transactions with related parties residing in Mexico and abroad, so it is relevant to take into account that from 2022 these distinctions are eliminated, and it is established that the requirements are applicable to all transactions with related parties regardless of their place of residence.

Likewise, Article 76, section X of the MITL specifies that Annex 9 of the DIM must include all transactions with related parties, that is, domestic and foreign transactions.

Other technical considerations

Additionally, other relevant changes are incorporated into the MITL and the FTC applicable as of 2022 with possible implications for transfer pricing documentation of and tax audit processes:

• Functional analysis. The transfer pricing documentation must have a functional analysis that also covers the related parties with whom the transactions are carried out, and it must also include greater detail of the adjustments that have been applied to eliminate differences in comparability.
• Year under analysis. The financial information of comparable companies should correspond to the year under analysis and the use of information of two or more years will only be accepted if it is demonstrated that the business cycle or commercial acceptance of a product covers several years.
• Interquartile range. In the application of any of the transfer pricing methods, it will be mandatory to use the interquartile method as part of the economic analysis, unless another method has been agreed upon in accordance with a mutual agreement procedure or is in accordance with general rules published by the Tax Authority.
• Confidentiality Agreement. The Tax Authority will require for access to the taxpayer's information that the taxpayer and its representatives sign a confidentiality document.

Maquilas

Finally, as mentioned in previous publications, changes to Articles 182 and 183 Bis of the MITL eliminate the option for maquiladoras to apply for an Advance Pricing Agreement (APA); as a result, taxpayers operating under maquiladora schemes will only be able to apply the Safe Harbor to comply with transfer pricing rules for its maquila operations.

Implications for taxpayers in Mexico

As a result of the several changes in transfer pricing as a result of the 2022 reform, it is necessary for multinational groups and entities in Mexico to address this matter promptly to determine which specific obligations are applicable to them considering these changes, while also analyzing the potential effects on internal work plans and compliance dates, as well as on relevant technical considerations, to ensure their compliance with the updated transfer pricing regulations in Mexico. Finally, it would be necessary to monitor if specific rules are published that could affect deadlines and requirements.

If you require additional information regarding the content of this EY Tax Flash, please contact our team of professionals:

Ricardo Barbieri 

Ricardo González 

Violeta Valerio