As part of the tax obligations of individuals, legal entities and foreign residents with a permanent establishment in Mexico they are required to demonstrate that transactions with domestic and foreign related parties comply with the methodology in accordance with the transfer pricing guidelines, where they can demonstrate that the transactions carried out with related parties were considered at arms’ length. In addition, they must comply with the filing of the informative annual return with related parties.
Supporting documentation on related party transactions
In accordance with Article 76 Section IX and 110 Section XI of the Income Tax Law, individuals (with business and/or professional activities), corporations and foreign residents with permanent establishments in Mexico, must obtain and keep the supporting documentation for the income and deduction transactions entered into with related parties, where it is demonstrated that these prices used or profit margins in such transactions are those that would have been used in the transactions with unrelated or independent companies or individuals, this is usually known as ” arm’s length value”, these are the following data that must be contained in such documentation;
• The name, denomination or corporate name, domicile and tax residence of the related parties with whom transactions are carried out.
• Documentation demonstrating the direct and indirect participation between the related parties.
• Information regarding the operations or activities, assets used and risks assumed by the taxpayer and the related party or parties with which transactions are entered into, for each type of transaction.
• Information and documentation on transactions with related parties and their amounts, for each related party and for each type of transaction according to the classification
It is important to mention that in order to demonstrate that the transactions comply with arm’s length values or that they are those that would have been used with independent parties, taxpayers must use data, methodology and elements of comparability based on articles 179 and 180 of the same law, this is what is commonly known as a “transfer price study”.
Taxpayers may cease to obtain and keep the aforementioned supporting documentation in the following cases;
Individuals
Whose income in the immediately preceding fiscal year has not exceeded $13’000,000.00 and do not have transactions with related parties under preferential tax regimes.
Legal Entities and/or Residents Abroad with Permanent Establishment
Taxpayers engaged in business activities whose income in the immediately preceding fiscal year has not exceeded $13’000,000.00, as well as taxpayers whose income derived from the rendering of professional services has not exceeded $3’000,000.00 in such fiscal year.
This exception does not apply to those taxpayers with transactions with related parties in preferential tax regimes, as well as those who are contractors or assignees in terms of the law of income on hydrocarbons.
Informative return for transactions with related parties
In accordance with article 76 section X and article 110 section X of the income tax law, individuals, corporations and foreign residents with a permanent establishment in Mexico must file an informative return no later than May 15, detailing income and deduction transactions with domestic and foreign related parties. This informative return will be filed through Annex 9 of the multiple informative return (DIM, by its Spanish acronym).
Rule 3.9.19. of the 2023 Miscellaneous Tax Resolution establishes that the following taxpayers that have transactions with related parties may not file the 2022 informative tax return for related parties
• Taxpayers with business activities whose income in the immediately preceding fiscal year has not exceeded $13’000,000.00 (thirteen million pesos 00/100 M.N.).
• As well as those taxpayers whose income derived from the rendering of professional services had not exceeded $3’000,000.00 (three million pesos 00/100 M.N.) in said fiscal year).
This exception does not apply to those taxpayers with operations with related parties in preferential tax regimes, as well as those who have the character of contractor or assignees in terms of the law of income on hydrocarbons.
At Núñez Rosas y Asociados we offer you our services for the compliance of these informative obligations as well as the support for the compliance of transfer pricing studies through our network of collaboration with specialists in this matter.
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