As part of the tax obligations of individuals, corporations and residents abroad with a permanent establishment in Mexico, they must demonstrate that the transactions with domestic and foreign related parties comply with the methodology according to the transfer pricing guidelines issued by the OECD, where they can demonstrate that the transactions carried out with related parties were considered at market values. In addition to complying with the filing of the annual information statement with related parties.
Definition of related parties
The income tax law defines related parties as follows: “Two or more persons are considered to be related parties when one participates directly or indirectly in the management, control or share capital of the other, or when a person or group of persons participates directly or indirectly in the management, control or capital of such persons. In the case of business entities, their members are considered related parties, as well as the persons who, in accordance with this paragraph, are considered related parties of such member”.
Likewise, in the section on individuals, Article 90 refers to the following:
“Two or more persons are considered related parties when one participates directly or indirectly in the management, control or share capital of the other, or when a person or group of persons participates, directly or indirectly, in the management, control or capital of such persons, or when there is a link between them in accordance with the customs legislation.”
Continuing with the individuals, it is necessary to correlate the definition of the customs law that establishes the concept of relationship in the following cases;
I. If one of them holds a position of management or responsibility in a company of the other.
II. If they are legally recognized as associated in business.
III. If they have a relationship of employer and employee.
IV. If a person has direct or indirect ownership, control or possession of 5% or more of the shares, equity shares, contributions or securities in circulation and with voting rights in both.
V. If one of them directly or indirectly controls the other.
VI. If both persons are directly or indirectly controlled by a third person.
VII. If together they directly or indirectly control a third person.
VIII. If they are from the same family.
It is considered that there is a relationship between persons of the same family, if there is a civil relationship; by consanguinity without limitation of degree in a straight line, in the collateral or transversal line within the fourth degree; by affinity in a straight or transversal line up to the second degree, as well as between spouses.
Supporting documentation for 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 supporting documentation for income and deduction transactions entered into with related parties, where it is demonstrated that the 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 “market value”, the following are the data that such documentation must contain:
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- The name, denomination or corporate name, domicile and tax residence, of the related persons with whom operations are entered into.
- The documentation that demonstrates the direct and indirect participation between the related parties.
- Information regarding the functions or activities, assets used and risks assumed by the taxpayer and the related party or parties with which operations are entered into, for each type of operation.
- Information and documentation on related party transactions 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 operations comply with market 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 income tax law, this is what is commonly known as “transfer price study”.
The same law contemplates cases in which taxpayers may not have the supporting documentation or as previously mentioned the transfer price study, these are the exceptions for individuals, corporations and/or permanent establishments:
Individuals:
When the income in the immediately preceding fiscal year has not exceeded $13’000,000.00 and they do not have operations with related parties in 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 will 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.
Information statement for transactions with related parties
Pursuant to 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 statement no later than May 15, detailing income and deductions with related parties, both domestic and foreign. This informative statement will be filed through Annex 9 of the Multiple Informative Statement (DIM, for its initials in Spanish).
By means of rule 3.9.18. of the miscellaneous tax resolution of 2024, it is established that the following taxpayers that have operations with related parties may not file the informative statement of related parties of 2023 in the following cases;
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- 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 will 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.
Tax consequences and penalties
In article 27 section XVIII, it is stated as a requirement to deduct operations with related parties that the informative statements, including the related parties statement, must be filed in due time and form.
In addition, the tax authority could also suspend the digital seal certificates, which among other things are important for the issuance of tax receipts.
The economic sanction by means of fines ranges from $99,590 to $199,190 pesos.
In 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 the transfer pricing studies through our collaboration network with specialists in this matter.
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