Mexico: Transfer pricing, country-by-country reporting proposals

Mexico: Transfer pricing, country-by-country reporting

In the Mexican government’s 2016 federal budget, presented 8 September 2015, there are proposals that would expand the transfer pricing disclosure requirements. In particular, a measure would require certain taxpayers (as identified pursuant to Article 32-H) that engage in transactions with related parties, to submit to the tax authorities certain country-by-country (CbC) information about the taxation of their business transactions.

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Transfer pricing reporting

Master file: The information to be submitted under “master information returns” of the multinational enterprises (MNE) group would contain the following information with regards to the MNE group:

  • Organizational structure 
  • Description of activity, intangibles, financial activities with related parties 
  • Financial and tax position

Local file: The information to be submitted under the “local information return” for related parties would include:

  • Description of the organizational structure, business and strategic activities, intercompany transactions
  • The taxpayer’s financial information and information of comparable transactions or companies used in the transfer pricing analysis

Country-by-country reporting

The country-by-country (CbC) information return of the MNE group members would need to include the following information:

  • Information by tax jurisdiction related to the global allocation of the MNE group’s income and taxes paid
  • Indicators of the location of the economic activities in the tax jurisdictions in which the MNE group conducted business activities in the fiscal year, with this information listing the tax jurisdiction(s); total income, and distinguishing the income derived from related-party and from third-party transactions; profit and loss before taxes; income tax “effectively” paid; income tax accrued in the fiscal year; capital accounts; accumulated profit and losses; number of employees; fixed assets and inventories
  • A list of all MNE group members and their permanent establishments, including the main business activities of each MNE group member; tax jurisdiction of incorporation, in case it differs from the entity’s tax address; any additional information that would clarify the requested information

The CbC information return would be required to be submitted by taxpayers in any of the following situations:

  • Legal entities controlled by the MNE group, given an understanding that these companies satisfy the following requirements: (1) they are Mexican residents; (2) have subsidiaries in the terms of the applicable financial reporting standards or permanent establishments resident or located out of Mexico; (3) are not subsidiaries of a foreign company; (4) are required to prepare, submit and disclose consolidated financial statements according to the financial reporting standards; (5) include in their consolidated financial statements, the results of companies that are residents in other tax jurisdictions; and (6) had in the preceding fiscal year, consolidated income for accounting purposes equal to or greater than MX $12 billion pesos (MX $12,000 million peso or approximately U.S. $720 million) [this threshold amount might be revised, reduced by Congress or increased by the Mexican tax authorities]
  • Mexican legal entities or foreign companies with permanent establishments in Mexico, that were designated by the MNE’s ultimate foreign parent company as responsible for submitting the CbC information return; such Mexican entity would have to file the CbC report no later than 31 December of the following year, that is, the year in which notice of its designation was provided to the tax authorities (under the terms to be established)

Procedures for filing reports

The Mexican tax authorities would establish general rules for submitting the transfer pricing and CbC information returns, and might also request additional information.  For instance, the tax authorities might request a CbC information return be filed with respect to: (1) Mexican taxpayers that are subsidiaries of a foreign taxpayer; and (2) foreign residents with a permanent establishment in Mexico in situation when the tax authorities are not able to obtain the information using a mechanism for the exchange of information between tax authorities. Taxpayer would then have 120 business days from the date when the notification is provided in order to submit the CbC information return.

Read a September 2015 report (Spanish) prepared by the KPMG member firm in Mexico: Propuestas de reforma derivadas del plan de acción de la OCDE referente a BEPS 

 

For more information, contact a tax professional in Mexico with KPMG’s Global Transfer Pricing Services group:

Teresa Quiñones | + 1 (52) 555 246-8347 | teresaquinones@kpmg.com.mx

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