As an OECD member and G20 country, Mexico has been fully aligned and committed to the OECD’s anti-BEPS project.
The MexicanTax Authority (MTA) has followed the BEPS results closely and actively participated in the OECD’s working groups. Among its significant contributions, the MTA sent a senior official in charge of its tax legal area on rotation to the OECD to work on Action Plan 14.
Mexico has also embraced the anti-BEPS movement through early legislative change. In 2014, Mexico implemented a tax reform based on certain concepts mentioned in preliminary BEPS reports, including several new deductibility restrictions:
Taxpayers have filed for injunctive relief against the two of the above three provisions and other 2014 tax reform measures on the basis that they are unconstitutional. Whether the measures will survive these legal challenges remains to be seen.
Mexico has also changed its tax treaty policy and is now seeking to include limitation on benefits clauses. Additionally, a new provision for related-party transactions was introduced allowing the tax authorities to request a statement under oath indicating that there is a legal double taxation on the Mexican source income received. Again, it is possible that the Mexican courts will reject the constitutionality of this provision on the basis that it overrides a treaty. In the meantime, the provision is allowing the MTA to collect information about the types of double non- taxation occurring through the use of Mexico’s tax treaties.
In 2015, Mexico implemented a requirement for taxpayers to report certain transactions by filing Form 76, ‘Relevant Transactions’. Taxpayers are required to file the form whenever they perform certain transactions and (except for taxpayers comprising the Mexican financial system) the accumulated balance of such transactions in the period in question is equal to or more than 60 million Mexican pesos (MXN). Relevant transactions include:
The new form must be filed quarterly, and it is due on the last day of the second month after the end of the quarter.
In February 2014, the Mexican government announced a tax certainty agreement after taxpayers launched constitutional challenges to the 2014 tax reforms.The agreement commits the federal government to a moratorium on creating new taxes or increasing current taxes until the current presidential period ends in November 2018.
The agreement aims to foster tax stability and economic growth by providing taxpayers with the certainty to facilitate their business decision-making and planning.The moratorium does not extend to possible tax changes that aim to facilitate foreign investment, such as pending secondary laws regarding Mexico’s energy reform.
The tax certainty agreement does not stop the MTA from taking non-legislative action against BEPS activities, for example, by re-negotiating treaties, revising regulations and adopting new administrative measures.
In fact, the 2016 tax reform introduced the following new reports that will expand Mexico’s existing transfer pricing disclosure requirements.
Master file — Information to be submitted under ‘master information returns’ of the multinational group would contain information regarding that group’s:
Local file — Information to be submitted under ‘local information returns’ for related parties would include:
Country-by-country reports — Members of multinational groups must report:
The country-by-country reporting requirement applies to:
The new information returns must be filed in December of the year following the year to which the return corresponds, with the first set of reports for 2016 due in December 2017.
On the administrative front, the MTA has become much more focused on investigating BEPS activities, adding more resources and strengthening its international tax audit capabilities. Among other things, the MTA announced a Pilot Tax Audit program involving about 26 companies with cross-border transactions, with special focus on principal structures, permanent establishment issues, payments to foreign parties and transfer pricing documentation. The MTA is also strengthening its transfer pricing team.
The MTA says it will review any transaction that reduces Mexico’s tax base and demand evidence that substantiates that changes to the operation in Mexico justify any decreased profitability. The MTA has published some non-binding criteria for what it considers as aggressive tax planning, such as certain tax planning involving intangible property.
The Mexican tax authorities, on 17 October 2016 issued the final rules of the General Tax Rules (Resolución Miscelánea Fiscal) related to Article 76-A of the Mexican Income Tax Law. Said Resolution regulates the filling and delivery of the annual informative returns of related parties (i.e. Master File, Local File and Country by Country Report) aligned with the BEPS Action 13. Please find a link to a detailed report (PDF 80.9 KB) and a Tax Flash published on this subject.
While Mexico has been a strong supporter of anti-BEPS initiatives, measures like the tax certainty agreement show the current government is equally interested in attracting foreign investors. Companies doing business in Mexico should be prepared to meet increasingly aggressive and sophisticated international tax audit and enforcement activity. On a brighter note, they will probably enjoy certainty in Mexican tax legislation between now and the end of 2018, which will help them guard against tax authority challenges.