Transfer pricing adjustments are any modification to prices,
amount of payment, or profit margins regarding transactions
executed between a taxpayer and its related parties that tend
to adjust the accruable income or deductions to the value of
such transactions, as if performed by independent parties.
Two recent precedents regarding transfer pricing
adjustments, both from a ruling by the First Circuit Court in
Mexico City against a taxpayer, were published in the Weekly
Federal Court Report in February.
In the first precedent (Register 2016257), it was decided
that transfer pricing adjustments regarding transactions
between related parties can be performed through a
complementary tax return only when one of the parties is a
non-resident, and only when the tax authority of the country
where the related party is located performs the adjustment. In
such a case, the Mexican tax authorities should accept the
adjustment, the court ruled. However, this makes it difficult
for taxpayers to comply with their Mexican tax obligations on
In the second precedent (Register 2016258), the court ruled
that to be deductible as a result of transfer pricing
adjustments, receipts or invoices for tax purposes must
correspond to the fiscal year in which the transaction between
the related parties took place. The reason for this is that the
provider of the goods or services is bound to accrue income
monthly and annually and, therefore, must verify that the
transactions comply with Mexico's transfer pricing regulations.
Along the same lines, the recipient of the goods or services,
who takes the corresponding deduction, must analyse whether the
transactions comply with the transfer pricing regulations.
The court also ruled that its interpretation is supported by
Mexican law. The law states that, in order to take a deduction,
taxpayers must meet the law's formal requirements, including
the obligations pertaining to receipts for tax purposes, at the
time of filing the tax return, at the latest.
These rulings are not binding on other courts or any other
tax authority, but constitute a valid interpretation that could
be wielded by them.
The second court decision is of particular importance
because some taxpayers deemed that the interpretation to impose
a limit was not initially stated in the Income Tax Law.
Nevertheless, to avoid further misunderstanding, the tax
authority eased the interpretation of the court ruling through
administrative rules in July and allowed taxpayers access to
transfer pricing adjustments.
The new administrative rules state that if a taxpayer wants
to make deductible transfer pricing adjustments for income tax
purposes, the taxpayer must comply with the requirements stated
in the law and the administrative rules.
Among those requirements, the taxpayer must have receipts
for tax purposes or CFDI (valid invoices) that express the
adjustment "can" be issued in the fiscal year when the tax
return was filed or should have been filed. This distinctive
feature allows taxpayers to avoid the referred limitation
because it provides the possibility of issuing the receipt for
tax purposes or CFDI in a different tax year than the one when
the tax return was filed or should have been filed.
This conclusion was reached because the administrative rules
provide that the tax receipt "may" be issued when the tax
return should have been filed or was filed. This opens up the
possibility to have a tax receipt or CFDI issued at a later
date, unlike what the previous precedent construed by limiting
the deduction of the adjustment, which allows the deduction
only if the tax receipt for fiscal purposes is issued before
filing the tax return.
Ricardo Santoyo (email@example.com) and Francisco Ruiz (firstname.lastname@example.org)
Tel: +52 55 5080 7041 and +52 55 5080 6836