Mexico court rules against taxpayer in transfer pricing case

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Mexico court rules against taxpayer in transfer pricing case

Sponsored by

Sponsored_Firms_deloitte.png
Mexico city 320 x 215

Mexico’s First Circuit Court has recently ruled against a taxpayer in a case involving two transfer pricing adjustments that will make it tougher for companies to comply with their domestic tax obligations on time.

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 time.

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 and “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.

This article was written by Ricardo Santoyo, tax controversy partner, and Francisco Ruiz, tax controversy manager, at Deloitte Mexico.



Ricardo Santoyo Deloitte Mexico 150 x 200

Ricardo Santoyo

Tax controversy partner

E: risantoyo@ deloittemx.com 

T: +52 55 5080 7041

 

Francisco_Ruiz_Deloitte Mexico 150 x 200

Francisco Ruiz

Tax controversy manager

E: frruiz@ deloittemx.com 

T: +52 55 5080 6836

more across site & shared bottom lb ros

More from across our site

Corporate counsel should combine deep technical knowledge with strategic dynamism, says Agarwal, winner of ITR’s EMEA In-house Indirect Tax Leader of the Year award
Luxembourg’s reform agenda continues at pace in 2025, with targeted measures for start-ups and alternative investment funds
Veteran Elizabeth Arrendale will lead the new advisory practice, which will support clients with M&A tax structuring, post-deal integration, and more
MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Gift this article