All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Mexico: Limitation on income tax deductions affecting international transactions

cuellar.jpg

solano.jpg

David Cuellar


Claudia Solano

As part of the tax reform package in force as from January 1 2014, the Mexican tax authorities established new provisions ruling the deductibility of certain disbursements made by Mexican taxpayers. These limitations seem to be the first step taken by the Mexican tax authorities to align their efforts to the recommendations and action plan issued by the OECD as concerns the BEPS initiative.

As an example, the following provisions describe some of the limitations established by the Mexican tax authorities that may have an impact on entities carrying out international operations:

In terms of technical assistance, interest and royalty payments made to a foreign party that controls or is controlled by the Mexican entity, such payments would not be deductible when and to the extent that:

  • The company receiving the payment is considered to be transparent in terms of the Mexican Income Tax Law, except when the shareholders or associates of the foreign recipient are subject to income tax on the income received through such transparent foreign entity and the payment made by the taxpayer is carried out at market value; or

  • The payment is considered to be non-existent for tax purposes in the jurisdiction in which the foreign entity is located; or

  • The foreign recipient does not consider the payment to qualify as a taxable income in accordance with its applicable tax provisions.

For purposes of the above, control shall mean when one party has effective power over another entity or in the management of such other company, to an extent allowing it to decide when income, profits or dividends are distributed, either directly or through a third person.

Another example is a newly included provision established by the Mexican tax authorities focused on limiting the deduction of payments made by the taxpayer, when they are also deductible for a related party resident in Mexico or abroad, unless the related party deducting the payment made by the taxpayer includes it as part of its own taxable income in either the same fiscal year or in the following one.

As can be seen, multinationals with investments in Mexico should consider and model the tax impact that the above provisions, along with other new or amended rules part of the 2014 tax reform in Mexico, can have on their local businesses and on the overall tax burden of the group.

David Cuéllar (david.cuellar@mx.pwc.com) and Claudia Solano (claudia.solano@mx.pwc.com), Mexico City

PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

more across site & bottom lb ros

More from across our site

Ramesh Khaitan speaks to reporter Siqalane Taho about tax morality, transfer pricing regulations, Indian tax developments, and the OECD’s two-pillar solution.
Join ITR and KPMG China at 10am BST on October 19 as they discuss the personal, employment, and corporate tax-related implications of employees working from overseas.
Tricentis and Boehringer Ingelheim, along with a European Commission TP specialist, criticised the complexity of pillar one rules and their scope at an ITR event.
Speakers at ITR’s Managing Tax Disputes Summit said taxpayers can still face lengthy TP audits, despite strong documentation preparation
Gig economy companies in New Zealand will need to fully account and become liable for the goods and services tax of underlying suppliers on their platforms, under new proposals.
Join ITR and Thomson Reuters at 2pm (UAE) / 11am (UK) on October 13 as they discuss how businesses can prepare for Tax Administration 3.0 and future-proof against changes such as e-invoicing and increasing digitisation.
ITR has partnered with global TP leaders from Deloitte to discuss transfer pricing controversy around the globe, and to share advice on how to navigate an increasingly uncertain and risky TP landscape.
Sources say they are not satisfied with pillar one protections in the marketing and distribution safe harbour, even though it was designed to give businesses greater tax certainty.
Political support for qualified majority voting is at a peak as unanimity rules continue to block the European Council from passing a directive on pillar two.
The winners of the ITR Americas Tax Awards have been announced for 2022!
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree