Mexico: Limitation on income tax deductions affecting international transactions
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

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

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

The patent box tax break has become increasingly attractive with corporation tax now at 25%, IP firm Mathys & Squire has claimed
Experts from TP tech provider Aibidia also warned ITR that companies ignoring pillar two is a ‘huge issue’ and a ‘red flag’
Hanno Berger was originally handed an eight-year sentence over an estimated $11 billion tax fraud; while in other news, France calls for minimum tax on the super-rich
Amount B is meant to increase simplicity and reduce uncertainty, but US TP specialists claim it may lead to controversy
Tax Foundation economist Alan Cole also signalled that pillar two has a 'considerable chance' of failing
The Labour Party is working hard to convince business that it will bring stability to tax policy if it wins the next UK general election. But it will be impossible to avoid creating winners and losers
Burrowes had initially been parachuted into the role last summer to navigate the fallout from the firm’s tax leaks scandal
Barbara Voskamp is bullish on hiring local talent to boost DLA Piper’s Singapore practice, and argues that ‘big four’ accountants suffer from a stifled creativity
Chris Jordan also said that nations have a duty to scrutinise the partnership structures of major firms, while, in other news, a number of tax teams expanded their benches
KPMG has exclusive access to the tool for three years in the UK, giving it an edge over ‘big four’ rivals
Gift this article