Mexico and Central America: Balancing new transfer pricing provisions and an economic crisis
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Mexico and Central America: Balancing new transfer pricing provisions and an economic crisis

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Deloitte’s practitioners from across Mexico and Central America report on the challenges that tax authorities face, as they try to provide much-needed harmonisation to regional transfer pricing (TP) regimes amid the economic fallout from the coronavirus pandemic.


With more than 300,000 individuals infected, more than 34,000 deaths and a double digit decrease in forecast gross domestic product (GDP) in 2020, Mexico has been one of the countries most impacted by the COVID-19 pandemic.

Even before the pandemic, the Mexican economy was heading through a downward spiral. GDP fell 0.1% during 2019, and the transition quarter-by-quarter went from a technical recession to almost a full halt of the economy by the second quarter of 2020.

Several factors have contributed to this challenging scenario: gasoline shortages; the suspension of oil and gas exploration concessions to private companies; conflicts between the state-owned Federal Electricity Commission (CFE) and pipeline operators; and the shutdown of a large beer factory project that signalled a decline in industrial activity, among others. For some economists, the trigger of this slowdown started when the construction of a $10 billion airport complex in Mexico City was cancelled at the end of 2018.

During the first quarter of 2020, international credit rating agencies have downgraded Mexico's sovereign rating to BBB from BBB+, and downgraded Pemex's stand-alone credit rating to a speculative status of CCC+ from B-, confirming the recession had started in 2019 and that the COVID-19 pandemic would have further negative consequences for the Mexican economy.

A bright spot for the Mexica economy occurred in March 2020 when the US-Mexico-Canada agreement (USMCA) was ratified by all three countries and, as a result, a trilateral agreement was reached in relation to the modernisation of the North American Free Trade Agreement (NAFTA). However in April, Mexico's oil export basket price went negative for first time, with the average price reaching a historic low of $2.37 per barrel, down 116% since its last closing price. In addition to the coronavirus pandemic, the peso's value plummeted in March amid the oil price collapse. On April 28, it stood at Ps24.4:$1, representing a 31% depreciation from the start of 2020.

President Andrés Manuel López Obrador's administration has published an 11-step plan to overcome the COVID-19 crisis and low oil prices. The regime mainly addresses cuts to public expenditures and there was a subsequent cut of Mexico's oil output by 100,000 barrels per day starting in May. Contrary to most other countries hit severely by the pandemic, this plan does not include fiscal incentives for companies to preserve employment.

The coronavirus pandemic has imposed a lot of pressure on public finances in 2020 and 2021, given the expectation of government stimulus and lower revenue collection amid a weak economy. This will likely result in higher debt-servicing costs as a result of credit-rating downgrades to Pemex and the sovereign.

The crisis and problems with Pemex will potentially cause a rapid rise in the public debt/GDP ratio, which will be increased by recent peso depreciation. Even though the government has not had difficulty yet meeting its funding requirements, it is expected that funding may become more expensive as local conditions deteriorate. In April 2020, the government placed $6 billion in bonds on global markets, albeit at slightly higher rates than its January issuance. Previously in November 2019, the International Monetary Fund (IMF) renewed a $61 billion flexible credit line for two years, which the government can be expected to tap into during the financial crisis.

At the end of last year, the plenary of the Chamber of Deputies and the Senate approved the decrees of the federal income law and the reforms to the federal tax laws for the fiscal year 2020.

The explanatory memorandum of this tax reform explains that the OECD's BEPS project recommendations were considered in its elaboration. The main effects on TP are as follows:

  • Non-deductibility of payments through a structured agreement;

  • Non-deductibility of net interest;

  • Business reason test; and

  • Reportable schemes

Non-deductibility of payments through a structured agreement

The payments made by Mexican residents to foreign related parties subjects to a preferred tax regime (REFIPRES) through a structured agreement will be non-deductible, regardless of whether the payment is arm's-length.

A structured agreement is defined as any agreement in which the taxpayer or one of its related parties participates, and whose consideration is based on payments made to REFIPRES that favour the taxpayer or any of its related parties, or when based on the facts or circumstances, it can be concluded that the agreement was made for this purpose.

Therefore, payments to a third party subject to REFIPRE will be non-deductible, if the third party is interposed between the related parties through a structured agreement.

There are certain exceptions to the rule which may apply, only to the extent a hybrid mechanism is not in place.

Non-deductibility of net interest

Net interest for the year that exceeds the amount resulting from multiplying the adjusted tax profit by 30% will not be deductible. The net interests will be those that result from subtracting from the total of the interests accrued during the year that derive from the taxpayer's debts, the total of the interest income accumulated during the same period and the amount of 20 million pesos that corresponds to interests that derive from debts. The adjusted tax profit will be the amount that results from adding to the tax profit the total of the accrued interest charged during the year, as well as the amount in the year for investments.

The adjusted tax profit will be determined even when there is no tax profit for the year or a tax loss is generated from which the total interest accrued will be subtracted during the year, as well as the amount deducted in the year for investments.

This non-deductibility of interest may be determined in a consolidated manner, in the terms of the tax authority (Servicio de Administracion Tributaria – SAT) rules. The amount of non-deductible interest may be deducted during the following 10 years. This non-deductibility does not apply to certain debts. In the event that this non-deductibility of interest is greater than the amount of non-deductible interest for thin capitalisation, the latter would not apply.

The aforementioned rule applies to loans obtained with independent third parties as well as related parties. Because of this, inter-company policies related to established financing should be restructured and capital investment decisions will be redefined.

Business reason test

Legal acts that lack a business reason and that generate a direct or indirect tax benefit, will have the effects that correspond to those that would have been carried out to obtain the economic benefit reasonably expected by the taxpayer.

It is considered that there is a reasonably expected economic benefit, when the taxpayer's operations seek to generate income, reduce costs, increase the value of the goods that are their property, improve their position in the market, among others.

The tax benefit should not be considered as part of the reasonably expected economic benefit. Tax benefits shall be considered any reduction, elimination or deferral of a contribution, including those achieved through deductions, exemptions, non-subjections, non-recognition of a cumulative gain or income, adjustments or absence of adjustments to the tax base of a contribution, the crediting of contributions, the re-characterisation of a payment or activity, or a change of tax regime, among others.

Taxpayers should be focused on the corporate restructuring to be carried out, especially in obtaining the supporting documentation that ensure that these restructures obey the organisation's business requirements and rely on the recommendations made by the OECD TP Guidelines in its Chapter 9 of 'Transfer pricing aspects of business restructurings'.

Reportable transactions

Mexico has implemented its own version of BEPS Action 12, Mandatory Disclosing Rules. Tax advisors and taxpayers are required to disclose 14 reportable transactions that generate or could generate, directly or indirectly, the obtaining of a tax benefit in Mexico.

The Federal Tax Code includes concepts such as the definition of a 'scheme' as any plan, project, proposal, advice, instruction or recommendation expressed expressly or tacitly in order to materialise a series of legal acts. Likewise, it includes the obligation to report the transaction regardless of the taxpayer's tax residence if the tax benefit was obtained in Mexico. It contemplates the scenario when several advisers are obliged to report the same reportable transaction, if one of them discloses it in the name and on behalf of all of them. The disclosure of such transactions from 2020 must be through an informative return in the mechanisms provided by the SAT, with 2021 being the first year of disclosure.

TP after COVID-19: The next steps

The COVID-19 pandemic will likely have a lasting effect on most aspects of economic activities, practised today. It will change the way of interactions in day-to-day business. Likewise, some of the most important impacts will be related to the economies of individuals, companies and countries. This is why tax authorities will significantly increase the enforcement of existing tax rules and may introduce further rules, especially on the taxation of digital services. Certainly, for Mexico, 2020 and 2021 will feature many challenges, and any efforts from the government to mitigate the economic effects of the health and economic emergencies will require the injection of massive fiscal resources that will be closely link to an aim to increase tax collection.

During the fiscal years 2018 and early 2019, multidisciplinary audits by the SAT have been a common feature in the country's tax landscape, frequently involving foreign trade, TP and international tax teams, in order to obtain a comprehensive approach and seek higher collection. However, with the economy largely affected by the economic slowdown in the country, there seems to be a greater demand in audits and TP is unlikely to be an exception.

As part of the efforts to increase tax revenues, the SAT has mentioned in TP forums (such as the one organised in October 2019 by Mexico City's chapter of the Certified Public Accountants Institute) that the next audits will be designed and conducted based on information obtained from the informative BEPS returns. With the country-by-country (CbC), master file and local file reports for fiscal years 2016, 2017 and 2018, authorities have enough data to contrast information from those years, and as expected, 2020 will be a major challenge for taxpayers in terms of TP due to the economic environment.

Globally, there is a need for multinational groups to analyse and redefine their TP policies, primarily due to the demand for capital flows. Likewise, the correct renegotiation of inter-company contracts must be followed, thus aligning the risk profiles of each entity, its functions and assets. Moreover, groups should take into consideration the penalties for any breach of the clauses of the contracts. Although it is true that there will be atypical years, the internal comparables that could be generated by the negotiations that are carried out with third parties for similar situations should be taken into account.

There is a general consensus in thinking that a global economic contraction was already beginning to be seen due to various macroeconomic factors. However, in the coming years it is likely that there will be repatriation of capital to the countries where most of the corporations of multinational groups are based. For this, the financing contracts in force must be taken into consideration, especially the default clauses. The possibility of renegotiating financing contracts with grace periods, greater than those previously seen or even due to deferred payments for these years, should be explored.

Taxpayers should revisit the comparability analysis carried out in times of crisis, as was done during the 2008 financial crisis, emphasising comparability versus a narrow search for comparables with positive profitability.

Special care should be exercised in carrying out an adequate comparability analysis and to avoid choosing comparable companies with losses, just because the tested party presents an operating loss in the said period under analysis.

In accordance with the aforementioned, TP will play a very important role in each step of the restructuring or in modifications to the inter-company policies to be carried out. Taxpayers can expect increased scrutiny from tax authorities that use cross-references of data to be included in the multiple TP disclosing requirements in Mexico.


In Guatemala, there are key aspects to be taken into account when deciding on transfer prices or TP policies.

One of these aspects is the operating loss. Local TP guidelines published by the tax authority (Superintendencia de Administración Tributaria – SAT) indicate that comparable companies with losses, before or after working capital adjustments, should not be used in TP analysis. This effectively challenges their comparability features, and thus cannot be part of the arm's-length range. This would likely create issues, since there are companies that are hugely affected and their losses may not recover during the rest of the year.

On the other hand, the local TP guidelines suggest that the application of the SAT's working capital adjustment formulas can be used in order to reach a reliable comparison with the benchmark companies. That is to say, that any other capital adjustment formulas might not be accepted by the SAT.

A further aspect concerns timing. The due date to submit the informational TP return is March 31 of each year. By this date in 2020, most companies had not yet uploaded their year-end information and as the databases will not show the effect of the pandemic, this would have created a distortion of the information filed by the taxpayer and the comparable companies.

Finally, the Guatemalan TP rules allow comparability adjustments. This is a solution to the issue created by timing. To make these comparability adjustments, the taxpayer must have documented and quantified all circumstances that negatively affect their year's results.

El Salvador

The TP regime in El Salvador has not been updated since the tax reforms in 2014. However, during the fiscal year 2018, the tax authority issued TP guidance and an updated format for the presentation of Form F-982, which concerns more TP disclosures.

The guidance includes technical extensions on the application of the TP methodology according to the OECD Guidelines. One of its main changes has been the issuance of formulas for adjustments to capital accounts, including the possibility of adjusting to comparable companies for 'property, plant and equipment'.

Form F-982 has evolved from a paper to an online filing and requires taxpayers to report the result of their TP analysis for each inter-company transaction (inter-quartile range) and any tax adjustments that were applicable.

On May 14 2020, El Salvador's legislative assembly passed Legislative Decree No. 643 'Temporary law for facilitating voluntary compliance with tax obligations given the national emergency caused by the COVID-19 pandemic', which provided updated dates for different formal and substantive obligations. Through this decree, the deadline for filing Form F-982 was extended from March 31 2020 to May 31 2020, without being subject to penalties and interest.


The Honduras TP regulation has not been modified since the legislation was enacted; however, the tax authority administration have made efforts to clarify opinions that have been taken in previous years.

In particular, the authority referred to a 2019 public statement, and clarified that taxpayers who are classified under the free tax zone regime are subject to compliance with this regulation, in contrary to a statement from the previous administration. It is worth noting, that both the TP law and its regulation only provide for exemptions for the informative return, but this legal framework does not includes any limitation on the free tax zone taxpayers.

Although the tax authority has made progress through the clarification, there are still legal gaps that must be addressed given that the Tax Code reform established that: i) operations between local related parties are not subject to TP documentation; and ii) it would be the Financial Secretary Office (Secretaría de Finanzas – SEFIN) who would establish the prices to be used between local related parties.

However, the tax authority has requested compliance for those taxpayers who record domestic operations, contrary to the provisions of the Tax Code, and to date, the SEFIN has not issued any references to be used between local related parties.

In the same way, there is a provision in force regarding compliance with formal obligations related to the BEPS project, specifically those related to Action 13. Although the master file, local file and CbC report could be required, there is no local provision that serves as a benchmark for the effective compliance in date and content of the above-mentioned documents.

Costa Rica

The tax reform concluded in 2019 with the entry into force of Income Tax Law No. 7092 and its Regulation No. 18445, while TP provisions were also incorporated into the Income Tax Law given its meritorious legal status. Through this route, the tax and TP regulatory framework of Costa Rica continues on the path of adaptation and incorporation of all the provisions established by the OECD.

Several modifications subsequently took place to consolidate the reform. This included extending the scope of filing the TP information return; the issuance of drafts for public consultation in relation to advance pricing agreements (APAs); as well as the resolution for the modifying TP documentation such as the local report and the master file.

Form requirements

In general, one of the most common form requirements in Central America is the TP informative return. The informative return asks taxpayers to report, among others, the existence of inter-company transactions, amount, the TP method used, the result obtained and in some cases, the anticipation of an arm's-length principle compliance or not.

However, the Costa Rican regulatory framework establishes this formal duty as obligatory compliance. In fact, its scope was extended after the entry into force of Regulation No. 18445 to those taxpayers who carry out domestic or cross-border operations separately or jointly that exceeds 1,000 base salaries in one year. Nevertheless, this declaration remains suspended, a situation that reduces the importance of compliance with the TP provisions in general, since this return represent the only deliverable that will be submitted to the tax authorities prior to a formal review process.

Drafts for public consultation and other modifications

In 2019, two drafts were issued for public consultation regarding the requirements needed to request an APA. Firstly, the interest of the Finance Ministry in incorporating alternatives for friendly negotiation was expressed. Secondly, the continuous effort to modify the regulatory framework in order to include detailed and substantial provisions established by the OECD in this matter was noted.

Likewise, a resolution that modified the content of the TP documentation was issued. This specifically targets the master file and highlights the requirements of an exhaustive industry and taxpayer analysis, all prepared by an independent rating agency. This is in addition to the inclusion of an economic group-consolidated income statement. For the local report, it was highlighted that there is a requirement to compare expense operations, with respect to previous periods without distinction of the number of years.


Among Panama's most relevant changes to the TP regime in the last few years, is the development that entities located in any special regime within the Panamanian territory, will be subject to TP regulations starting from the 2019 fiscal period, even when these entities are exempt from paying income tax or have a reduced tax rate.

Alongside reporting transactions with related parties abroad, these entities must report transactions with domestic related parties. In the case of entities in the normal tax regime, they must report operations with domestic related parties that are located in special regimes.

It is worth mentioning that as a result of the several changes in regulations of special regimes, entities domiciled in these have received legal stability (LS) agreements, either expressly by law or upon request. However, spokespersons of the tax administration (Dirección General de Ingresos – DGI) have emphasised that the LS does not exempt entities from entering the extension of the scope of the TP regime, in line with the search for strengthening the economic substance in these regimes, as recommended by Action 5 of BEPS project.

On the other hand, on February 15 2020, the first presentations of the CbC report and its notification was due, having been given an extended deadline as it marked the first year of reporting. This was done through Vizor Software's CbC reporting solutions platform, which can be accessed from the DGI website. These declarations had to be presented either by the integrating entity or by legally authorised third parties. Each entity belonging to the multinational group had to present an individual notification in Spanish, without prejudice to its tax treatment, so the entities considered 'off-shore' were included in this obligation.

Click here for the entire Latin America guide from ITR

Simón Somohano



Deloitte Mexico

T: +52 664 622 78 72

Simón Somohano is a tax partner based in Tijuana, Mexico and is responsible for Deloitte's TP practice in Latin America and the Spanish-speaking Caribbean. He has more than 29 years of experience in the application of tax, economic and financial criteria in TP valuation analysis of intangibles, double tax issues, planning, business model optimisation, structuring and economic consulting.

Under his leadership, Deloitte's regional TP practice has been consistently recognised as one of the leading practices in Latin America.

Simón's clients include several Fortune 500 multinational companies doing business in Mexico. He has extensive experience and a successful record leading on Mexican negotiations for APAs and MAPs, and on TP examinations with Mexican and foreign authorities, teaming with colleagues in Deloitte's global TP network.

Simón advises across a variety of industry sectors, with a focus on automotive and manufacturing, maquiladoras, retail and consumer goods, real estate and the energy and resources market. Simón is a frequent guest speaker and author through international tax forums and publications.

Miguel Morales



Deloitte Mexico

T: +52 555 080 6410

Miguel Morales is a TP partner based in the Mexico City office. He has more than 20 years of experience providing advisory for multinational groups from several industries including in the oil and gas, financial and insurance, pharmaceuticals, and real estate sectors.

Miguel has been involved in several projects on the valuation of intangible assets, corporate restructuring, value chain analysis and the optimisation of financial structures, as well as on due diligence.

Miguel has worked as a professor of TP, in the specialty of international taxes at the Autonomous Technological Institute of Mexico (ITAM) and Duke University. He is a member of the TP commission of the Mexican Association of Public Accountants.

Mario Roberto Coyoy González



Deloitte Guatemala

T: +502 2384 6500

Mario Roberto Coyoy González is a partner based in Guatemala, working on the tax and TP practices for both Guatemala and El Salvador. He has more than 18 years of experience serving local and multinational clients.

Mario has developed experience in local and international tax planning strategies and structuring assistance, including TP analysis.

Mario is an active professor of the Faculty of Economics at the Francisco Marroquin University and the Faculty of Attorney at Law at the Rafael Landivar University in Guatemala. He is also an instructor in a number of public courses and seminars about tax, TP, accounting, and financial and business issues.

Federico Paz



Deloitte El Salvador

T: +503 2524 4100

Federico Paz is Deloitte's tax and legal managing partner based in El Salvador. During his 25 years of professional experience, he has provided tax services to some of Deloitte's main clients throughout the region, covering business activities including: manufacturing; services; telecommunications; IT services; electricity; and oil and gas, among others.

Federico has experience in TP and corporate and international tax consultancy as well as in providing a wide range of tax solutions to Central American companies.

Federico has been a member of the Tax Affairs Committee of the American Chamber of Commerce of El Salvador since 2010. His key clients include Unilever, Scotiabank, América Móvil and AES Corporation.

Roberto Revel-Chion


Senior manager

Deloitte Costa Rica

T: +506 2246 5000

Roberto Revel-Chion is a senior tax manager based in Costa Rica, who is in charge of the TP departments for Costa Rica, the Dominican Republic, Honduras and Nicaragua. He has more than 14 years of experience in the area.

Roberto provides TP documentation services and advises on the preparation of defence files before and within an audit process. He also advises on TP planning policies for multinational groups.

Roberto has run TP training sessions in the four countries where he is responsible for the firm's practice as well as in Venezuela.

Yaremis Pérez Aguilera



Deloitte Panama

T: +507 303 4100

Yaremis Pérez Aguilera is a partner based in Panama, with more than 15 years of experience in the area of tax.

Since joining Deloitte in 2008, Yaremis has worked in the areas of tax consulting, tax compliance for corporate clients of the firm, and has assisted on due diligence in mergers and acquisitions. She has been a presenter at various conferences and seminars of the firm, and various associations and guilds related to her career. Before joining the Deloitte Panama team, she worked as a legal assistant at Morgan & Morgan, and as a senior supervisor in the tax area at BDO Bustamente & Bustamente.

Yaremis has worked as a professor in a master's programme in the area of taxation and fiscal law, tax management, and tax strategy at the Universidad Interamericana de Panamá. She is an active member of the International Fiscal Association (IFA), the Legislation and Taxation Committee of the American Chamber of Commerce and Industry of Panama, and of the Tax Law and Treasury Commission of the National Bar Association.

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