Amendments to TP legislation continue in Mexico and Central America
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Amendments to TP legislation continue in Mexico and Central America

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Simón Somohano, Vicente Fuentes, Mario Roberto Coyoy González, Roberto Revel-Chion, and Juan Alberto Mendoza of Deloitte review transfer pricing (TP) developments in Mexico, Guatemala, El Salvador, Costa Rica, Nicaragua, Honduras, Panama, and Dominican Republic.

On October 26 2021, the Mexican Congress approved the 2022 tax reform. This included significant amendments to the Mexican Income Tax Law (MITL) and the Federal Tax Code (FTC), among other regulations. President Andrés Manuel Lopez-Obrador issued the corresponding decree, which was published in Mexico’s Official Gazette on November 12 2021. These new regulations became effective on January 1 2022.

As has been common in recent tax reforms in Mexico, the regulations modified important TP provisions of the MITL and the FTC. From a practical perspective, there are some changes that may significantly affect taxpayers’ TP policies and documentation processes. Other changes may have limited impact, but only assuming proper TP documentation is already in place.

This article looks at selected new TP provisions according to major topics and considers their potential impact on taxpayers.

Requirements for domestic intercompany transactions extended

In previous years, Section IX of Article 76 of the MITL, which includes specific requirements that the contemporaneous TP documentation must meet, applied exclusively to transactions executed with foreign-related parties. The word “foreign” has been removed from all such section of the MITL, implying that it now applies to both domestic and cross-border intercompany transactions.

The word “foreign” has also been deleted from Article 179 of the MITL. This deals with several key provisions such as the definitions of “related party” and “comparable transactions”, the inspections powers of the SAT, and the possibility to use the OECD TP Guidelines for Multinational Enterprises and Tax Administrations (OECD TP Guidelines) as a source of interpretation of the MITL.

A previous requirement in the MITL (Section XII of Article 76) about considering the prices that would have agreed between independent parties in comparable transactions applied to any type of intercompany transaction. In practice, therefore, many taxpayers were already preparing TP documentation for domestic intercompany transactions, usually voluntarily at the level set in Section IX of Article 76.

Some changes may significantly affect taxpayers’ TP policies and documentation processes.

In these circumstances, the increase in documentation requirements may not be a major concern. However taxpayers still need to evaluate the quality and content of their TP documentation and adjust it if needed.

A related but likely more disruptive change is the modification of Section X of Article 76 of the MITL. This provision includes a requirement to submit annually the informative return incorporated in Annex 9 of the Multiple Informative Return, which includes detailed information about intercompany transactions, comparable data, and TP results by type of transaction.

As a result of the 2022 tax reform, Annex 9 applies to all intercompany transactions, regardless of the related party’s tax residence, instead of applying only to cross-border intercompany transactions as in previous years.

In Mexico, it is relatively common for multinational groups to operate with two or more subsidiaries, which frequently carry out a significant number of domestic intercompany transactions. Therefore it is advisable to consider that such transactions would also have to be properly reported in Annex 9.

Maquiladora TP options

Taxpayers that qualify as a maquiladora (a foreign-owned company producing manufactured goods for export) for income tax purposes have historically had several options to comply with TP obligations.

A significant tax reform in 2014 limited them to two options: the so-called safe harbour, which is a fixed formula to calculate the taxable profit a maquiladora must earn from the provision of manufacturing services, and the advanced pricing agreement (APA), which is a procedural confirmation of the transfer price for determining the maquiladora’s toll manufacturing income.

APA confirmations are issued by the Mexican Tax Authority (Servicio de Administración Tributaria, SAT) upon a taxpayer’s request under Article 34-A of the FTC. Since the safe harbour often results in higher taxable profit compared to historical values derived from using the eliminated options, shortly after the 2014 tax reform the SAT received hundreds of APA requests from maquiladora companies.

The 2022 tax reform further eliminated the APA option, leaving the safe harbour as the only way for a maquiladora to comply with TP requirements and maintain the benefits of this tax scheme. Only those taxpayers with an APA resolution in force or an APA request in progress may still use the APA option until the expiry of the APA, which in all cases will be no later than 2024.

As a result, maquiladora entities need to evaluate not only the income tax liability arising from changing to the safe harbour option but also the convenience of continuing under the maquiladora scheme for income tax purposes.

A case-by-case analysis is required to decide if leaving the scheme is the best option. The likelihood of leaving has definitely increased with the safe harbour being the only available option as it is known to be expensive, particularly for asset-intensive maquiladoras.

Finally, the transfer price for the maquiladora service derived from using the safe harbour may not comply with TP provisions for the related party principal in its country of residence. This situation may trigger double taxation (except if the related party principal is located in the United States as the safe harbour is validated by the Internal Revenue Service through a 1999 mutual agreement with SAT).

Amendments affecting TP documentation

Subsection (b) of Section IX of Article 76 of the MITL has been modified to state that the description of relevant functions, assets, and risks must be related not only to the taxpayer but also to each related party involved in the transactions subject to analysis.

The impact on the TP documentation of taxpayers will vary depending on its scope and quality. However, regardless of this statutory requirement, proper TP documentation should always contemplate a functional analysis looking at all relevant parties to each in-scope transaction.

Subsection (d) of Section IX of Article 76 of the MITL has been amended to require explicitly that the comparability adjustments applied to comparable prices, margins, or considerations are explained in detail for each type of transaction analysed.

This reinforces the importance of proper TP documentation always including explanations as to how comparability adjustments are applied. However, it is advisable to double-check the scope and quality of the TP documentation and make improvements if necessary.

An important requirement was introduced in the fourth paragraph of Article 179 of the MITL. This states that comparable operations or data use for the TP analyses must match the fiscal year under examination. Comparable data from two or more previous or subsequent years can only be relied on if business cycles or the commercial acceptance of a product or service extend to more than one fiscal year.

A widespread practice in Mexico among taxpayers, practitioners, and even the SAT for several years was to consider comparable data for the year in question and for two previous years, particularly for economic analyses based on benchmarking of profits earned by comparable companies.

One of the arguments for using this approach relates to the need to obtain strong tendency results. Combined with the application of a set of comparability adjustments, this helps to compensate for the fact that most profit-based benchmarking analyses in Mexico rely upon financial information of comparable companies from foreign countries, particularly the United States and Canada, due to the limited number of Mexican public comparable companies.

Another argument is that multi-year analyses help to solve the issue of unavailability of the most recent financial information for some comparable companies when the TP documentation must be produced.

However, in the past few years the SAT has started routinely challenging the use of multi-year comparable information in its audit procedures. The requirement introduced in the fourth paragraph of Article 179 of the MITL provides a clear indication of the SAT’s preference for using single-year comparable data as a default and only to consider multi-year comparable information in exceptional cases.

As a result, taxpayers should consider changing their multi-year economic analyses or documenting in detail the arguments to support them from the perspective of the business cycle or commercial acceptance of the product or service.

Adopting single-year comparable data as the standard leads to some practical difficulties. Financial information for comparable companies may not be published until several months after the year-end. Therefore it may not be available when the TP study must be prepared to meet statutory deadlines.

In this respect, the new single-year comparable data requirement is contrary to paragraph 5.27 of the OECD TP Guidelines, which state: “Each taxpayer should endeavour to determine transfer prices for tax purposes in accordance with the arm’s-length principle, based upon information reasonably available at the time of the transaction.”

Additionally, economic analyses made using single-year comparable data will generate more volatile interquartile ranges over the years compared to economic analyses made using multi-year comparable data. Therefore TP policies may need more frequent review by companies’ management and the need to implement TP adjustments after year-end might increase.

Finally, the second paragraph of Article 180 of the MITL was modified to state that taxpayers choosing to build a range to obtain a conclusion from the application of a TP method must consider only the interquartile method (unless the SAT specifically issues general rules with another calculation option or in the context of a mutual agreement procedure).

Previously, the provision indicated that any statistical method could be considered. The use of the interquartile range is already widespread in Mexico, so the practical implication of this change is likely to be minor.

However, taxpayers should proactively identify any economic analysis that uses a statistical method that is different to the interquartile method and evaluate the effects of the required change.

Local file and master file requirements

Article 76-A of the MITL introduced a major change related to taxpayers that are subject to the local informative return (Mexico’s equivalent to the OECD’s local file).

Specifically, a new applicability criterion was introduced as Fraction VI of Article 32-H of the FTC, which refers to taxpayers that are related parties of companies obliged to submit the Statutory Tax Report (Dictamen Fiscal).

The Dictamen Fiscal is mandatory for taxpayers that have declared in the previous year income greater than Ps1,650,490,600 (approximately $83 million) or taxpayers with shares listed on the stock market.

The fact of Costa Rica’s OECD membership will undoubtedly force changes in the regulatory framework.

The impact of this change is likely to be substantial as it will capture taxpayers with income below the regular income thresholds by virtue of being a related party of a taxpayer obliged to the Dictamen Fiscal.

The relevance of the extra information the SAT will collect might not be significant in certain cases, particularly where taxpayers have no intercompany transactions with the taxpayer obliged to the Dictamen Fiscal and/or where the taxpayer has a very low income.

This requirement will lead to extra time and cost for taxpayers and the benefit might be limited in some cases. It would be best for the SAT to issue general rules seeking to release small taxpayers from the local informative return obligation.

In this regard, paragraph 5.28 of the OECD TP Guidelines reads: Taxpayers should not be expected to incur disproportionately high costs and burdens in producing documentation. Therefore, tax administrations should balance requests for documentation against the expected cost and administrative burden to the taxpayer of creating it. Where a taxpayer reasonably demonstrates, having regard to the principles of these Guidelines, that either no comparable data exists or that the cost of locating the comparable data would be disproportionately high relative to the amounts at issue, the taxpayer should not be required to incur costs in searching for such data.”

The new applicability criterion in question would also imply the obligation to submit the master informative return (Mexico’s equivalent to the OECD’s master file), provided that the taxpayer’s group has at least one subsidiary operating out of Mexico.

New key deadlines

The 2022 tax reform changes several deadlines for different annual TP-related submissions. Table 1 shows a summary of the changed and unchanged deadlines.

The reduction in the available time to prepare Annex 9 of the DIM is relevant itself, but even more relevant considering it will now also apply to domestic intercompany transactions. Therefore, it is advisable for taxpayers to anticipate the TP compliance work well in advance.

Looking at the local informative return, the reduction of the deadline from December 31 of the next calendar year to May 15 will be even more challenging for taxpayers.

Several elements or requirements for the local informative return, mainly those related to financial and tax information of foreign counterparties to the analysed transactions, might simply not exist by May 15, as annual tax returns deadlines vary across the globe. This would result in taxpayers filing incomplete or inaccurate data in the local informative return, which in turn could trigger penalties.

There is still time for the SAT to issue general rules that may extend some of these tight deadlines. Therefore attention should be paid to the publication of SAT’s Miscellaneous Tax Rules.

Table 1


Fiscal year 2021

Fiscal year 2022

Tax Situation Informative Return (ISSIF)

March 31 2022

March 31 2023

Statutory Tax Report (Dictamen Fiscal)

July 15 2022

May 15 2023

Annex 9 of DIM

July 15 2022

May 15 2023

Local informative return

December 31 2022

May 15 2023

Master informative return

December 31 2022

December 31 2023

Country-by-country informative return

December 31 2022

December 31 2023

Inspection powers and mutual agreement procedures

There have been a few changes related to SAT’s inspection powers and competent authority procedures. These include:

  • The five-year statute of limitation for the SAT to use its inspection powers will be suspended if a taxpayer requests an APA in terms of Article 34-A of the FTC, according to a new provision in Article 67 of the FTC. The suspension will apply from the moment the APA request is filed until the notification of the conclusion of the APA process takes effect.

  • A new provision is included in Article 70-A and Article 74 of the FTC to restrict the reduction of fines associated with the omission of payments and infringement of tax regulations, respectively, in cases where the taxpayer has started a mutual agreement procedure under the double taxation avoidance agreements to which Mexico is a party.

  • Finally, requesting a mutual agreement procedure was added to Article 142 of the FTC as a triggering event for a mandatory requirement to guarantee the tax liability calculated by the SAT when applying its inspection powers.

Central America


The Guatemala TP regulation framework has not been changed in the past seven years.

The most important recent development in Guatemalan TP practice, regarding actions promoted by the OECD, is the publication by the Tax Administration in 2016 of the “Technical Guide for TP Studies”.

Most of the Technical Guide is aligned with the requirements published by the OECD in action 13 of the Base Erosion and Profit Sharing (BEPS) Project, specifically with the requirements established in Annex 1 of Chapter V of the TP Guidelines, in relation to the documentation of the master file.

Hence, for Guatemala, taxpayers must file a local report (TP Study). The Technical Guide requests a lot of information from the business group, including the group’s annual report, organisational structure, business description, and description of intra-group financing agreements.

The local legislation does not refer to interference by the OECD in Guatemala, nor is it envisaged that this will change soon. However, recent audits by the Tax Administration have mentioned the importance of having this information regarding the multinational group (also included in the OECD requirements).

It is important to note that the Technical Guide is not part of the Guatemalan legislation, since it is considered to be part of the Tax Administration. This demonstrates the intention of the tax authority to align with international actions, specifically of the OECD, but this intention has not yet borne fruit in terms of regulation.

El Salvador

Common controversies in TP analysis

Recently, the Tax Authority stated that tax oversight plans would continue and intensify to improve collection of tax revenues. In particular, tax avoidance plans will be cracked down on.

In recent years, there has been increased oversight of income tax. One of the main areas of adjustment has been the materialisation of services and objections to costs and expenses with related parties. Another has been financial transactions performed with related parties (and the respective interest rates).

Intra-group service transactions

The Tax Authority will seek to prove the benefit effectively received and whether the transaction is necessary for the generation of income in El Salvador. In cases of tax controversy, the Tax Authority will evaluate the following factors:

  • Materialisation (economic substance).

  • Whether it is useful and necessary.

  • Documentation (supporting evidence).

  • Accounting records.

  • Withholding tax.

  • Market value.

Accordingly, the Tax Authority will carry out a pre-defined procedure to verify whether the deduction of costs or expenses is applicable, declaring many of them inadmissible in the first two stages of the process.

As a final step, the Tax Authority will verify compliance with the arm’s-length principle in intra-group service transactions, reviewing the taxpayer’s local file in detail.

Financial transactions

Another common type of operation evaluated by the Tax Authority comprises financial operations (mainly loans received or granted). In general terms, the actions of the Tax Authority consist of:

  • Establishing the TP analysis carried out by the taxpayer.

  • Suggesting the use of local interest rates published by the Central Reserve Bank (even if the transactions are carried out with foreign debtors).

  • Evaluating applicable tax withholdings.

Local regulations do not suggest a type of comparable to be used for these financial transactions, but it is important that the taxpayer adequately supports any methodology used to verify the arm’s-length principle.

Costa Rica

In May 2021, Costa Rica became a member of the OECD. However, the regulatory framework, at least from the TP point of view, has already contemplated a significant portion of the documentation obligations required by the BEPS Project since 2018.

The regulatory framework has not been substantially modified since 2021, when the guidelines to request and obtain APAs were published.

Above all, the fact that Costa Rica is a member of the OECD entails a series of responsibilities that will undoubtedly force future changes in the regulatory framework. Thus, the discussions and future incorporations of pillars 1 and 2 of the BEPS Project may be part of the country’s fiscal debates in the short- or medium-term. They will have important implications both for public policies and in certain economic sectors.

Honduras and Nicaragua

The TP regulatory frameworks of Honduras and Nicaragua have not been changed in the last five and three years, respectively, despite the fact that in the Honduran case, the framework is explicitly based on the OECD TP Guidelines.

Neither Honduras nor Nicaragua are part of the Inclusive Framework of the BEPS Project, which would lead to the incorporation of the tax modifications required in this project.

However, this situation has not stopped the Honduran Tax Authority from requesting part of the obligations required in action 13 (detailed above for Guatemala) within its auditing processes.


As of November 12 2021, the fine for non-compliance with the country-by-country (CBC) report filing amounted to $100,000, plus a daily fine of $5,000 until the CBC report is submitted.

If the obliged entity presents inconsistent or erroneous information, the fine increases to $25,000. Where the information is intentionally altered, the fine will be further increased to $500,000.

It is important to remember that Panama’s CBC report is an annual obligation for all groups where the last holding company resident in Panama has consolidated income exceeding €750 million in a fiscal period.

Dominican Republic

In April 2021, amendments to the TP regulations were enacted. These are based on the incorporation of the provisions established in the BEPS Project, specifically those related to action 13.

Thus, the formal duties that were previously limited to the preparation of the TP study, as well as the submission of the Informative Declaration of Operations with Related Parties (DIOR), are modified with the inclusion of the local file, the master file and the CBC report. It should be noted that these follow the guidelines established by the OECD.

According to the changes proposed in this regulation, it is mandatory to submit these formal documents in a time frame that fundamentally changes the way in which taxpayers have complied in the past eight years.

On the one hand and based on what has been established, taxpayers are required to remit to the Local Tax Authority the local report and master report voluntarily 180 days after the filing of the DIOR. On the other hand, for fiscal year 2022, the filing date of the DIOR would be unified with that corresponding to the Income Tax Return, i.e., a maximum of 120 days after the closing of the fiscal year.

Regarding the CBC report, the obligation is triggered based on a threshold determined in local currency and not in euros, as established in the parameters of the BEPS Project: DOP38.8 billion (approximately $700 million).

The threshold reaches ultimate parent companies or constituent entities that are resident in the Dominican Republic. In addition, taxpayers classified as constituent entities and part of a multinational group, with fiscal domicile in the Dominican Republic, must submit a formal notification to the Local Tax Authority.

If the taxpayer is the ultimate parent company, this notification must be submitted no later than the last day of the fiscal year in which the multinational group reports this information. If the taxpayer is classified as a representative entity, the notification must contain the last day of the fiscal year end of the ultimate parent company.

Constituent entities different from the ultimate parent or representative entities should submit a notification indicating the name and country of domicile of the entity in charge of submitting the CBC report. This must be submitted at least three months before the fiscal year end in which the multinational group’s information is submitted.

Local regulation does not include the tacit use of the TP Guidelines, but it is clear that the fact that the Dominican Republic signed its participation within the Inclusive Framework of the BEPS Project in 2018 will lead to changes in local tax provisions, not only at the TP level, and in full congruence with the actions that make up the BEPS Project.

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