New rules regarding transfer pricing adjustments (Mexico)

On June 11, 2018, the Mexican Government released in its Official Diary, the Second Resolution of Modifications to the Miscellaneous Tax Rules 2018 (RMF) with new rules regarding transfer pricing adjustments. These are the following:

Rule 3.9.1.1. Concept and scope of “transfer pricing adjustment” in its different modalities.

Rule 3.9.1.2. Increase or decrease in income or deductions derived from transfer pricing adjustments

Rule 3.9.1.3. Deduction of transfer pricing adjustments in the fiscal year in which the income or deductions were recognized

Rule 3.9.1.4. Deduction of transfer pricing adjustments prior notice to the authorities.

Rule 3.9.1.5. Deduction of transfer pricing adjustments that result from a resolution issued in terms of article 34-A of the Federal Tax Code

The new rules are important because they provide an additional regulatory framework and obligations for both, taxpayers and tax advisors. Among the most relevant aspects of the miscellaneous provisions are the rules of tax treatment on regards of Income Tax , Value Added Tax , and eventually as regards the Special Tax on Products and Services  -rule 3.9.1.2-.

Additionally the rules 3.9.1.3 and 3.9.1.4.  provide new obligations for both taxpayers and tax advisors, in terms of the deduction requirements of the transfer pricing adjustments. Among these requirements, there is the obligation to provide the original documentary support substantiating the adjustments, as well as a written document explaining the circumstances that led to the adjustment, including the consistency or inconsistency with respect to the previous transfer pricing methodologies used by the taxpayer and the calculation mechanics followed for the proposed adjustment.

Moreover, to achieve the deduction of the transfer pricing adjustment, the taxpayer must register it on off-balance sheet accounts  and also recognize it on the accounting and tax reconciliation. Additionally it must be necessary to prepare a digital tax invoice, and explain the effect given to the adjustment by its associated counterparty. Finally, taxpayers must make the adjustments prior to the presentation of their annual tax return or presentation of tax report.

Also, and according to the aforementioned rule 3.9.1.4, taxpayers who implement an adjustment may deduct it as long as they present the tax form 130 / ISR “prior notice of transfer pricing adjustments”. The transfer pricing adjustment rules are completed with rule 3.9.1.5. that establishes the possibility of carrying out these in fiscal years different from that established in rule 3.9.1.3. without exceeding the validity of the resolution established in the penultimate paragraph of the aforementioned article 34-A of the Federal Tax Code.

Source: http://dof.gob.mx/nota_to_doc.php?codnota=5530921