SIPRED [1] 2019. Changes to the transfer price regime.

This 20 of January, annex 16 of the Miscellaneous Fiscal Resolution for fiscal year 2020 was published in the Official Gazette of the Federation[2][3], originally published the past 28 of December 2019. This document provides instruction on the integration and the characteristics, the format of the guide for the presentation of financial statements for tax purposes emitted by a registered public accountant, as well the relevant questionnaires of the review, applicable to the different types of returns . Said document states the changes relative to the immediate fiscal year that must consider the taxpayer’s who are required to submit a tax return or opt for it. The changes are the following (using the general regime for taxpayers as a reference):

Annex 16, Section III. -Operations with related parties. Information regarding unique and valuable activities that contribute to the group’s business-

Annex 16 requires that information on operations with related parties be provided in four separate steps. The third step presents something new as it asks the taxpayer regarding whether its intercompany business operation generated unique and valuable contributions (in benefit of the group it belongs to), if the operation is agreed to in arm’s length terms (as would have been agreed to among independent third parties in comparable operations) and if it was necessary to carry out a tax adjustment to reflect these values. With respect to the concept of “unique and valuable contributions”, it is defined as the following:

  • The operation involves unique and valuable contributions. It must be disclosed if THERE ARE or THERE ARE NOT, depending the type of transaction under analysis, are identified and are considered as unique or valuable contributions. These are understood as those conditions or business attributes that generate significant value and that imply an expectation to generate future economic benefits or that from these one would expect that in their absence, as is the case of created or used intangibles, or comparability factors that define any competitive or business advantage, including R&D activities, enhancement, maintenance, protection and/or exploitation, or DEMPE[4]  functions. 

Annex 16, Section IV. –Impact on the Value Added Tax (IVA) from Transfer Price adjustments-

Also, and for the first time, taxpayers who have carried out transfer price adjustments are asked not only of the size of the adjustment but also the effect it would have to the IVA (assuming an accounting and tax adjustment):

  • Tax adjustment for the operation that is considered to have been agreed to as with independent third parties in comparable operations. The taxpayer must disclose the accounting and/or tax adjustment that they have carried out so the intercompany operation can be determined as one that was carried out in terms as would have been agreed to by independent third parties in comparable operations.
  • Values of activities will be modified for IVA purposes, or, the recoverable IVA (Deductions) as a consequence of a transfer price adjustment (Rule 3.9.1.2, Section B of the Miscellaneous Tax Rule –RM- in force). It must be disclosed whether or not, depending on if the income from the operation has modified the activities for IVA effects and that a transaction involving a deduction has modified the recoverable IVA that could be associated with it.
  • Modified Amount. The taxpayer must disclose, if it is the case, the income resulting from the operation that has modified the value of the activities for IVA effects, and modified the recoverable IVA in the transaction that represents a deduction.

Annex 17, Related party questionnaire

As well as the quantitative information that is required by the SIPRED regarding intercompany operations, qualitative information will also be needed to answer the transfer price questionnaire. Said questionnaire, basing itself on 2.8.5 of the Miscellaneous Tax Rule (RMF, ResoluciĂłn Miscelánea Fiscal), asks the taxpayer on whether it submitted the SIPRED instead of annex 9 of the Multiple Informative Tax Return  (DIM, DeclaraciĂłn Informativa MĂşltiple) relating to operations with foreign related parties. Regarding adjustments, and according to section IV of annex 16, it is required that information on the diminished amount detailed in the declarations that have been submitted in the fiscal year by recoverable IVA as a consequence of the transfer price adjustments be disclosed.

In that same sense, the questionnaire inquires on the effect of the adjustments to the Special Tax on Production and Services  (IEPS, Impuesto Especial Sobre Producción y Servicios) by asking whether the values for acts or activities por IEPS o if the recoverable IEPS as a consequence of a transfer price adjustment in the terms of RMF 3.9.2.

Another change in the transfer price questionnaire has to do with carrying out transactions with entities in special economic zones (ZEE, Zonas Económicas Especiales) and/or with entities that have benefited from the “Decree of Tax Incentives for the Northern Border Region”, in both cases requesting information on the income and authorized deductions resulting from transactions among the taxpayer and entities that benefit from these regimes.

The questionnaire also requests taxpayers to provide information on if these have transacted with related parties with regard to that stated in the non-binding transfer price criteria (in particular criteria 39 and 40, recognition of unique and valuable transactions, as well as the instrumentation of adjustments within the interquartile range).

Likewise, section “Operations with informed associated companies” is added with two questions:

  1. Answer if the taxpayer opted in to the miscellaneous rule 2.8.5.5., published 19 of April of 2019. This rule states the following: For effects of articles 32-A and 32-H of the Fiscal Code of the Federation (CFF, Código Fiscal de la Federación), the taxpayers that had operations with related parties, may opt to not present the annex of the financial statements for tax purposes or the section on information regarding tax situation, relating to said operations provided that they present Annex 9 of the DIM with information of its operations with foreign and domestic related parties.
  2. Disclose if the taxpayer opted to present the DIM with foreign and domestic related parties under the Tax Form 6/DEC-10, which is related to the tax stimulus in the northern border region.

Finally, with regards to the taxpayers in the maquila regime, it makes a detailed analysis of the value of relevant items to confirm the compliance to the regime (raw materials, semi-finished and finished goods) and fixed value of assets that will be deducted.

Final considerations

The transfer price regime in Mexico is in a transition period that seeks to incorporate the recommendations emitted by the OECD in its BEPS plan and also by the Mexican tax authorities through the emission of criteria in the subject . It is important to mention that if the taxpayer’s transfer pricing documentation does not take into account the recent regulatory changes, it could leave said taxpayers to indefensible transfer price positions and may even be lacking of reportable schemes for transfer pricing purposes, a novel change in the regime applicable for fiscal year 2020. Something noteworthy to emphasize is that this information requirement is not only required of taxpayers that submit the SIPRED, but also those that submit their ISSIF according to the miscellaneous rule 2.19 published 28 December 2019 in the Mexican Official Gazette.

We are at your disposal for any questions regarding this document.

[1] Sistema de presentaciĂłn del dictamen fiscal. A mechanism of the Mexican Tax Authority (SAT) to electronically submit the statutory tax report.

[2] Mexican Official Gazette

[3] https://www.dof.gob.mx/nota_detalle.php?codigo=5584394&fecha=20/01/2020

[4] Development, Enhancement, Maintenance, Protection and Exploitation.

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