Tax Insights

from Transfer Pricing

Mexican tax reform proposal

includes transfer pricing
Master/Local File and Country-by-
Country reporting requirements

September 14, 2015

In brief
On September 8th, a tax reform package was presented by the Mexican Executive Branch to its Congress
for review and approval. Although the tax reform proposals are not as exhaustive as reforms in prior
years, it includes an important requirement to file Master File, Local File and Country-by-Country (CbC)
reports. If approved, these provisions would place Mexico as the fourth country (after Spain, Australia
and UK) to require application of the OECD Base Erosion and Profit Shifting (BEPS) initiative with
respect to Action Plan 13: Guidance on the Implementation of Transfer Pricing Documentation and
Country-by-Country Reporting.

In detail chains, intangible assets, including revenues from related

The proposed requirements
contemplate an annual
obligation for Mexican
taxpayers to file three new
information returns, namely, a
Master File information return,
a Local File information return,
and a CbC information return.
Under the proposed law,
existing local documentation
requirements continue to apply
in order to avoid penalties (and
non-deductibility in some
cases).
The proposal states that the
Master File should provide a
complete picture of the group’s
global operations, including
organizational structure, an
analysis of profit drivers, supply
intercompany financing and
financial and tax information.
The Local File provisions are
essentially satisfied with
existing requirements. The
Local File proposal would
specifically require a description
of the organizational structure,
strategic and business activities,
information on related party
transactions and financial
information pertaining to the
Mexican taxpayer and of the
independent comparables used
in the transfer pricing analysis.
Finally, the CbC proposal would
require the submission of
aggregated financial and tax
data for all tax jurisdictions of
the multinational group,
and unrelated parties; profit
(loss) before income tax; income
taxes paid and accrued income
tax; stated capital; accumulated
earnings; number of employees;
property, plant and equipment;
royalties paid and received;
interest paid and received and
management services paid and
received. In addition, the CbC
report would require a listing of
all the members and permanent
establishments of the
multinational group, describing
their economic activities, place
of incorporation, the place of tax
residence if different than place
of incorporation, and any other
information that would be
considered relevant to facilitate

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Tax Insights
an understanding of the previously
mentioned information.
The proposed law would require the
publication of general (miscellaneous)
rules describing the formats, forms
and applicable details to comply with
these requirements, and procedures to
comply with additional information
requests. Similarly, the proposal
would require the local taxpayer to
provide certain information
concerning foreign related parties to
the extent that information cannot be
obtained by the tax authorities in the
normal course of the treaties and
other exchange of information
agreements, and would require the
local taxpayer to comply with those
information requests within 120 days
after being notified of such requests.
Application
The filing of the Master File and the
Local File information returns would
be required by corporations with
annual taxable revenues in the prior
year, which is higher than MXN
644,599,005 (USD 38,368,988);
entities subject to optional (new tax
consolidation) fiscal regime; semi-
official (state) entities and permanent
establishments. These amounts will be
revised annually to be consistent with
the BEPS amounts in euros.
The filing of the CbC File information
return would be required only for
corporations that qualify as Mexican
multinational holding companies or
those that are designated by the
parent company of a foreign
multinational group as responsible for
filing the CbC File with consolidated
global accounting revenues of more
than MXN 12,000,000,000 (USD
714,285,714) in the preceding year.
Timing
These information returns would be
required on a calendar year basis,
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starting in FY 2016 and in this case, above requirements on an accurate
would be due by December 31, 2017. and timely basis. It is also prudent to
evaluate any pre-implementation
Penalties for non-compliance concerns to ascertain how taxpayers
The tax reform proposal to Congress can best minimize overall risks and
establishes that the fines established costs for the group.
for non-compliance with the above
rules would be in a range of MXN
140,540 (USD 8,365) to MXN
200,090 (USD 11,910) and in
addition, a failure to file or presenting
incomplete or erroneous reports
would be penalized by disqualifying
the taxpayer from entering into
contracts with the Mexican public
sector.
The takeaway
In practice, this proposal together
with already existing annual filing
requirements for “relevant
transactions” included on Form 76
and modified Annex 9 of the annual
information tax return, would impose
significant additional transfer pricing
reporting requirements in Mexico and
expose local entities to increased
scrutiny by the tax authorities.
Current documentation requirements
would continue to apply and would
generally be consistent with the
requirements of the Local File. The
key challenge for Mexican taxpayers
as a result of the proposal is to comply
with the additional requirement of a
Master File and the CbC File while
managing potential risks for the
multinational group. It is not
completely certain if this legislation
will be approved, although we
consider based on past experience
that there is a high likelihood of its
passage, possibly with some minor
modification.
It is clear that Mexico is aiming to
unilaterally adopt the BEPS
recommendations. If passed, this
proposal may require the placement of
significant resources and forethought
to ensure that the taxpayer meets the
Tax Insights

Let’s talk
For more information, please contact:

Transfer Pricing and Tax Controversy

Mauricio Hurtado, Mexico City Edgar Ahrens, Mexico City Fred Barrett, Mexico City
+01 (55) 5263 6000 01 (55) 5263 8562 01 (55) 5263 6069
mauricio.hurtado@mx.pwc.com edgar.ahrens@mx.pwc.com fred.barrett@mx.pwc.com

Raul Angel Sicilia, Guadalajara Juan Carlos Calderon, Mexico City Guillermo Palacios, Tijuana
01 (33) 3648 1014 01 (55) 5263 8534 01 (664) 615 5020
raul.angel.sicilia@mx.pwc.com juan.carlos.calderon@mx.pwc.com guillermo.palacios@mx.pwc.com

Ivan Diaz-Barreiro, Mexico City Gabriel Macias, Monterrey Marta Milewska, Mexico City
01 (55) 5263 6607 01 (81) 8152 2060 01 (55) 5263 5849
ivan.diaz-barreiro@mx.pwc.com gabriel.macias@mx.pwc.com marta.milewska@mx.pwc.com

Transfer Pricing Global and US Leaders

Isabel Verlinden, Brussels Horacio Peña, New York
Global Transfer Pricing Leader US Transfer Pricing Leader
+32 2 710 44 22 +1 646 471 1957
isabel.verlinden@pwc.be horacio.pena@us.pwc.com

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