New Article 76-A of the Income Tax Law was published in the Federal Official Gazette on November 18, 2015, establishing three new transfer pricing information returns: Master File, Local File and Country-by-Country Report.

Background

These measures arise in response to the commitment assumed by Mexico before the Organization for Economic Cooperation and Development (OECD) and the G-20, with respect to the adoption of new minimum standards agreed upon as part of the Base Erosion and Profit Shifting (BEPS) action plan.

New Transfer Pricing Information Returns

Under the new Article 76-A, taxpayers that form part of a multinational group, which enter into related-party transactions and which: (i) derive taxable income in excess of $644,599,005 pesos; (ii) are publicly traded; (iii) are companies under the optional tax regime for corporate groups; (iv) are parastatal entities; or (v) are nonresidents with a permanent establishment in the country, must file the following returns, no later than December 31 of the year immediately following the tax year at issue:

  1. Master related-party information return (Master File) of the multinational business group, containing information on the organization structure, activity description, intangibles, related-party financial activities; and its financial and tax position.
  2. Local related-party information return, containing information on the organizational structure, strategic and business activities, and related-party transactions, as well as financial information on the filer and the transactions and enterprises used as comparables in the analysis.
  3. Country-by-country information return, containing information at the tax jurisdiction level on the worldwide apportionment of income and taxes paid, as well as a list of all entities in the group, including the main economic activities, jurisdiction of organization and tax residence, among other indicators, for each taxing jurisdiction in which the group operates.

Note that the country-by-country report only applies to taxpayers that:

  1. Are multinational holding companies that meet the following requirements: (i) Mexican residents; (ii) with subsidiaries as defined in financial reporting standards (FRS), or permanent establishments abroad; (iii) not subsidiaries of another nonresident enterprise; (iv) required to prepare, file and disclose consolidated financial statements pursuant to the FRS; (v) report the results of entities that reside in one or more other countries or jurisdictions, in their consolidated financial statements; and (vi) have obtained consolidated book income of 12 billion pesos or more in the immediately preceding tax year; or
  2. Are resident entities or nonresidents with a permanent establishment in the country, that have been designated by the holding company of the nonresident multinational group as responsible for providing the country-by-country information return.

The Tax Administration Service (“SAT”) will prescribe the general rules to file these returns. It also has the authority to request additional information or the country-by-country return from resident entities that are subsidiaries of a nonresident enterprise, when said authority cannot obtain the information corresponding to such return through the information exchange mechanisms established in the international treaties that Mexico has in effect. The taxpayer will have 120 business days to file the return.

Penalties for Noncompliance

Article 32-D is also amended to provide that if the transfer pricing information returns set forth in Article 76-A of the Income Tax Law are not filed, taxpayers cannot do business with the Federal Public Administration or the Office of the Federal Attorney General

Penalties ranging from $140,540 to $200,090 pesos will also be levied on taxpayers that fail to provide the information referenced in Article 76-A of the Law, or if the information is incomplete or contains errors, inconsistencies or other than as required by the tax provisions.