Tax Reform in Mexico: Effects on Transfer Pricing

In January 2022, Mexico’s 2022 Miscellaneous Tax Resolution came into effect, incorporating several changes proposed in November 2021 by the Mexican legislature, including various amendments related to transfer pricing.

As one of the most experienced Latin American countries in transfer pricing matters, Mexico has historically been very active in this field. In the 1990s, the Mexican economy underwent an international opening process as a key destination for foreign investment, making tax-related aspects—specifically transfer pricing—highly relevant. Consequently, in 1994, Mexico adopted the OECD standards on transfer pricing by incorporating them into the Income Tax Law.

Continuing the efforts to update Mexican tax regulations, which began in 2014 for the implementation of the OECD BEPS Action Plan to combat aggressive tax planning, the Mexican legislature introduced significant tax changes in late 2021. These changes came into effect in January 2022.

The most relevant transfer pricing changes in 2022 include:

• The obligation to report transactions with domestic related parties in the transfer pricing information return. Before the reform, only transactions with related parties resident abroad had to be declared.
• The introduction of minimum requirements for functional analyses, specifying that these analyses must include the functional profile of each party involved in every intercompany transaction, giving the functional analysis a more transactional approach.
• The establishment of a procedure allowing tax authorities to disclose confidential information to taxpayers regarding comparable transactions conducted by independent third parties (secret comparables).

Additionally, the amendments affect other aspects such as:

• The deadline for submitting informational returns.
• The inclusion of the interquartile range statistical method as the only accepted statistical method for determining the arm’s length range.
• Modifications to the maquiladora regime.

These reforms aim to update and strengthen Mexico’s transfer pricing regulations while eliminating legal provisions that could generate uncertainty.

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