Mexico transfer pricing rules stick closely to OECD guidelines, with the basic principle that transactions between related domestic and foreign entities experience the same tax conditions that would occur between independent organizations making similar transactions (the Arm’s Length Principle, or ALP).
Transactions that fall beneath the transfer pricing rules umbrella are:
- The use and transfer of tangible assets and intangible assets (such as stocks and bonds)
- The supplying or receiving of services
- Financial operations
And there are six transfer pricing methods in Mexico to which distinct rules apply:
- Comparable uncontrolled price method (CUP)
- Resale price method (RPM)
- Cost plus method (CPM)
- Profit split method (PSM)
- Residual profit split method (RPSM)
- Transactional operating margin method (TOPMM)
The taxpayer will employ the method they deem most appropriate according to the specifics of the transaction, providing documentary evidence at request to explain these transactions.
But where authorities consider there to have been an improper application of a transfer pricing method, adjustments are made by the tax authority, and the unpaid tax requested, with a possible fine of up to 75% of the adjusted amount.
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