Mexico: Reminder of expanded transfer pricing disclosures for 2016

Provisions under new article 76A of Mexico’s tax law reflect certain items of the OECD’s base erosion and profit shifting (BEPS) project—in particular expanded transfer pricing disclosure requirements that will apply for the 2016 tax year.

Background

The Mexican government’s 2016 federal budget, presented 8 September 2015, included proposals for expanded transfer pricing disclosure requirements. In particular, certain taxpayers (as identified pursuant to Article 32-H) that engage in transactions with related parties, would be required to submit to the tax authorities certain country-by-country information about the taxation of their business transactions.

The expanded transfer pricing disclosure requirements were enacted as part of the 2016 federal tax reform legislation. Read a 2015 report (Spanish) prepared by the KPMG member firm in Mexico: Reforma Fiscal 2016

Taxpayers subject to the new disclosure requirements

Additional disclosure requirements apply for 2016 with respect to the following taxpayers or entities:

• Taxpayers that have revenue in the immediately preceding tax year equal to or greater than MX $ 644,599,005 pesos (approximately U.S. $37 million)
• Corporate taxpayers whose shares that are listed and quoted on public stock exchanges
• Corporate taxpayers that are subject to certain provisions (Chapter VI of Title II that refers to the “optional regime” for group of companies) of Mexico’s tax law
• Government entities
• Foreign taxpayers having a permanent establishment in Mexico, but only with respect to the activities conducted by that permanent establishment

Defining the new disclosure requirements

Taxpayers that satisfy one of the above-listed requirements must file the following information returns. These information returns are required to be filed in December of the year following the tax year to which it corresponds. Therefore, the information returns for the first reporting year (2016) must be filed by 31 December 2017.

Master information return, for the multinational group describing:

• Organizational structure
• The activity, intangibles, and/or financial activities with related parties
• Financial and tax position

Local information return, transactions with related parties describing:

• Organizational structure, business and strategic activities as well as the related-party transactions.
• Financial information of the taxpayer and comparable transactions or entities used as “comparables” in the transfer pricing analysis

Country-by-country information return describing:

• Information at a tax jurisdictional level about the worldwide revenue distribution and taxes paid
• Location indicators of economic activities in the different tax jurisdictions of a multinational group for the corresponding tax year, including: (1) lists of tax jurisdictions; (2) total income, distinguishing between third-party and related-party amounts; (3) profit or loss before taxes; (4) corporate income tax actually paid and corporate income tax generated in the fiscal year; (5) capital accounts; (6) accumulated profits or losses accumulated; (7) number of employees; (8) values of fix assets and inventory
• List of all the entities that are integrated within the multinational group and list of permanent establishments, including (1) main economic activity of the entities of the multinational group; (2) jurisdiction where the entity is incorporated (if not the same as its tax residency); and (3) all the information that the taxpayers find will facilitate an understanding of the information described above

The country-by-country information tax return requirement only applies to those taxpayer are identifies as “Mexican parent companies” or those that satisfy the following requirements:

• They are Mexican residents;
  They have subsidiaries in terms of the Mexican GAAP (or “NIF” as known by its Spanish acronym) or permanent establishments located outside Mexico;
• They are not subsidiaries of a foreign resident;
• They are required to prepare consolidated financial statements according to the Mexican NIF (GAAP);
• They are required to prepare consolidated financial statements including the financial results of entities that are located in foreign tax jurisdictions; and
• They realized in the previous fiscal year, consolidated revenues equal to or greater than MX $ 12,000 million pesos.

Also, Mexican taxpayers or foreign taxpayers with a permanent establishment in Mexico and designated by the foreign parent company as the company responsible for submitting the country-by-country information return must file the country-by-country report.