Mexico’s New Deadlines Mean Lots of Work and Little Time for Taxpayers30th March 2022
These days, if you have transfer pricing transactions in Mexico, you may be feeling like you’re in a race against the clock—and you are. Thanks to 2022’s tax reform, which included new technical transfer pricing requirements, taxpayers are finding themselves with more work to do—and less time to do it. In the past, the local file was due on December 31 of the year following the fiscal year, so 2021’s documentation would be due December 31, 2022. Now, however, the local file deadline has moved up to May 15, which means that taxpayers have to prepare local files in less than two months. Not an easy task. And then there’s the transfer pricing information return—also, now due on May 15—which lists important information about both domestic and cross-border intercompany transactions. (Fortunately, the master file and country-by-country report are still due on December 31.) The deadline isn’t the only hardship: Now, the local file requires a dual-basis functional analysis, meaning the functions, assets, and risks of both related parties—not just the tested party—must be analyzed and explained. So, many taxpayers are scrambling for information. Economic analyses also present challenges: Mexico’s arm’s length pricing now officially falls in the interquartile range and comparable company information can only be used from the same year of the intercompany transaction (good luck finding public information that’s readily available by the submission deadline). Maquiladoras have their own problems, as they are no longer able to pursue advanced pricing agreements—now, they will have to satisfy transfer pricing obligations through safe harbors, which could mean higher effective tax rates. Given the new tax laws, it’s clear that Mexico wants more information, more transparency, and frankly, more tax revenue from multinational companies, so you should expect more audits and adjustments.