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8/8/2019 Transfer Pricing Present Thompson April 2010
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TRANSFER PRICING IN MEXICO
DANIEL SANCHEZSENIOR ECONOMISTAPRIL 14, 2010
ONESOURCE TRANSFER PRICING
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MAQUILA
5% of total assets (Safe Harbor)
Advanced Pricing Agreement
3
A maquiladora or maquila is a factory in Mexico that
imports raw materials and equipment on a duty-freeand tariff-free basis for assembly or manufacturing
and then re-exports the assembled product to the
originating country.
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REGULATORY ENVIRONMENTAMENDMENTS
Art 50 Section XIV Art 86 Section XII
(Documentation Requirements)
Art 64-A Art 215
(General Terms and Types of Transactions)
Art 65
Art 216(Accepted Methods)
Art 216-Bis
(Exclusively referring to maquiladoras and
their documentation options)
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OECD GUIDELINES
The Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations published in
1995 by the OECD or their subsequent
amendments will be applicable to the terms
contained in these Articles, as long as they are
congruent with the included in the MITL.
Para la interpretacin de lo dispuesto en este Captulo, sern aplicables las Guassobre Precios de Transferencia para las Empresas Multinacionales y lasAdministraciones Fiscales, aprobadas por el Consejo de la Organizacin para la
Cooperacin y el Desarrollo Econmico en 1995, o aqullas que las sustituyan, enla medida que las mismas sean congruentes con las disposiciones de esta Ley yde los tratados celebrados por Mxico.
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MAQUILA, NON-MAQUILAAND DOMESTIC
TRANSACTIONS
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MAQUILADORA(PERMANENT ESTABLISHMENT)
Maq.Inventories
Management
and Control
Parent Co.US
MEX
PEM&E
Double Taxation
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DOCUMENTATION REQUIREMENTS
ART 86 SECTION XII
-The taxpayers legal denomination, address, taxresidence and tax identification number of the related
parties with whom transactions are carried out, as well as
the documentation that demonstrates the direct and
indirect participation between the related parties (i.e.,
contracts, stockholders registry, etc.).
- Information regarding the functions, assets used and
risks assumed by the taxpayer for each type of
transaction.
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9
MAQUILA, NON-MAQUILA AND DOMESTICTRANSACTIONS
Maquila
Required to comply with Art 86 Section XII, Article 215,
Article 216 and 216-Bis (excludes Article 86, Section XIII)
Non-Maquila
Required to comply with Art 86 Section XII, Section XIII,
Article 215 and Article 216 (excludes Article 216-Bis)
Domestic Transactions
Required to comply with Article 86 Section XV to prove
intercompany pricing is at arms length
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DEVELOPMENT OFTRANSFER PRICING
METHODS
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DEVELOPMENT OF TRANSFER PRICINGMETHODS
Article 216 of the MITL states that a taxpayer may apply any
of the transfer pricing methods included in the MITL:
Traditional transactional methods:
Comparable Uncontrolled Price Method
Resale Price Method
Cost Plus Method
Profit based methods: Profit Split Method
Residual Profit Split Method
Transactional Operating Profit Margin Method/CPM/TNMM
After 2006 Mexico adopted a hierarchy of methods similar tothat of the best method rule with a preference towards
traditional transactional methods.
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ARTICLE 216-BIS
Section I Transfer Pricing Study including 1% of
the foreign-owned M&E 1% of the foreign owned assets used in the maquila
operation
Section II Safe Harbor Maquilas minimum taxable income is the highest of:
6.9% of the maquila and foreign-owned assets used in themaquila operation (including inventories)
6.5% of the operating cost and expenses
Section III Transfer Pricing Study considering an
arms-length return on assets used in the maquilaoperation Maquila assets, foreign-owned assets and inventories
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MULTIPLE INFORMATIVERETURN AND AUDITED
FINANCIAL STATEMENTS
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MULTIPLE INFORMATIVE RETURNDECLARACIN INFORMATIVA MLTIPLE
Section XIII of Article 86 states that taxpayers that
have transactions with non-resident related parties
must submit an informative annual return before
the Tax Administration Service.
Maquiladoras are exempt from this obligation.
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MULTIPLE INFORMATIVE RETURN
INFORMATION OF OPERATIONS WITH FOREIGN
RELATED PARTIES
Jointly with the income tax return of the fiscal year or by recent
miscellaneous resolution with the audited financial statements, on
the official form approved by the tax authorities, taxpayers shall
report the information of operations with foreign related parties
performed in the fiscal year
FISCAL YEAR OFFICIAL FORM(APPROVED BY TAX AUTHORITIES)
2000-2002 Form 55 of the DIM2003 Section 11, Annex 4 of the DIM
2004 - current Annex 9 of the DIM
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TRANFER PRICING QUESTIONNAIRE
IF THE TAXPAYER DOES NOT COMPLY WITH
THESE DISPOSITIONS, SPECIFY IN THEIR
FINANCIAL STATEMENTS
IF THE TAXPAYER DOES NOT COMPLY WITH
THESE DISPOSITIONS, SPECIFY IN THE
AUDITED STATEMENTS
VERIFIED THAT THE TRANSFER PRICING
DOCUMENTATION, EVIDENCED THE INTENT
TO APPLY THE FIRST METHOD OF ARTICLE216 (CUP) FOR EACH TRANSACTION
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PENALTIES AND SURCHARGES
Unpaid income tax restated by inflation
Surcharges
Penalties ranging between 70% and 100% of the
unpaid income tax
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GENERAL CONCEPTSTax authority and law Servicio de Administracin Tributaria (SAT); Mexican Income
Tax Law Articles 2 (second to last paragraphs), 86 (Secs XII,
XIII, XV), 215, 216, 216-Bis
Regulations, rulings andguidelines
Annual Miscellaneous Tax Provisions for Maquiladora
companies, APA filing, Informative Return for Export-Oriented
Manufacturing Companies (IMMEX), Multiple Informative
Return Annex 9, and Statutory Tax Report Filing System
(SIPRED).
Acceptable methods CUP, Resale Price, Cost Plus, Profit Split, Residual ProfitSplit, Transactional Operating Profit Margin Method (TOPMM).
Penalty on transfer pricingassessment
Ordinary penalties apply 40 percent of tax deficiency if paidbefore notice of deficiency is issued, 55 to 75 percent in other
cases, adjusted for inflation and interest.
Reduction in transfer pricingpenalties
50 percent reduction if transfer price documented showing
good faith
Tax return disclosures 1. Annual Tax Return.
2. Multiple Informative Return Annex 94. Informative Return for Export-Oriented Manufacturing
Companies (IMMEX)
5. Tax Certificate or Statutory Filing System (SIPRED).
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GENERAL CONCEPTSDocumentation requirements Contemporaneous documentation must show that prices with
each domestic and foreign related party set on a transaction-
by transaction basis are at arms length. (Documentation
requirement effective 1997, transactional analysis effective
2000.)
Deadline to preparedocumentation
Documentation must be prepared by due date for filing income
tax return (March 31).
Deadline to submitdocumentation
Upon request.
Acceptable languages fordocumentation
Documentation must be in Spanish.
Advance pricing agreement(APA) available?
Federal Fiscal Code Article 34-A.
Are foreign comparablesacceptable to local tax
authorities?
Yes.
Nature/extent of relationshipbetween parties to a transactionrequired for transfer pricing rulesto apply
Direct or indirect management, supervision, or ownership in
another company.
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THANK YOU
FOR MORE INFORMATION PLEASE
CONTACT
Michelle Katnik