Monday, 28 November 2016

Mexico amends APA rules

Mexico’s Tax Administration Service (SAT) on July 14 published two important transfer pricing rules in the Third Resolution on Amendments to the Omnibus Tax Bill for 2016 (Tercera Resolucion de Modificaciones a la Resolucion Miscelanea Fiscal).

The first rule (Rule No. 2.12.8) relates to the resolution process for advance pricing agreements (APAs) under the provisions of article 34-A of the Federal Tax Code (CFF) and establishes that taxpayers that request a unilateral or bilateral APA shall do so under the data-processing guidelines No. 102/(CFF).

With regard to these guidelines, when the tax authorities determine that the information submitted by the taxpayer in an APA is insufficient, inconsistent, or contains irregularities regarding the description of functions, assets, and risks, collaboratively and cooperatively with the taxpayer, they may perform a functional analysis as part is added process of study and evaluation of information, data, and documentation submitted, to identify and define the functions performed, assets, used and risks assumed in transactions subject to consultation.

The functional analysis will be conducted at the taxpayer’s legal address and may also include visits to other facilities (if necessary), always with the presence of the taxpayer’s legal representative and other relevant personnel involved in the inquiry.

At the end of these visits, the tax authorities will prepare a report that will include the conclusions of the functional analysis. The taxpayer should read the conclusion of the functional analysis with its legal representative, so that the parties may ratify its content.

It is important to note that, according to this new rule, at no time the visit will not be deemed a tax examination procedure, when the tax authorities carry out the functional analysis in the taxpayer’s official address under the terms of this rule.

Although there is no specific exception in the regulation of the application of rule 2.12.18 to APA requests filed by Mexican maquiladoras, in unofficial statements the SAT has mentioned that this rule is not intended to be applicable in those cases.

The second rule (Rule No. 3.9.5) represents an amendment to the exception for taxpayers that allows them not to obtain or maintain transfer pricing supporting documentation if the taxpayer’s taxable revenues in the previous fiscal year are equal to or below MXN 13 million or MXN 3 million in the case of individuals providing independent professional services. The amendment specifies that this exception does not apply to companies or contractors referred to in the Mexican Hydrocarbon Income Law.

Source: Deloitte