transfer pricing present thompson april 2010

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

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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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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

[email protected]

transfer pricing present thompson april 2010

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