Mexican tax officials provide update on transfer pricing work

 

By Robert Feinschreiber, Charles River Associates

Mexican tax authorities discussed the government’s transfer pricing agenda at a transfer pricing summit held June 18 in Mexico City sponsored by Universidad Panamerica.

Carlos Pérez Gómez Serrano, who heads Mexico’s transfer pricing program at the Servicio Administracion Tributaria (SAT), said that the SAT’s general approach is to develop its country-by-country reporting database as the beginning of its audit focus.

The Mexican government fully recognizes that the OECD may be reducing the country-by-country reporting thresholds for multinationals two years from now. The OECD might reduce this reporting requirement from a 750 million Euro threshold to a 50–100 million Euro threshold, Pérez Gómez said.

Action 13 of the OECD/G20 base erosion profit shifting (BEPS) plan output on transfer pricing looks to the economics of transactions, relying on people functions ahead of legalistic structuring.

Pérez Gómez confirmed that the Mexican tax authorities fully follow this OECD approach, looking toward “who does what for whom,” including the activities’ risks and assets and the enterprises’ rationale for undertaking the pricing structure. The Mexican tax authorities look to value creation, he said.

The SAT often uses a profit split approach for complex industries. Pérez Gómez said the Mexican tax authorities take the company’s marketing penetration activities into account in determining the company’s share of the aggregate profit.

The term “risk” has two meanings to the Mexican tax authorities, Pérez Gómez said. First, the SAT looks to the taxpayer’s risks, assets, and functional analysis to determine the enterprise’s transfer pricing. Second, SAT applies its own risk models based initially upon the taxpayer’s tax filings, he said. 

Mexico’s large case audit program under the leadership of Oscar Molina Chi spear-headed the transfer pricing program upgrade beginning in 2016.

At the conference, Molina asserted that in Mexico there was a 10 percent evasion of taxes from BEPS. The SAT is at the cusp of its large case transfer pricing tax audit program, Molina said

–-Robert Feinschreiber is a senior consultant at Charles River Associates in its Transfer Pricing Practice. In 2016, Feinschreiber and Margaret Kent from TransferPricingConsortium.com aided Mexico in upgrading its transfer pricing program.