Overview of Transfer Pricing Regulations in Mexico

Transfer pricing is now front and center for tax authorities and businesses in Mexico. In recent years, the Mexican Tax Administration Service (SAT) has dramatically stepped up enforcement: between 2019 and 2024, SAT audits yielded over MXN 106 billion from transfer pricing adjustments, a staggering 367% increase over the previous five-year period. These numbers underscore a clear message: intercompany transactions are under intense scrutiny.

Why such focus? Transfer pricing rules exist to prevent multinational groups from using intercompany charges to erode the Mexican tax base or shift profits abroad. In other words, prices set between related companies must reflect market reality, not a tax planning fiction.

This executive summary highlights the key obligations and recent shifts in Mexico’s transfer pricing landscape, equipping CFOs and tax leaders with insight into compliance, risks, and strategic considerations. Many companies still treat transfer pricing as a check-the-box exercise, but as we’ll explore, that mindset is risky in today’s environment.

Key Principles and Legal Obligations.

At the heart of transfer pricing is the Arm’s Length Principle, the OECD-endorsed standard that Mexico has fully adopted. It requires that prices or profit margins between related parties be the same as those that would be agreed by __independent parties in comparable transactions under similar conditions. Mexico’s Income Tax Law (Ley del ISR) explicitly incorporates this principle: __

• Article 179 mandates arm’s-length pricing for all controlled (related-party) transactions and even references the OECD Guidelines as authoritative interpretation material.
• Article 180 of the ISR specifies the approved transfer pricing methods, designates the interquartile range as the statistical tool for determining an acceptable market range, and enshrines the “best method” rule, meaning you must use the method most appropriate for your case.

In short, the law requires that your company’s intercompany prices be justifiable against what independent parties would have done, and it gives SAT both the methodology and the mandate to enforce that standard.

Crucially, Mexican law imposes documentation and reporting obligations around transfer pricing. Article 76 Section IX of the MITL requires corporate taxpayers to obtain and maintain supporting documentation (often in the form of a formal transfer pricing study) that demonstrates their intercompany transactions were conducted on arm’s-length terms.

This applies to all companies with related-party transactions, regardless of whether those transactions are domestic or cross-border. (Even individuals with business activities “Personas Físicas” are subject to similar requirements under Article 90 of the same law, though our focus here is on corporations.) In tandem, Article 76 Section X obligates companies to file an annual information return disclosing their related-party transactions for the prior year.

This informative return, historically known as “Annex 9 of the DIM” is due by May 15 each year and provides SAT with key details of your intercompany dealings (amounts, related counterparties, etc.).

Mexico’s transfer pricing regime was significantly expanded in response to the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives. Article 76-A of the ISR, introduced in recent years,

Mexico’s transfer pricing regime was significantly expanded in response to the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives.

Article 76-A of the ISR, introduced in recent years, requires certain taxpayers to file comprehensive informative reports known as the Local File, Master File, and Country-by-Country (CbC) Report. These roughly correspond to BEPS Action 13 documentation:

• Master File: A high-level overview of the multinational group’s global business, organizational structure, intangibles, financials, and overall transfer pricing policies. Typically, a group’s headquarters prepares this to give context on how value is created and distributed across jurisdictions.

• Local File: A detailed report on the local Mexican entity, including its organizational structure, business activities, transactions with related parties, the amounts and pricing of those transactions, and economic analysis demonstrating arm’s-length results. Essentially, it’s the Mexican entity’s transfer pricing study for the year, grounded in local data and comparables.

• Country-by-Country Report (CbC): A global report that, for each country in the group’s footprint, discloses aggregate metrics like revenues (related and third-party), profits, income taxes paid, employees, and tangible assets. This report is generally required for large multinational groups (consolidated group revenue of at least ~MXN 12 billion, aligned with the OECD’s EUR 750 million threshold) and is usually filed by the ultimate parent or a designated group entity.

The threshold for filing these BEPS reports is tied to the size of the company or group. Originally, only large taxpayers had to submit the Local and Master files in Mexico. However, a recent change in the Federal Fiscal Code (CFF) has broadened the obligation.

A new Article 32-H, Section VI of the CFF now stipulates that any taxpayer that is a related party of an entity required to have its financial statements audited for tax purposes must file the Local and Master File, regardless of the related party’s own revenue level.

In plain terms, if your company is part of a multinational group where, say, the parent or another affiliate exceeds the revenue threshold (currently those with ≥ $1.94 billion MXN must obtain a tax financial statement audit), then your company must comply with the Local/Master file filings even if you’re small. This is an important shift as of the latest reforms: it closes a loophole where smaller subsidiaries of large groups previously might have avoided detailed reporting. Now, size exemptions don’t apply if you’re related to a big player.

Who Counts as a Related Party (And Who Must Comply).

Understanding the definition of “related parties” in Mexico is fundamental, because the rules apply to transactions with those parties. The concept is broad. Under Mexican tax law, two or more persons are considered related if one participates, directly or indirectly, in the management, control, or capital of the other.

This obviously covers parent companies and their subsidiaries, sister companies under common control, and situations of direct ownership. It also includes relationships through common shareholders or decision-makers (a group of persons acting in concert).

In practice, any affiliate within a multinational enterprise is a related party to the others. Additionally, Mexico’s definition extends to some cases that might surprise you: for example, a permanent establishment (branch) and its head office are related. Joint ventures like “asociaciones en participación” (a type of partnership or profit-sharing association) are explicitly

deemed related – the managing partner and the silent partners are treated as related parties to one another. Furthermore, transactions with entities in low-tax jurisdictions can be deemed related-party transactions under Mexican rules.

The law on Preferential Tax Regimes (known as REFIPRE rules) essentially assumes that if you’re dealing with a counterparty in a tax haven or a jurisdiction with preferential tax rates, those transactions should be analyzed under transfer pricing rules. In other words, even if you claim an overseas supplier is an “independent” entity, if they’re in a zero-tax haven, the SAT will likely view the prices with skepticism and treat them akin to related-party dealings.

Who must comply?

The short answer: any Mexican taxpayer with related-party transactions, unless a specific exemption applies. This includes Mexican corporations (personas morales) and individuals with business activities.

However, Mexico does provide limited exemptions for small taxpayers. If your company’s gross income in the prior fiscal year did not exceed MXN $13,000,000 (approximately USD ~$700k) from business activities – or MXN $3,000,000 if you’re only providing professional services – then you are not required to prepare a transfer pricing study for the current year nor to file the annual related-party information return (the May 15 “Annex 9”). These small-company exemptions acknowledge that transfer pricing compliance can be burdensome for very modest operations.

Important: These exemptions do not apply if you had any transactions with REFIPRE (low-tax jurisdiction entities) or, for the study exemption, if you did business as a federal government contractor. In other words, a small company dealing with a tax haven entity or performing government contracts must do a transfer pricing study and file the info return despite its size.

The new CFF 32-H rule mentioned earlier also means that even if your entity is small, if you belong to a group where another entity is large enough to require a tax audit, you are obligated to prepare the Local File and Master File.

This is a recent tightening of scope – presumably aimed at getting full visibility into large multinational groups, including their smaller subsidiaries in Mexico. For practical purposes, most mid-to-large companies in Mexico (and certainly any multinational affiliate) are in scope for transfer pricing compliance. If you are reading this as a CFO or tax director of a Mexican entity that sells to, buys from, or shares any transactions with a foreign affiliate or another company under common ownership, you almost certainly have transfer pricing obligations.

Documentation and Information Returns: What Needs to be Done.

Let’s break down what compliance actually entails. Broadly, there are two components: (1) preparing the transfer pricing documentation itself (the analysis/study), and (2) filing the required informational returns with the tax authority.

1. Transfer Pricing Study (Local File Documentation): This is the core analysis that demonstrates your related-party transactions were priced at arm’s length. It typically includes a functional analysis (what functions, assets, and risks does the Mexican entity have vs. its related counterparties), detail on each intercompany transaction (e.g. sales of

products, provision of services, royalties, loans, etc.), and an economic analysis benchmarking your intercompany prices or margins against those of comparable independent companies. Under Article 76 Section IX ISR, this documentation is obligatory and must be kept on file by the taxpayer. While the law doesn’t force you to submit the full study routinely, you must produce it upon request in an audit, and in practice it should be ready by the time you file annual tax returns.

2. Annual Related-Party Information Return: By May 15 of each year, taxpayers must electronically submit a summary of their prior year’s related-party transactions to SAT. This informative return (often still referred to colloquially as the “DIM 9” or Annex 9) asks for details such as the types of transactions (e.g. purchases, sales, royalties, interest, services), the amounts, and the countries of the related counterparties
3. BEPS Informative Declarations (Local/Master/CbC): As discussed, Article 76-A requires qualifying taxpayers to submit three detailed reports: the Local File, Master File, and CbC report. Don’t be confused by the terminology – the “Local File” under 76-A is essentially the same thing as the transfer pricing study documentation, but in a specific format to be submitted to SAT. In Mexico, the 2025 Local File would be due by May 15th, 2026. The Master File is usually prepared by the parent company and must be submitted by December 31.

The CbC report, if the Mexican entity is the ultimate parent or the designated filing entity, is also due by Dec 31 of the following year.

In summary, compliance means keeping a robust transfer pricing report on hand every year and timely filing the required forms.

SAT Enforcement: Risks, Penalties, and Audit Flags.

Mexico’s SAT has strong powers to enforce transfer pricing compliance. If they audit and determine your intercompany prices did not reflect arm’s length terms, they can re-characterize your income or deductions to the amounts that would have been earned under arm’s length conditions. Practically, this means they will increase your taxable income (or deny a portion of your deductions) and issue you a tax assessment for the difference.

These adjustments typically come with steep penalties and surcharges. The tax code provides monetary fines for failing to have documentation or not filing information returns (fines can range in the tens of thousands of pesos for each infraction, depending on severity).

Moreover, any underpaid tax due to transfer pricing adjustments will come with back interest and a penalty (often a percentage of the underpaid tax).

In worst cases, transfer pricing issues can even be referred for criminal tax evasion analysis, though that’s for egregious fraud scenarios.

Apart from penalties on paper, there’s a loss of deductions risk even without an audit assessment. Mexican law indicates that expenses that don’t meet arm’s length criteria cannot be deducted. So, if you knowingly have a related-party expense that isn’t priced at market, you’re technically at risk of losing the tax benefit of that expense. It’s a strong incentive to self-correct transfer prices before filing your returns.

Deadlines and Planning Your Calendar.

To recap the timeline:

• May 15 is a key date – that’s when the annual informative return of related-party transactions (for the previous calendar year) is due as well as the Local File Return. By that date, you should have your transfer pricing analyses completed or at least in final review, because you’ll be disclosing the fact that you had X amount of transactions of various types. If applicable, the study itself will be submitted via the Local File Return.

• March 31 (for corporations) is when the annual income tax return is due in Mexico for calendar-year taxpayers. It’s prudent to have a sense of your transfer pricing results by that time so you can make any necessary adjustments in that return.

• December 31st is when the Master File, and CbC (if applicable) are due. In short, make transfer pricing a year-round consideration, not a once-a-year fire drill. The companies that handle it best treat transfer pricing like an ongoing compliance workflow: they plan, gather data, analyze, adjust, and report in a cycle that repeats annually, with continuous improvements and updates as business conditions change.

In conclusion, transfer pricing in Mexico is a complex but crucial facet of corporate compliance for any company with related-party transactions.

The regulations, from the arm’s length principle to the documentation duties are designed to make sure Mexico gets its fair share of tax revenue from multinational operations. The SAT is actively enforcing these rules, armed with increasing data and analytical tools, as evidenced by the surge in audit recoveries. For businesses, this means transfer pricing is not just a theoretical concept or an annual paperwork burden; it’s a real risk area that needs attention at the highest levels of management.