Transfer Pricing guide: Mexico
Read below for more detailed information on transfer pricing regulations, document requirements, and other considerations for Mexico, as well as recent industry hot topics and key developments in the country's business landscape.
Page updated 1st July 2025
Transfer Pricing regulations
Is the jurisdiction part of OECD/G20 Inclusive Framework on BEPS?
Yes.
Relevant Transfer Pricing regulation
Mexico’s transfer pricing framework is governed by key provisions within the Mexican Income Tax Law (MITL)—specifically Article 76, Article 76-A, Article 179, and Article 180. These Articles establish the arm’s length principle as the fundamental basis for intercompany transactions, detailing the methodologies for determining the arm's length principle, the necessary documentation requirements, and the accepted methods for transactions involving related parties.
Additionally, Article 32-H of the Federal Tax Code (FTC) integrates transfer pricing disclosure obligations into the broader tax compliance framework. It mandates that taxpayers report relevant transfer pricing data when filing other tax-related documents—such as the Tax Situation Information (ISSIF) or a Statutory Tax Report—ensuring transparency and regulatory alignment for transactions conducted with related parties.
Is this regulation aligned with the OECD Guidelines
Mexico’s transfer pricing framework aligns broadly with OECD Guidelines, though it incorporates specific jurisdictional adaptations reflecting the country’s economic conditions and tax policies. The Article 179 states that the OECD Transfer Pricing Guidelines can be applied, as long as they are aligned with what is established in the MITL.
One key distinction is the Best Transfer Pricing Methodology Rule, which mandates that taxpayers select the method that most accurately reflects the arm’s length principle, following the hierarchical structure outlined in Article 180, Second Paragraph of the MITL. Furthermore, this provision prescribes the exclusive use of the interquartile range as the statistical approach for validating compliance with arm’s length pricing standards in intercompany transactions.
Additionally, Article 179, Fourth Paragraph of the MITL stipulates that transfer pricing analyses must be based solely on financial data from the fiscal year under examination. Taxpayers may reference comparable economic information from two or more fiscal years, either preceding or following the year under review, only if they can substantiate that the relevant business cycle or market penetration of a product extends beyond a single fiscal year.
This tailored regulatory approach ensures that Mexico’s transfer pricing framework remains consistent with international standards while addressing the country’s specific economic realities.
Transfer Pricing documentation requirements
Documentation Threshold for Preparation of Local File/ TP Documentation
Transfer Pricing Documentation Requirements:
Legal entities engaged in commercial activities generating taxable income exceeding MXN $13,000,000 in the prior fiscal year, as well as those providing professional services with taxable income surpassing MXN $3,000,000, are required to maintain comprehensive transfer pricing documentation. Failure to properly identify and record transactions with related parties in accounting records is subject to penalties ranging from MXN $2,260 to MXN $6,780 per transaction, as stipulated in Article 83, Section XV, and Article 77, Section III of the Federal Tax Code.
Local File Compliance:
For Fiscal Year 2024, entities that reported taxable income above MXN $1,062,919,860 in the preceding fiscal year (Fiscal Year 2023) must prepare and submit a Local File in 2025. This documentation ensures compliance with transfer pricing regulations, reinforcing transparency and adherence to arm’s length standards in related-party transactions.
Documentation Threshold for Preparation of Master File
For Fiscal Year 2024, legal entities reporting taxable income exceeding MXN $1,062,919,860 in Fiscal Year 2023 and classified as part of a Multinational Group are required to prepare a Master File in 2025. This documentation provides a comprehensive overview of global intercompany transactions, ensuring adherence to transfer pricing regulations and alignment with OECD standards for multinational enterprises.
Documentation Threshold for Preparation of Country by Country Report
Parent companies of Mexican multinational groups that reported consolidated group income exceeding MXN $12,000,000,000 in the previous fiscal year are required to file a CbC Report. This document provides a global overview of financial allocations, intercompany transactions, and tax positions across jurisdictions, ensuring compliance with international transparency standards and transfer pricing regulations.
Submission of Local File, Master File, and CbC Report Required? If so, when?
Local File Submission Deadline:
Entities exceeding the applicable threshold in a given fiscal year must submit the Local File by May 15th of the following year.
Master File Submission Deadline:
The Master File must be submitted by December 31st of the year following the fiscal period in which the threshold was exceeded.
Country-by-Country (CbC) Reporting Deadline:
Similar to the Master File, the CbC Report must be submitted by December 31st of the year following the fiscal period in which the threshold was exceeded.
If No Submission Required, any Other Deadline?
Not applicable in Mexico.
Other Documentation Requirements
Not applicable in Mexico.
Does TP documentation / Local file Need to be Prepared Contemporaneously with Tax Return Filing (i.e., before filing the return)?
Both the transfer pricing documentation and Local File must be updated on an annual basis. Compliance with informative tax return submissions and additional regulatory requirements implies that taxpayers complete the Transfer Pricing Report before the submission deadline.
Transfer Pricing Specific Returns
Preparation of TP Return Required?
Annexes of the Statutory Tax Report
Informative Tax Return (Annex 9)
Annexes of the Tax Information Situation (ISSIF)
Local File Annual Informative Return
Master File Annual Informative Return
Country-by-Country Annual Informative Return
Deadline for TP Return Filing
Statutory Tax Report Submission Deadline:
Taxpayers must submit the Statutory Tax Report by May 15 of the year following the fiscal period in question.
Informative Tax Return (Annex 9) Deadline:
The Annex 9 of the Informative Tax Return must also be submitted by May 15 of the year following the fiscal period.
Tax Information Situation (ISSIF) Filing Deadline:
Taxpayers are required to submit the ISSIF no later than March 31 of the year following the fiscal period.
Local File Annual Informative Return Deadline:
Taxpayers must submit the Local File by May 15 of the year following the fiscal period in question.
Master File Annual Informative Return:
Taxpayers must submit the Master File Report by December 31 of the year following the fiscal period in question.
Country-by-Country Annual Informative Return:
Taxpayers must submit the Master File Report by December 31 of the year following the fiscal period in question.
Key information to be included in the TP Return
Statutory Tax Report Compliance: This report requires the taxpayer to disclose the type of intercompany transactions, related parties, transfer pricing methodology, to confirm if transfer pricing adjustments were performed and to confirm if each transaction is in compliance with the arm's length principle.
Informative Tax Return (Annex 9) Disclosure Requirements: Annex 9 mandates taxpayers to furnish detailed transaction-level data for related-party transactions, including the nature of intercompany relationships, the type of transaction, and financial details substantiating arm’s length pricing compliance, such as profit level indicators, tested party financial information, SIC codes, interquartile range, and to confirm if each transaction is in compliance with the arm's length principle.
Tax Information Situation (ISSIF) Disclosure: This report requires the taxpayer to disclose the type of intercompany transactions, related parties, transfer pricing methodology, to confirm if transfer pricing adjustments were performed and to confirm if each transaction is in compliance with the arm's length principle.
Be aware that all of these informative returns must include the Tax ID of the Partner in charge of the analyses.
Benchmarking - Local Tax Authority Preferences
Local vs Regional Comparables Set
North America Regional Comparable set with geographic market adjustments / Global Comparable set.
Single-Year vs Multi-Year Analysis
Single year Analysis. However, taxpayers can consult comparable economic information from two or more fiscal years—either preceding or following the year under review—if they can demonstrate that the business cycle or the market penetration of a product extends beyond a single fiscal year.
Public vs Private Comparables
Public companies.
Interquartile Range or Full Range
Interquartile range.
Transaction-Based or Aggregate Approach, or Both
Transaction-Based Approach.
How Often are Benchmarking Sets Renewed (financial update versus full scope BMS preparation)
Annually.
TP Penalties
In Case of Delayed Submission of Documentation
'Local File, Master File, and Country-by-Country (CbC) Report: Non-compliance—including failure to submit, incomplete filings, errors/inconsistencies, or submitting documentation in a different format—may result in the following penalties:
- Financial penalty ranging from MXN $199,630 to MXN $284,220 for each non submitted or incomplete file.
- Cancellation of the Company’s Importer Registration, restricting import/export activities.
- Prohibition from conducting business with the Mexican Government.
Statutory Tax Report: Failure to submit the Statutory Tax Report may result in a fine between MXN $17,330 and MXN $173,230.
Informative Tax Return (Annex 9): Non-compliance—including failure to submit, incomplete filings, or errors—may lead to penalties ranging from MXN $99,590 to MXN $199,190.
Tax Information Situation (ISSIF): Failure to submit the ISSIF Report may result in fines ranging from MXN $17,330 to MXN $173,230.
In case of Income Adjustments in Course of a Tax audit
Transfer Pricing Adjustments and Compliance Implications: When the Mexican Tax Authority determines that a taxpayer’s reported transfer pricing deviates from market conditions, they may impose an adjustment based on a statistical analysis of comparable transactions. In this process, the Tax Authority compiles relevant benchmarking data, identifies the median value within the interquartile range, and adjusts the declared transaction price accordingly.
Beyond adjusting the transfer price, the Tax Authority may impose financial penalties known as Updates and Surcharges, which are designed to discourage non-compliance and increase tax liability if the correction leads to higher taxable income.
- Updates: These adjustments account for the time value of money, reflecting price level changes—often determined using the National Consumer Price Index (NCPI) or a similar inflationary metric.
- Surcharges: These penalties compensate the Tax Authority for delays in rectifying the underpayment and are calculated based on the number of days the payment remains overdue.
In instances where the transaction is deemed immaterial, the Tax Authority may challenge the complete deductibility of the intercompany payments made to related parties, effectively reducing the tax benefit for that fiscal period.
Other Considerations
APA & MAP Availability
Yes.
Applicability of Safe Harbour Rules
Mexico's Safe Harbor Rules apply exclusively to maquila companies that meet predefined profit or cost thresholds, ensuring their transfer pricing methodologies comply with the arm’s length principle.
Critical Transfer Pricing Issues Prevailing in the Jurisdiction, if any
Critical Transfer Pricing Issues in Mexico: Mexican tax authorities closely scrutinize several key transfer pricing areas to ensure that intercompany transactions reflect economic reality and comply with the arm’s length standard.
- Materiality:
A significant focus is placed on the materiality of transactions. For example, management fees allocated across entities are examined to ensure that they are both substantively supported and fully deductible. Any expense deemed as non-material or not grounded in economic substance may be partially or entirely disallowed, thereby affecting a company’s deductible base.
- Pro-Rata Expenses:
When expenses are allocated to a Mexican entity through prorrata calculations, they are initially deemed non-deductible.
- IP Migration Transactions:
Intellectual property (IP) migration transactions often encounter challenges from the tax authority. These transactions—which involve the transfer or relocation of IP rights between related parties—are frequently scrutinized for potential profit shifting. The authorities evaluate whether the pricing methodologies and economic assumptions behind these transactions are aligned with market conditions. As such, companies must ensure that the transfer pricing policies governing IP migrations are robust and well-documented.
- Royalty Payments vs. Local Advertising Expenses:
A key area of debate in Mexico revolves around the characterization of expenses, particularly the distinction between royalty payments for a brand and local advertising and promotion costs. While royalty payments are intended to compensate for the use of intellectual property and its associated market risks, local advertising expenses are typically viewed as operating costs. The Tax Authorities may challenge the deductibility of the royalty payments by arguing that local advertising and promotion costs are in benefit of the brand.
Criteria/ Guidelines for Transfer Pricing Audit/ Assessments by Tax Authority
The Mexican Tax Authority follows a comprehensive, criteria-driven approach to verify that intercompany transactions comply with both local regulations and international standards (notably the OECD guidelines). Key audit criteria include:
1. Support Documentation for All Intercompany Transactions: Tax authorities require that taxpayers provide comprehensive and robust documentation for every intercompany transaction. This entails:
- Complete Evidence: Contracts, invoices, and detailed analyses (including comparability studies) must be furnished for each transaction.
- Timeliness and Accuracy: The supporting documents must reflect the transactions as they occurred in the relevant period, laying the groundwork for an audit that verifies compliance with market-based standards.
2. Explanation of Business Reasonableness Aligned with the Value Chain via Functional Analysis. This includes:
- Alignment with Value Chain: The explanation should demonstrate how each transaction fits into the overall value creation process of the company through a functional analysis.
3. Emphasis on Intercompany Transactions Involving Intangible Assets (DEMPE Analysis): Special focus is placed on transactions that involve intangible assets due to their higher susceptibility to aggressive tax planning. Companies must conduct a DEMPE analysis. This exhaustive analysis is critical to justify the pricing of intercompany transactions involving intangibles, ensuring that revenues and expenses are allocated to reflect the true economic contributions of each entity.
4. Substantive Evaluation of the Transactions: The next step is to delve into the substance of the transactions. This involves:
- Economic Validation: Ensuring that the pricing and terms of the transactions are consistent with what independent parties would agree.
- Benchmarking and Comparability Studies: Comparing the intercompany terms with those available in the market (arm’s length principle).
Relevant Regulations and Rulings with Respect to Thin Capitalisation or Debt Capacity in the Jurisdiction
Thin Capitalisation Rules and Interest Deductibility in Mexico: In Mexico, the determination of whether a company is thinly capitalized is primarily governed by Article 28 of the MITL. This regulation establishes the criteria for interest expense deductibility, specifically addressing instances where intercompany loans or nonresident related-party financing exceed acceptable leverage thresholds. The law aims to prevent excessive interest deductions that could erode the taxable base, ensuring compliance with arm’s length financing principles.
There are two primary mechanisms for limiting the deduction of interest expenses:
1.- Thin Capitalisation Rules (Article 28, Section XXVII of the MITL)
- Companies must ensure that intercompany debt from foreign-related entities does not exceed a debt-to-equity ratio of 3:1.
- If the financing surpasses this threshold, the interest generated from the excess debt is not tax-deductible.
- Certain financial institutions or regulated sectors may qualify for a higher ratio, up to 10:1, based on industry-specific regulations.
2.- General Interest Deductibility Limit (Article 28, Section XXXII of the MITL)
- Since 2020, Mexico introduced an additional limit based on taxable EBITDA.
- Net deductible interest expenses cannot exceed 30% of the company's taxable EBITDA.
Regulatory Updates & Enhanced Documentation Requirements
Mexican tax authorities have recently introduced updates that emphasize the importance of contemporaneous transfer pricing documentation. Companies must now prepare documentation based on the actual transaction data from the fiscal period under review, rather than relying on projections or outdated figures. This change reinforces the need for a robust, ongoing monitoring process to ensure that all intercompany transactions, including pricing methods and functional analyses, are current and reflect the economic realities of the business.
Mexican tax Authorities requires that the use of multiple-year periods be duly justified in the Transfer Pricing Study. The use of multi-year averages is not allowed if they distort the comparability of transactions. The information used must be consistent and verifiable.
Intangible Assets & IP Migration
A growing debate surrounds the transfer pricing of intangible assets and the migration of intellectual property (IP) within multinational groups. Mexican tax authorities are increasingly scrutinizing such transactions using an exhaustive DEMPE analysis. This ensures that the transfer price accurately represents the value created by each entity, preventing profit shifting through mispriced IP transfers.
Safe Harbour for Maquiladora Companies
Effective 2025, APA applications for maquiladora entities will no longer be accepted. Instead, these entities must apply the Safe Harbour method—based on either cost or asset measures—to determine returns in line with the arm´s length principle.
Considering that both the current administration and its predecessor prioritized a significant expansion of social programs—and committed to avoiding major Tax Reforms—the MTA has consequently increased the frequency of audits and reviews, with particular emphasis on transfer pricing matters.
Comprehensive Documentation Review
During a transfer pricing audit, Mexican tax authorities require the submission of detailed support documentation for every intercompany transaction. This includes contracts, invoices, and comparability studies that demonstrate the arm’s length nature of the transactions. Auditors perform a thorough cross-check against financial statements and other ancillary tax filings to ensure consistency.
Substance Over Form: Business Rationale and Functional Analysis
Mexican Tax Authority (MTA) prioritize the economic substance over mere form. Each intercompany transaction must be supported by a clear explanation of its business rationale, demonstrating how it fits into the overall value chain of the company. This involves a detailed functional analysis that outlines the functions performed, assets used, and risks assumed by each related-party entity. Special emphasis is placed on transactions involving intangible assets, where a robust DEMPE analysis is required.
Use of Statistical and Benchmarking Techniques
Tax authorities often employ statistical analyses—such as determining the median within the interquartile range of comparable transactions—to assess whether the pricing is consistent with market conditions. By using these techniques, auditors can objectively adjust reported prices if deemed misaligned with the arm’s length standard.
Risk-Based Audit Approach
Audits are conducted based on risk. Areas with incomplete documentation, aggressive financing structures, or inadequate benchmarking analyses tend to attract more scrutiny. The audit environment in Mexico is moving toward proactive risk identification, with digital tools increasingly used to detect discrepancies and non-compliance.
Advance Pricing Agreements (APAs)
Mexico offers both unilateral and bilateral APAs as a means for companies to obtain certainty over their transfer pricing arrangements in advance. APAs provide a binding agreement on acceptable TP methodologies, reducing the risk of retrospective adjustments and penalties. Recent trends show an increase in APA utilization, as more multinational firms seek to minimize exposure to audit risks in this dynamic regulatory environment.
Mutual Agreement Procedures (MAP)
In instances of cross-border disputes, the Mutual Agreement Procedure is available to resolve transfer pricing disagreements. MAP facilitates discussions between the Mexican Tax Authority and foreign tax administrations, ensuring that disputes are addressed in a collaborative framework under the BEPS initiatives. This process helps to alleviate prolonged litigation and mitigates double taxation risks.
Domestic Regulatory Framework
Mexico’s transfer pricing rules, embedded in key provisions of the Mexican Income Tax Law (MITL) and the Federal Tax Code, are fundamentally aligned with OECD Guidelines. Core articles—such as Articles 76, 76-A, 179, and 180 of the MITL—lay out the methodologies, documentation standards, and enforcement mechanisms that local taxpayers must follow.
Local Adaptations and Specificities
Mexico’s transfer pricing framework aligns broadly with OECD Guidelines, though it incorporates specific jurisdictional adaptations reflecting the country’s economic conditions and tax policies. The Article 179 states that the OECD Transfer Pricing Guidelines can be applied, as long as they are aligned with what is established in the MITL.
One key distinction is the Best Transfer Pricing Methodology Rule, which mandates that taxpayers select the method that most accurately reflects the arm’s length principle, following the hierarchical structure outlined in Article 180, Second Paragraph of the MITL. Furthermore, this provision prescribes the exclusive use of the interquartile range as the statistical approach for validating compliance with arm’s length pricing standards in intercompany transactions.
Additionally, Article 179, Fourth Paragraph of the MITL stipulates that transfer pricing analyses must be based solely on financial data from the fiscal year under examination. Taxpayers may reference comparable economic information from two or more fiscal years, either preceding or following the year under review, only if they can substantiate that the relevant business cycle or market penetration of a product extends beyond a single fiscal year.
Benchmarking Analyses Nuances or Preferences
Use of Local and Contemporaneous Data
When conducting benchmarking analyses, Mexican tax authorities expect companies to source local market data that accurately reflects current economic conditions.
For benchmark analysis, it is preferred the use of North America Regional Comparable set with geographic market adjustments / Global Comparable set.
Statistical Evaluation Techniques
For any transfer pricing analysis, the use of the interquartile range is mandatory—simple reliance on minimum and maximum values is not acceptable.
Focused Analysis on Intangible Transactions
For transactions involving intellectual property, additional nuances come into play. A thorough DEMPE analysis is required to capture the economic contributions and risks associated with intangible assets. This depth of analysis is necessary to justify pricing methodologies and to align with both local requirements and international guidelines.
Transfer Pricing Primary Risk Areas in Jurisdiction
Documentation and Timeliness
A primary risk area in Mexico is the lack of robust, contemporaneous documentation. Tax authorities expect full transparency, meaning that any delay or inaccuracy in updating transfer pricing files can trigger significant scrutiny and subsequent adjustments.
Misclassification of Transactions and Expenses
Common challenges include the mischaracterization of expense categories—for instance, the non-deductibility of management fees or local advertising expenditures versus royalty payments. Such misclassifications can lead to disputes regarding the economic substance of the transaction and result in recalibration of the pricing methodology.
Intangible Asset Transactions and IP Migration
Transactions involving intangibles, particularly those related to IP migration, are high-risk due to their potential for profit shifting. Without a carefully executed DEMPE analysis, these transactions are subject to significant adjustment efforts by the tax authorities.
Critical Transfer Pricing Issues in Mexico:
Mexican tax authorities closely scrutinize several key transfer pricing areas to ensure that intercompany transactions reflect economic reality and comply with the arm’s length standard.
Materiality: A significant focus is placed on the materiality of transactions. For example, management fees allocated across entities are examined to ensure that they are both substantively supported and fully deductible. Any expense deemed as non-material or not grounded in economic substance may be partially or entirely disallowed, thereby affecting a company’s deductible base.
Pro-Rata Expenses: When expenses are allocated to a Mexican company through a calculated apportionment, they are generally considered non-deductible. However, to justify their deductibility, it is essential to comply with strict legal requirements that demonstrate the value generated by their inclusion.
Certain Date: For Mexican tax purposes, all intercompany contracts and agreements must have a legally established date (certain date) to be considered valid evidence in an authority review.
