MEXICAN INCOME TAX LAW 2014 - REFORMS APPLICABLE TO DEDUCTIONS OF INTRA GROUP PAYMENTS
According to the latest tax reform introduced by the Government of Enrique Peña Nieto in January of this year, certain payments realized within related parties are not allowed as deductions according to the Mexican Income Tax Law (MITL).
According to the latest tax reform introduced by the Government of Enrique Peña Nieto in January of this year, certain payments realized within related parties are not allowed as deductions according to the Mexican Income Tax Law (MITL).
Before the reform to the MITL, when a company made payments to its foreign holding company or to a subsidiary for any concept, sai
d payment were fully deductible from the taxable income of the payer.
However, changes introduced to Article 28. XXXI have limited this allowance, and nowadays, payments made by a resident company to a foreign vertically related company, i.e. that has its control (holding company) or that is controlled by it (subsidiary), or payments deemed as passive income for the receiving party i.e. dividends, interests or royalties.
In addition to the above, the payee has to be among the following concepts:
- The foreign company is considered transparent for tax purposes according to Article 176 of the MITL i.e. an entity subject to the special tax regime applicable to low tax entities and territories named REFIPRE. This will not be applicable whenever the shareholders or partners of the foreign entity are fully subject to an income tax for their income received from the foreign entity, and when the payment made by the Mexican company is according to the arm’s length principle.
- That the amount paid has no tax consequences in the country or territory where the payment is received.
- The payment is not considered as taxable income for the payee according to the applicable tax law of its country of residence i.e. a possible mismatch according to BEPS Action Plan 2.
For the interpretation of this article, it must be considered as payment any amount accrued in favor of another party creditor or payee.
Finally, the amounts deemed as not deductible will have to be considered as for the fiscal year when is effectively paid and not in the fiscal year when it was accounted as cost of goods sold.
