Mexican tax authorities require disclosure of relevant transactions
TAX ALERT |
Beginning Jan. 1, 2015, Mexican taxpayers are required to report certain relevant transactions. Mexico’s Tax Administration Service (SAT) recently published a list of relevant transactions that includes certain transactions carried out by Mexican taxpayers with foreign parties (whether related or not). The deadline, as provided by regulations, for reporting relevant transactions carried out during 2014 is April 30, 2015.
Mexico’s 2014 tax reform established a new disclosure requirement for certain transactions (relevant transactions). The new provision requires taxpayers to report relevant transactions on a monthly basis using the recently approved electronic version of Form 76.
Transition regulations provide some relief from the monthly reporting requirement and state that taxpayers who conducted relevant transactions during the calendar year ended Dec. 31, 2014, have until April 30, 2015, to file their reports.
What are relevant transactions?
Form 76 lists 36 types of reportable relevant transactions. The principal types of relevant transactions include:
- Complex financial transactions, as defined by Mexico’s income tax law (nine types of transactions)
- Transactions with related parties, both foreign and domestic, that involve:
- Adjustments of more than 20 percent to the prices used in transactions with related parties (foreign or domestic) to conform to the arm’s-length principle, for transactions carried out in prior calendar years or the current year
- Adjustments to the prices used in transactions with related parties (foreign or domestic) carried out in prior years or the current year that have resulted in an adjusted price of more than MX$ 5 million (approximately USD $340,000) to conform to the arm's-length principle
- Amounts paid or expensed for royalties charged by related parties (foreign or domestic), determined under the residual profit-split method, as defined by Mexican transfer pricing standards and Organisation of Economic Co-operation and Development guidelines
- Changes in equity participation and changes or duplication of tax residence, including:
- Change of direct or indirect owners, partners or shareholders
- Transfer of ownership of investments in domestic or foreign legal entities
- Change of residency for tax purposes from a foreign country to Mexico
- Addition of residency for tax purposes in Mexico, while at the same time maintaining tax residency in a foreign country (dual tax residency)
- Addition of residency for tax purposes in a foreign country, while at the same time maintaining tax residency in Mexico (dual tax residency)
- Reorganizations and ownership restructurings including:
- Corporate restructurings or reorganizations, whether taxable or not, accomplished through the transfer of ownership of legal entities
- Immigration or emigration of certain shared services functions, such as: purchasing, treasury, logistics, payments and collections, payroll processing or human resources management
- Changes in the operational structure that resulted in the commencement or termination of the performance of certain activities and functions such as: maquiladora (toll manufacturing services), distribution of goods purchased from a foreign resident, or management and administrative services provided to a foreign resident
- Other significant transactions, including transfers of intangibles or financial assets, mergers, spin-offs, etc.
- Disposition or acquisition, in any way, shape or form, of intangible property
- Disposition or acquisition, in any way, shape or form, of property where the transferor maintains any legal rights to the property
- Disposition or acquisition, in any way, shape or form, of current monetary assets (accounts receivable, loans or financial instruments)
- Contribution of current monetary assets to trusts, under certain circumstances
- Transfer of ownership of property through statutory mergers or spin-offs
- Transactions with tax residents of a country that has a territorial tax system, taking advantage of the benefits of a tax treaty
- Lending or borrowing of any amounts, where the debt has a maturity of more than one year
- Amounts paid, accrued or expensed for interest on debt with a maturity of more than one year
- Transfer of net operating losses available for carry forward as a result of statutory spin-offs carried out during prior years
- Acquisition of net operating losses available for carry forward as a result of statutory spin-offs carried out during the prior year
- Use of net operating losses from prior years following a statutory merger
- Reimbursements of capital or distributions of profits or dividends made with funds obtained from amounts borrowed
Filing due dates
As stated above, relevant transactions carried out during the year ended Dec. 31, 2014, must be reported by Apr. 30, 2015.
Even though the letter of the law establishes that relevant transactions must be reported on a monthly basis, regulations have provided the following automatically extended due dates.
First quarter of 2015
Second quarter of 2015
Third quarter of 2015
Fourth quarter of 2015
Filing due date
May 31, 2015
Aug. 31, 2015
Nov. 30, 2015
Feb. 28, 2016
What should US companies do?
U.S. companies that have Mexican subsidiaries that carry out, or have carried out, any relevant transactions should be aware of their filing requirements and report them on a timely basis. Failure to meet this reporting requirement in a timely manner can result in fines for the offending taxpayer of $5,000 or more per unreported transaction. In addition, failure to report considerably increases the risk of a direct audit by SAT agents of the offending taxpayer.