Alert 13. 2017 Update on the Related Parties Annual Informative Returns

Alert 13. 2017

On April 2017, the Mexican Tax Authority, Servicio de Administración Tributaria (hereinafter SAT) released on its official web page www.sat.gob.mx an anticipated version of the Miscellaneous Tax Resolution (MTR) for 2017 and its appendices 1, 1-A, 5, 7, 15 and 16-A, which establish new rules to comply with obligations set in Article 76-A of the Mexican Income Tax Law (MITL). It is important to mention that these rules have not been published in the Federal Official Gazette (FOG); therefore they are not official yet.

We summarized the main points:

Requirements for the related parties Annual Informative Returns

The advance version of the MTR establishes that taxpayers who are required to submit its normal and supplementary related parties annual informative returns, shall use the tool provided by SAT. The information must comply with the requirements published in the SAT´s official web site.

Related Parties Annual Informative Returns from taxpayers who have filed for activities suspension in the Federal Tax Registry

Taxpayers who have submitted for activities suspension in the Federal Taxpayer Registry, and do not have a valid e.firma or portable e.firma, may apply for this e.firma whenever they prove with the suspension of activities notice issued by SAT, that its related parties annual informative return corresponds to a fiscal year where its status in the Federal Taxpayer Registry was “active”.

Master file

When a taxpayer´s group carries out intercompany transactions and meets any of the assumptions set in Article 32-H, Sections I, II, III and IV of the Federal Tax Code (FTC), may jointly submit a single master file report, if they are from the same Multinational Enterprise Group (MNE).

Such sections from the FTC are set for taxpayers who submit “DISIF”, this is: i) have earned income above $644,599,005 Mexican pesos or their stocks are listed in the Market Stock Exchange, or ii) taxpayers in the Optional Tax Regime, iii) State-owned companies, and iv) Permanent Establishments.

Master File Report of the MNE shall include the following information for each fiscal year, either by business lines or in general:

a)       Legal organizational structure of each business units, regardless of their category (parent, subsidiary, associate, affiliate, central office or permanent establishment), as well as the structure of the capital stock ownership;

b)       General description of the business activity of the MNE;

c)       Intangible assets of the MNE;

d)       Information related to funding activities of the MNE; and

e)       Financial and tax position of the MNE.

Local file

According to the Base Erosion and Profit Shifting Project in transfer pricing, Local File Returns shall include the information and documentation, where taxpayers demonstrate that their taxable income and authorized deductions for transactions carried out with related parties, were agreed under similar circumstances as those between third parties in comparable transactions, considering for these purposes Articles 179 and 180 of the MITL. This report, that must be in Spanish, shall also include the following information regarding each fiscal year:

a)       A description of the administrative and organizational structure;

b)       Information of the related parties transactions; and

c)       Financial information.

It is also important, that this return also requests the following information about those related parties who the taxpayer has carried out transactions with:

         i.            Financial and tax information,

        ii.            Functions, assets and risks assumed; and

      iii.            Segmented financial information.

In addition, the taxpayer shall disclose the elaboration date, the Federal Tax Registry of the consultant or advisor, and if the intercompany transactions were agreed according to the Arm´s Length Principle.

Country by Country report

The obligation set in the first paragraph of Article 76 of the MITL, as well as the second paragraph and bullet B) of section III, regarding the obligation to notice a company’s designation to provide all the data related to the Country by Country report can be considered as fulfilled, when such entity provides all the information required before the deadline set by the SAT.

When the fiscal year closing date of the foreign holding of the MNE does not concur with the calendar year ending, such legal entity may submit the Country by Country report, within the deadlines established in miscellaneous rule 3.9.14. (next year after the closing).

The information of the Country by Country report may be presented in foreign currency. If so, and if it was converted to Mexican pesos, it would be necessary to disclose the Exchange rate, its date and its source.

Country by Country report shall include the following information regarding the fiscal year of the holding MNE, both, in aggregate form and by each country or tax jurisdiction:

a)       Revenues of the MNE, indicating if they were obtained from related or third parties;

b)       Profits or Losses before Income Tax of the fiscal year;

c)       Income Tax Paid;

d)       Income Tax Accrued;

e)       Accounting amounts of the accumulated earnings or losses from prior fiscal years;

f)        Amounts of the stock or equity subscribed and paid at the end of the fiscal year;

g)       Number of employees in the fiscal year;

h)       Tangible Assets;

i)         A list of the business or legal names of the entities in every tax jurisdiction where the MNE has presence; and

j)         All the additional and relevant information, and if necessary, the source or the integration of the data included in the Country by Country report.

We will keep you informed about any further development about this issue, once the first amendment to MTR is published in the FOG.

The full version of the document, in Spanish, can be found in the next link:

http://www.sat.gob.mx/informacion_fiscal/normatividad/Paginas/2017/RMF_2017_versiones_anticipadas.aspx

If you require more information, please contact us at:

Mexico City Office

Ricardo Suárez Ricardo.Suarez@mx.gt.com T (52 55)  54246500 
Fernando Pliego Fernando.Pliego@mx.gt.com T (52 55)  54246500 

Guadalajara Office

Beatríz Guerra Beatriz.G.Guerra@mx.gt.com T (52 33)  38174480 


Tijuana Office

Fernando Acosta Luis.F.Acosta@mx.gt.com T 52 (664) 2070050