On 23 September 2020, the Federal Administrative Court in Mexico issued a not yet published decision in a dispute between the Mexican tax authorities (SAT) and Canadian mining group First Majestic Silver Corp’s Mexican subsidiary, Primero Empresa Minera. The court case was filed back in 2015 by the tax authorities, to cancel an Advance Pricing Agreement (APA) issued to Primero Empresa Minera back in 2012. According to the APA, a methodology had been determined allowing the Mexican mining company to sell silver at 4.04 dollars per ounce to a group company based in Barbados (Silver Trading Barbados Ltd) via Luxembourg, when the average market price of silver was above 30 dollars. The APA was applied by Primero Empresa Minera for FY 2010 – 2014. The Federal Court decided in favor of the tax authorities that the APA was invalid and therefore nullified. After receiving the ... Read more

In this case a group of taxpayers filed a lawsuit for the nullity of the new Mexican transfer pricing documentation obligations introduced in 2017 by rules 3.9.11, 3.9.14, 3.9.15, 3.9.16 and 3.9.17 of the First Resolution of Amendments to the Tax Miscellaneous published in the Official Gazette of the Federation, issued by the Head of the Tax Administration Service. Article 76-A of the Mexican Income Tax Law states that the taxpayers referred to in Article 32-H, Sections I, II, III and IV of the Federal Tax Code who enter into transactions with related parties must provide the tax authorities with annual related party information returns: 1) master file; 2) local file and 3) a country-by-country report. This three tiered documentation package provides the tax authorities with information related to transactions between related parties on transfer pricing, in order to identify conduct that could imply a ... Read more

“Drinks Distributor S.A.” was involved in purchase, sale and distribution of alcoholic beverages in Mexico. “Drinks Distributor s.a” had entered into a non-exclusive trademark license agreement with a related party for the sale of its product. Following a restructuring process, the related party moved to Switzerland. Following an audit the Mexican tax administration, determined that deductions for marketing and advertising costs related to brands and trademarks used under the licensing agreement, were not “strictly indispensable” and therefore not deductible, cf. requirement established by the Income Tax Law in Mexico. Drinks Distributor S.A on its side held that the marketing and advertising costs were strictly indispensable and that the tax deductions should be accepted. The dispute ended up in the Federal Court of Administrative Justice. Judgement: The Court determined what should be understood as “strictly indispensable“. To establish this concept the purposes of the specific company ... Read more

According to article 32, Section XVIII of the Mexican Income Tax Law, costs determined on a pro-rata basis and paid to non-residents are not deductible. In this case it is argued that the provision violates the non-discrimination provision included in Mexico’s income tax treaties. Supreme Court Judgement The Supreme Court concludes that the Mexican Income Tax Law must take into account the OECD transfer pricing guidelines, and that these guidelines under certain circumstances acknowledges pro rata cost allocations. On that basis pro rata costs are deductible in Mexico, where certain requirements are met. According to the Mexican Supreme Court, these requirements are: a) The corresponding transaction has been concluded in accordance with the transfer pricing rules (paragraphs 151 to 154 of this judgment). b) All documentation supporting the transaction is available so that its authenticity can be verified, as well as the amounts to which ... Read more

A restructuring contract dated 16 June 2003 was entered between NORTEL NETWORKS LIMITED and CODISCO INVESTMENTS LLC and promissory notes were issued by OPERADORA UNEFÓN, S.A. de C.V. Following an audit, an assessment was issued by the tax authorities, where the transaction was recharacterised and priced on an aggregatet basis taking into account the totality of the arrangement. Judgement of the Court The court upheld the assessment. According to the court, when the tax authorities carries out an audit of transactions between related parties, it must do so based on the structure and contractual agreements as determined by the associated enterprises. However, the general rule provides for two exceptions where the tax authorities may disregard the form and recharacterise the transactions for tax purposes. The first exception occurs when the economic substance of the transaction differs from its form. The second exception occurs when, although ... Read more