Mexico: Limitation on income tax deductions affecting international transactions

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Mexico: Limitation on income tax deductions affecting international transactions

cuellar.jpg

solano.jpg

David Cuellar


Claudia Solano

As part of the tax reform package in force as from January 1 2014, the Mexican tax authorities established new provisions ruling the deductibility of certain disbursements made by Mexican taxpayers. These limitations seem to be the first step taken by the Mexican tax authorities to align their efforts to the recommendations and action plan issued by the OECD as concerns the BEPS initiative.

As an example, the following provisions describe some of the limitations established by the Mexican tax authorities that may have an impact on entities carrying out international operations:

In terms of technical assistance, interest and royalty payments made to a foreign party that controls or is controlled by the Mexican entity, such payments would not be deductible when and to the extent that:

  • The company receiving the payment is considered to be transparent in terms of the Mexican Income Tax Law, except when the shareholders or associates of the foreign recipient are subject to income tax on the income received through such transparent foreign entity and the payment made by the taxpayer is carried out at market value; or

  • The payment is considered to be non-existent for tax purposes in the jurisdiction in which the foreign entity is located; or

  • The foreign recipient does not consider the payment to qualify as a taxable income in accordance with its applicable tax provisions.

For purposes of the above, control shall mean when one party has effective power over another entity or in the management of such other company, to an extent allowing it to decide when income, profits or dividends are distributed, either directly or through a third person.

Another example is a newly included provision established by the Mexican tax authorities focused on limiting the deduction of payments made by the taxpayer, when they are also deductible for a related party resident in Mexico or abroad, unless the related party deducting the payment made by the taxpayer includes it as part of its own taxable income in either the same fiscal year or in the following one.

As can be seen, multinationals with investments in Mexico should consider and model the tax impact that the above provisions, along with other new or amended rules part of the 2014 tax reform in Mexico, can have on their local businesses and on the overall tax burden of the group.

David Cuéllar (david.cuellar@mx.pwc.com) and Claudia Solano (claudia.solano@mx.pwc.com), Mexico City

PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

more across site & shared bottom lb ros

More from across our site

The threat of 50% tariffs on Brazilian goods coincides with new Brazilian legal powers to adopt retaliatory economic measures, local experts tell ITR
The country’s chancellor appears to have backtracked from previous pillar two scepticism; in other news, Donald Trump threatened Russia with 100% tariffs
In its latest G20 update, the OECD also revealed tense discussions with the US where the ‘significant threat’ of Section 899 was highlighted
The tax agency has increased compliance yield from wealthy individuals but cannot identify how much tax is paid by UK billionaires, the committee also claimed
Saffery cautioned that documentation requirements in new government proposals must be limited if medium-sized companies are not exempted from TP
The global minimum tax deal is not viable without US participation, Friedrich Merz has argued
Section 899 of the ‘one big beautiful’ bill would have spelled disaster for many international investors into the US, but following its shelving, attention turns to the fate of the OECD’s pillars
DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
Gift this article