TRANSFER PRICES are the prices charged by an individual entity in a multi-entity corporation on transactions among the entities involved. A treaty between the international members of the OECD regulates these prices in order to avoid double taxation. Mexico became a member of the OECD in 1994, and therefore, the Mexican transfer pricing legislation enforces the guidelines of the OECD.
- To document reasonable prices for companies that transfer contributions (assets, tangible and intangible, services and funds) within the organization, in preparation for external financial or tax audits. .
- To develop documentation on consultations with the authorities to determine the company’s transfer pricing policies.
- To develop documentation of APAs (Advanced Price Agreements) in preparation for the formal authorization requests in order to avoid potential penalties.
- The Auditing Norms and Procedures indicate that when there are operations that are subject to the Pricing Transfer regulations, the auditor should consult the corresponding studies.
- If the studies do not exist, the report may contain an assertion to the effect that an opinion cannot be expressed.
- The principle of Denial by Default (if Treasury doesn’t answer within a certain timeframe, it is assumed that the proposal is denied) is applied.
- In the previous case, the taxpayer is able to take legal action and bring the case to trial.
- The APAs (Advanced Price Agreements) are formal bilateral authorization processes of the respective tax authorities.
- The objective is to obtain formal agreement of the tax authorities on the fixed Transfer Prices to avoid future problems.