Prorrata Expenses New Rule - Deloitte

Tax Flash 49/2014 | Tax and Legal Services | October 24th, 2014
Transfer Pricing Requirements to Deduct Prorated
Expenses Incurred Abroad
On October 16, the Fifth Resolution of Amendments
to the 2014 Omnibus Tax Ruling was published in
the Federal Official Gazette. Among other items, it
included Rule I.3.3.1.41, which establishes the
requirements for deduction of prorated expenses
incurred abroad. This Rule became effective the
day after it was published.
Please note that the Rule provides that the nondeductibility of expenses included in Article 28,
Section XVIII of the Mexican Income Tax Law
(LISR), will not be applicable, subject to compliance
with the requirements established therein.
In addition to the general deductibility requirements
included in the Rule, it emphasizes the Transfer
Pricing documentation component for prorated
expense transactions executed between related
parties.
At least the following conditions must be met to
certify that there is a reasonable relationship
between the expense incurred and the profit
received or expected to be received by the taxpayer
that incurs the expense:
1. Every party to the agreement or contract must
have access to the details of the transaction
subject matter of the contract and the expected
profits will be determined, as well as the
effectively prorated expenses and the received
profits.
2. The participating parties will exclusively be
companies that will mutually benefit from the
agreement or contract.
3. The agreement or contract must specify the
nature and scope of the global and individual
benefit related to the expense incurred and/or
prorated among the members of the group.
4. The expense must be adequately distributed
using an allocation method which reflects such
expense in relation to the benefits obtained.
5. The agreement or contract must specify the
field of the specific transactions thereunder and
their duration.
Similarly, the following transfer pricing
documentation must be retained for each
transaction:
1. Name, country of establishment, of residence,
and of management headquarters, tax domicile,
and tax ID number of each related party
involved either in the prorating of the global
expense or exploitation or use of the resources.
2. Type of transaction and contractual terms.
3. Functions or activities performed, risks and
assets assumed by each of the related parties
involved.
Contacts:
Simón Somohano
Partner | Transfer Pricing, Tax and Legal Services
Tel. (55) 5080 7031
4. Documentation supporting the global expense
incurred by the foreign resident.
5. Details and documentary evidence of payment
of the prorated expense.
ssomohano@deloittemx.com
Eduardo Campos
Partner | Transfer Pricing, Tax and Legal Services
Tel. (55) 5080 6628
jcamposmartinez@deloittemx.com
6. Transfer pricing method applied per Article 180
of the LISR to determine that the values used
were at arm’s length, and the development of
the method.
David Cárdenas
Partner | Transfer Pricing, Tax and Legal Services
7. Information used to determine non-controlled
comparable operations for each type of
transaction.
Jorge González
Partner | Transfer Pricing, Tax and Legal Services
8. Documents supporting the transactions that will
be performed, the projections on which the
prorated expenses and the expected profits are
based, and the expenses effectively incurred
and the profits effectively received.
Please note that all the information requirements
must be fulfilled; otherwise, the non-deductibility
established in Article 28, Section XVIII of the LISR
will be applied.
Should you have any questions or comments
regarding this new and important Rule, please
contact our transfer pricing experts.
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Tel. (55) 5080 6453
dacardenas@deloittemx.com
Tel. 33 3669-0474
jgonzalezgarcia@deloittemx.com
Hernán Katz
Partner | Transfer Pricing, Tax and Legal Services
Tel. (55) 5080 6034
hkatz@deloittemx.com
Jorge Mesta
Partner | Transfer Pricing, Tax and Legal Services
Tel. (55) 5080 7059
jmesta@deloittemx.com
Miguel Morales
Partner | Transfer Pricing, Tax and Legal Services
Tel. (55) 5080 6410
mimorales@deloittemx.com
Gabriel Pereda
Partner | Transfer Pricing, Tax and Legal Services
Tel. 442 238-2903
gpereda@deloittemx.com
Arturo Vela
Partner | Transfer Pricing, Tax and Legal Services
Tel. (55) 5080 6456
avela@deloittemx.com
Renán Ramírez
Partner | Transfer Pricing, Tax and Legal Services
Tel. (81) 8133-7430
renramirez@deloittemx.com
More information
Simón Somohano
Partner | Transfer Pricing, Tax and Legal
Services
Tel. (55) 5080 7031
ssomohano@deloittemx.com
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