On September 27th, the 8th Transfer Pricing Forum of the Federation of Colleges of Economists of the Mexican Republic took place on the 51st floor of Torre Mayor, sponsored by Thomson Reuters. The forum brought together distinguished professionals, both national and international. During the event, current aspects of the transfer pricing regime were reviewed. The most relevant topics discussed were:
OECD Transfer Pricing Updates
The head of the OECD’s Transfer Pricing Unit, Tomas Balco, kindly joined via teleconference from Yangzhou, China, to discuss the latest updates on the regime. During his participation, it was noted that the OECD is working on Action 7 (attribution of profits to permanent establishments and its interaction with the transfer pricing regime). Additionally, updates are underway for Actions 8-10 of the BEPS plan (aligning transfer pricing with value creation), particularly regarding the revised guidance on the use of the profit split method, the guidance for analyzing hard-to-value intangibles (HTVIs), and Chapter VII of the OECD Transfer Pricing Guidelines (intragroup services).
Transfer pricing and tax aspects of financial operations are also under review, with a final report expected by 2019. By the same date, the final report on administrative approaches to prevent and resolve double taxation issues (Chapter IV of the OECD Transfer Pricing Guidelines) is also anticipated. Additionally, Brazil’s intention to adhere to the OECD Transfer Pricing Guidelines and the state of negotiations on this matter were discussed.
Finally, audience questions were addressed concerning the use of safe harbor for low-value-adding services, geographic market adjustment mechanisms, the coexistence of advertising expenses and royalty payments under the new regulatory framework for intangibles, and the OECD’s position on the U.S. tax reform.
Impact of the U.S. Tax Reform on Transfer Pricing in Mexico
During this panel, Marisol Oregel and Edgar LópezLena from RSM discussed the latest transfer pricing updates under the U.S. Tax Cuts and Jobs Act (TCJA), including the corporate tax rate reduction and the introduction of rules such as Global Intangible Low-Taxed Income (GILTI), Foreign Derived Intangible Income (FDII), and Base Erosion Anti-Abuse Tax (BEAT). The panel also addressed modifications to the definition of intangibles for U.S. tax purposes.
Intragroup Services: Economic and Regulatory Aspects
In this panel, Jesús Aldrin Rojas, lead partner of our firm, together with David Barrón from Lawbiz Consulting and Marco Elizalde from KPMG, discussed the economic behavior of services worldwide and the growing trend of using them as a mechanism to erode taxpayers’ taxable base.
The OECD’s ongoing review of Chapter VII of its Transfer Pricing Guidelines (intragroup services) was also analyzed. The discussion included the global importance of such transactions, regulatory proposals to mitigate their tax impact, such as the U.S. BEAT tax and the OECD’s simplified approach for low-value-adding services, as well as potential future developments for this type of regime.
Legal Updates and Dispute Resolution Mechanisms
In this panel, Mario Barrera from Thomson Knight and Alejandro Calderón from Calderón González y Asociados discussed alternatives for resolving transfer pricing disputes, both domestically and internationally.
The crucial role of PRODECON in resolving international tax and transfer pricing disputes in Mexico was highlighted. The panel also explored the possibility of resolving transfer pricing disputes through expert opinions issued by committees such as the Transfer Pricing Commission of the National Federation of Economists and its certified specialists.
Intangibles, DEMPE Analysis, and the Use of the Profit Split Method
During this panel, Óscar Campero from Chévez and Argel Romero from BDO analyzed the OECD’s new regulatory framework for intangibles, focusing on aspects such as legal ownership, the development of activities that contribute to the value of these assets, and the eventual emergence of economic ownership (DEMPE: Development, Enhancement, Maintenance, Protection, and Exploitation).
The session also covered the use of profit split methods as an alternative for analyzing the arm’s length nature of such transactions.
Transfer Pricing and State Aid: The Unexpected Consequences of Advance Pricing Agreements
The keynote speaker, Dr. Lorraine Eden, author of over 150 specialized articles and books and professor at Texas A&M University’s MBA program, examined recent cases in the European Union where advance pricing agreements (APAs) granted to companies such as Apple, Fiat, Starbucks, Amazon, McDonald’s, and Google were deemed illegal state aid, violating EU competition rules.
Dr. Eden analyzed these cases and proposed recommendations for structuring advance pricing agreements to prevent similar issues in the future.
Experience with Maquiladora APAs / Updates on Risk Models for Tax Audits
For this discussion, Ricardo Cruz from EY, Oscar Mata Cortés from Lear Corporation, and Alejandro Barrán Zubarán from SAT (Mexico’s Tax Administration Service) shared insights into the current state of the maquiladora regime in Mexico, progress in the fast-track methodology, and future expectations for this regime.
In the second part of this discussion, José Luis Velasco Verdugo and David Ruiz Enriquez from SAT joined to discuss current developments in tax audits, aggressive tax planning schemes used by taxpayers, and risk detection models implemented by the Central Strategy Development Unit for Transfer Pricing.
The event was a great success and fulfilled its objective of informing taxpayers about the current state of the transfer pricing regime. The presentation materials can be downloaded from the Convene app (available on Apple and Google stores), courtesy of Thomson Reuters, the sponsor of the 8th Transfer Pricing Forum.
We appreciate your participation and look forward to welcoming you to future events organized by the Federation of Economists, to which our firm is a valued contributor.
Please feel free to contact us if you require assistance with any of the topics discussed.
