{"id":653,"date":"2019-03-26T03:59:42","date_gmt":"2019-03-26T03:59:42","guid":{"rendered":"https:\/\/qcgtransferpricing.com\/en\/?p=653"},"modified":"2025-03-16T14:22:31","modified_gmt":"2025-03-16T20:22:31","slug":"towards-the-search-for-consensus-on-comparability-adjustments","status":"publish","type":"post","link":"https:\/\/qcgtransferpricing.com\/en\/blog\/towards-the-search-for-consensus-on-comparability-adjustments\/","title":{"rendered":"Towards the Search for Consensus on Comparability Adjustments"},"content":{"rendered":"\n

Key Aspects of the Transfer Pricing Forum Held on January 15, 2019, at Universidad Panamericana to Discuss Recent Non-Binding Criteria and Frequently Asked Questions on Transfer Pricing<\/strong><\/p>\n\n\n\n

On January 15, 2019, at the Universidad Panamericana, Mixcoac Campus in Mexico City, the forum titled \u201cTowards the Search for Consensus on Comparability Adjustments and Non-Binding Criteria\u201d<\/em> took place.<\/p>\n\n\n\n

This event was organized as a response to the publication of clarifications on frequently asked questions related to the implementation of comparability adjustments in transfer pricing on November 21, 2018, and the publication in the Official Gazette (DOF) on November 30, 2018, of Annex 3 on \u201cNon-Binding Criteria\u201d<\/em>, specifically Criteria 39\/ISR \u201cRecognition of Unique and Valuable Contributions\u201d<\/em> and 40\/ISR \u201cModifications to the Value of Related-Party Transactions Within the Interquartile Range\u201d<\/em>.<\/p>\n\n\n\n

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The forum was technically attended by members of the Transfer Pricing Commission of the National Federation of Economists, who, through various panels, analyzed the implications of the tax authority’s stance. The authority was represented by Carlos P\u00e9rez G\u00f3mez Serrano, Central Administrator for Transfer Pricing Audits, and \u00d3scar Fernando Trujano Sandoval, Transfer Pricing Administrator. Both provided their perspectives and engaged in a technical debate on each of the aspects under review.<\/p>\n\n\n\n

Next, Jes\u00fas Aldrin Rojas, Partner at QCG Transfer Pricing Practice, outlines the key aspects of each panel.<\/p>\n\n\n\n

Implementation of Comparability Adjustments<\/h3>\n\n\n\n

This panel included Carla Herrera from \u00c9lan Zaak, Argel Romero from BDO, Allan Pasalagua from Baker McKenzie, \u00c9dgar Ant\u00fanez from PWC, and was moderated by Marisol Oregel from RSM.<\/p>\n\n\n\n

The discussion covered fundamental concepts such as comparability (i.e., two or more transactions can be considered comparable for transfer pricing purposes as long as there are no significant differences that affect the examined condition under the transfer pricing method\u2014price or margin). The panel reviewed which types of comparability adjustments can be implemented in transfer pricing and considered whether these adjustments actually improve transfer pricing analysis or potentially distort comparisons once applied.<\/p>\n\n\n\n

The discussion also focused on identifying significant differences that could impact pricing and therefore must necessarily be identified and eliminated through adjustments, versus differences that are not material or have no impact on the analyzed condition under the applied transfer pricing method.<\/p>\n\n\n\n

The panel then examined some of the most commonly implemented comparability adjustments, particularly those related to working capital. Currently, in transfer pricing methods based on profitability\u2014such as resale price methods, cost-plus methods, and transactional net margin methods\u2014working capital adjustments are frequently used. These adjustments stem from the assumption that differences in accounts receivable, accounts payable, or inventories between the analyzed entity and comparables may affect profitability. Such differences, if present, must be quantified and eliminated.<\/p>\n\n\n\n

The panel reviewed the adjustment formulas proposed by the Mexican government and those suggested by the Organisation for Economic Co-operation and Development (OECD) in its 2017 Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations<\/em>. Differences between these approaches were identified, and the need to properly establish interest rates for implementing these adjustments, in accordance with the comparable entities\u2019 cost of capital, was emphasized.<\/p>\n\n\n\n

Alternative Discussions on the SAT\u2019s Country Risk Adjustment<\/h3>\n\n\n\n

This panel featured Carlos P\u00e9rez G\u00f3mez Serrano, Central Administrator for Transfer Pricing Audits at SAT, Ricardo M. Cruz S\u00e1nchez from EY, Miguel A. Trejo L\u00f3pez from Andersen Tax & Legal, David S. Barr\u00f3n Tovar from LawBiz Consulting Group, and was moderated by Jes\u00fas Aldrin Rojas from QCG Transfer Pricing Practice.<\/p>\n\n\n\n

The discussion focused on the proposal to implement a \u201ccountry risk\u201d<\/em> adjustment and potential alternatives to it. From the tax authority\u2019s perspective, when taxpayers use transfer pricing methods that compare their profitability margins (gross or operating) with those of independent third parties\u2014particularly comparable companies from developed economies such as the U.S.\u2014an adjustment is necessary to reflect how the comparables\u2019 profitability would be affected if they operated in the same country as the analyzed entity (Mexico, in the case of a domestic taxpayer).<\/p>\n\n\n\n

The adjustment proposed by SAT is based on Article 179, third paragraph, of the Mexican Income Tax Law (LISR), which states:<\/p>\n\n\n\n

“Operations or companies are considered comparable to the analyzed transaction when there are no differences that significantly affect the price or compensation amount, or the profit margin referred to in the methods outlined in Article 180 of this law. If differences exist, they must be eliminated through reasonable adjustments.”<\/em><\/p>\n\n\n\n

Based on this, the tax authorities propose eliminating profitability differences attributable to country risk through the following formula:<\/p>\n\n\n\n

ARP = AOPComp * RPMexico<\/strong><\/p>\n\n\n\n

Where:<\/p>\n\n\n\n