On 26 October 2021, Mexican Congress has approved the tax reform for 2020 which was presented for the fiscal year 2022 which was presented on 8 September 2021. The Economic Package clarifies income tax law, value-added tax (VAT) law, excise tax (duty) legislation, and federal tax code. The President is anticipated to sign and publish the legislation soon. The Economic Package will be generally effective from 1 January 2022.

Tax key tax changes for 2022 are as follows regarding transfer pricing and Law on income tax:

Transfer pricing issues

  • the elimination of the application of APA(Advance Transfer Pricing Agreement)  for maquiladoras, leaving the “ safe harbor ” as the only instrument applicable in these cases;
  • Information return reporting regarding transactions with related parties would be due no later than 15 May of the immediately succeeding year, and this would apply to both transactions with foreign and domestic related parties;
  • the obligation to file the local return is established for May 15 of the immediately subsequent fiscal year instead of December 31;
  • Taxpayers would require to include in the certain documentation details about comparability adjustments, and the accounting records would need to identify transactions with both foreign and domestic related parties.

Law on Income Tax

  • The Package establish that, in the case of spin-offs, tax losses should be divided only among companies that are engaged in the same business.
  • It is intended to modify, in the event of a merger, the cases in which it is considered that there is a change of partners or shareholders who have control of the company.
  • It is intended to establish a parameter to determine exchange gains or losses, through the exchange rate established by the Mexican Central Bank of Mexico.
  • Reduces the withholding income tax rate from 0.97% (applicable in 2021) to 0.08% applicable to interest payments made by financial institutions.
  • Thin capitalization rule: When determining stockholders’ equity via tax attributes, tax losses should also be considered. Additionally, SOFOMES (Non-regulated Special Purpose Financial Institutions) will be subject to this when its operations are predominantly with related parties.
  • Withholding for interest payments abroad: Assumptions are limited to retain 4.9% and 10% with operations with related parties abroad.