On October 13, 2026, First Majestic Silver Corp. announced that it had reached an agreement in principle with the Mexican government to resolve the tax dispute involving its subsidiary, Primero Empresa Minera, S.A. de C.V. (PEM). The dispute is one of the most significant transfer pricing cases in the region because it revolves around an advance ruling that the Mexican Tax Administration Service (SAT) itself granted and later challenged. For those seeking or managing an agreement of this type, the case illustrates why Transfer Pricing consultants must pay as much attention to the reliability of the comparable as to obtaining the ruling itself.
What did First Majestic and Mexico announce in October 2026?
The parties reached a preliminary agreement on a settlement framework, but the terms have not been made public, and the agreement has yet to be finalized and implemented. At the same time, First Majestic suspended the arbitration it had initiated against Mexico under Chapter 11 of the North American Free Trade Agreement (NAFTA), which the company refers to as the “APA Arbitration”.
The arbitral tribunal ordered the proceedings to be suspended until December 31, 2026, with the possibility of extending the suspension into the first quarter of 2027. If a final agreement is not reached, First Majestic may request that the suspension be lifted and the arbitration resume. The company noted that negotiations have been ongoing for several years and that significant progress was made in 2026.
What was the controlled transaction, and what did the APA cover?
In October 2012, PEM obtained an Advance Pricing Agreement (APA) from the SAT, issued as a specific ruling under Article 34-A of the Federal Tax Code (CFF, by their acronyms in Spanish). According to First Majestic, the APA covered the fiscal years 2010 through 2014 and allowed the company to report taxes on the silver sold based on the income received rather than on market prices.
In 2004, the silver from the San Dimas mine was sold under a streaming contract signed with the Wheaton Group at a fixed price of, approximately, USD 4 per ounce. According to Mexico’s submission in the arbitration, the chain consisted of two stages:
- PEM sold the silver to Silver Trading (Barbados) (STB), an entity within the group that owned the mine.
- STB resold that silver to Silver Wheaton Caymans (SWC) under an October 2004 contract, also at a fixed price.
Mexico argues that the obligation to sell at a fixed price originally belonged to STB, but was assumed by PEM through a 2011 amendment to the silver purchase contracts. Prior to that change, PEM sold to STB at the spot price. In 2018, First Majestic paid Wheaton USD 151 million to terminate the original contract. Since then, PEM has been taxed on spot prices, according to the company.
Why was the comparable transaction questioned?
PEM’s application used the Comparable Uncontrolled Price method and referenced the price in the contract between STB and SWC. Mexico questioned the validity of that comparable transaction, arguing that the entities had a related-party relationship at the time the contract was entered into in 2004, which compromised the independence of the price used as a reference. As evidence, the Government referred to a private placement agreement dated August 2004, which allegedly gave Chap Mercantile a participation in and control over Wheaton River Minerals.
This argument relates to the arm’s-length principle, as set forth in Mexican Transfer Pricing legislation. For the historical fiscal years covered by the dispute, it is relevant to consider Article 215 of the Income Tax Law (LISR, by their acronyms in Spanish) in effect in 2009, while Article 179 of the subsequent LISR contains provisions on transactions between related parties and comparability.
According to the position presented by Mexico in the arbitration, using the price of a transaction between related parties as a comparable would contravene the arm’s-length principle. Mexico also contends that PEM did not receive compensation for assuming the obligation to sell the silver at a fixed price.
First Majestic takes a different position: it considers that the APA remains in effect as long as there is no final judicial ruling to the contrary and argues that income that PEM never received cannot be taxed. According to information disclosed by the company in March 2021, the tax assessments for 2010 through 2012 totaled approximately USD 260 million, of which about USD 75 million corresponded to additional tax. The 2013 assessment, amounting to approximately USD 132.1 million, also included the disallowance of intercompany interest and management service fees.
What did the TFJA rule in the action for annulment?
In 2015, the SAT filed an action for annulment, a procedure through which the authority may request the annulment of a decision favorable to the taxpayer. In September 2020, the Federal Court of Administrative Justice (TFJA, by their acronyms in Spanish) declared the 2012 decision null and void, so that the SAT could issue a new decision after properly analyzing the evidence and methodology presented by PEM.
According to Mexico’s brief, the TFJA concluded that the Central Administration for Transfer Pricing Audit (ACFPT, by their acronyms in Spanish) itself committed irregularities in granting the APA. Among the issues raised were the failure to analyze the method proposed by PEM, deficiencies in the compilation of the case file, the failure to request necessary documentation, and the acceptance of evidence without sufficient evaluation.
PEM challenged the ruling, and according to information contained in the Answer submitted by Mexico in November 2022, the proceeding remained subject to judicial review.
In 2021, First Majestic filed a claim with the International Centre for Settlement of Investment Disputes (ICSID) under NAFTA, in case ARB/21/14. Mexico filed its Statement of Defense on November 25, 2022. In that document, it characterizes the APA as a unilateral administrative act issued in the exercise of sovereign powers and not as a negotiated contract.
What does this case teach us about APAs in Mexico?
The first lesson is that an APA can provide tax certainty, but it does not preclude the possibility that the tax authority may challenge its legality through the appropriate procedures. Therefore, it is essential that the ruling be supported by sufficient technical analysis and documentation. In this case, the TFJA raised concerns about deficiencies in the procedure and analysis underlying the issuance of the APA.
The second lesson is technical: the strength of an APA depends, among other factors, on the independence and comparability of the transactions used as benchmarks. If the benchmark price was agreed upon between entities whose relationship is questioned by the tax authority, the comparability analysis may be called into question, even after the ruling has already been issued. The risk increases when, as Mexico argues, a contractual amendment transfers to the local entity an obligation previously assumed by another company in the group without identifiable compensation.
The third lesson relates to streaming contracts and other long-term agreements in the mining sector. A fixed price may be reasonable at the time the contract is entered into but may differ significantly from market conditions in subsequent years. Therefore, documenting who assumed the risk of price fluctuations, under what conditions, and what compensation they received in return is just as important as justifying the agreed-upon price.
At TPC Group, we evaluate—in every analysis of an APA application or renewal—the effective independence of comparables and the allocation of risks among group entities. Our goal is to support a transfer pricing determination that is technically defensible in the event of a review by the tax authority.