Introduction
Mexico could face trade tension with its main T-MEC partners if it does not adequately adjust its Transfer Pricing policies. The recent imposition of U.S. tariffs and the country’s tax responses have alerted several industries, particularly those with cross-border transactions.
Background
It all started with applying U.S. tariffs on key Mexican products, such as steel and aluminum. In response, the Mexican government implemented mirror measures, raising concerns about possible violations of the T-MEC (Tratado entre México, Estados Unidos y Canadá – Mexico, United States, and Canada Agreement).
Effects on Transfer Pricing
The reimposition of 25% tariffs on steel and aluminum imported from Mexico and Canada has directly affected the Mexican automotive industry, which relies on these imported inputs, significantly increasing its production costs.
In addition, the T-MEC now requires vehicles to have higher regional content, increasing the integration percentage from 62.5% to 75% so that automotive companies can benefit from the agreement’s preferential tariffs. It poses strategic challenges for manufacturers, who must decide to adjust their supply chains to meet these requirements or seek alternatives outside the region, which could entail additional costs and greater operational complexity.
In this context, the correct Transfer Pricing application becomes crucial to avoid tax adjustments and possible penalties. Companies with cross-border transactions must ensure their pricing policies comply with the Arm’s Length Principles and adapt to the changes in costs resulting from the T-MEC tariffs and regulations.
The OECD’s Position and the Need for Documentation
The OECD has highlighted the importance of solid Transfer Pricing documentation. In this context, Mexico must strengthen its auditing processes and companies to have local studies and well-founded master files.
In addition, the OECD has pointed out that although the T-MEC is good for strengthening the Mexican economy, it will not solve all of the country’s structural problems on its own. The body emphasizes the need for complementary domestic policies to boost economic growth and improve the population’s well-being.
Call to Action
At TPC Group, we assist companies in Mexico and the region with Transfer Pricing obligations under international standards and agreements such as the T-MEC. If your company performs cross-border intercompany transactions, it is the perfect time to evaluate your policies and mitigate tax risks.
Source: El Universal