In Mexico, the Master File has become fundamental within the Transfer Pricing regulatory framework. This requirement, provided for in Article 76-A of the Income Tax Act (ITA), was introduced in the 2016 Tax Reform as part of the adoption of Action 13 of the OECD’s BEPS Plan to provide the tax authority with a comprehensive and structured overview of the multinational group to which the taxpayer belongs, including its business model, corporate structure, operations, intangibles, and financial policies.
It is not simply an administrative requirement in Mexico but a tool for strategic tax risk management, while enhancing the ability of the SAT (Servicio de Administración Tributaria – Tax Administration Service) to identify and prevent profit shifting or tax base erosion practices.
Regulatory Framework and Mexican Particularities
In Mexico, the content required for the Master File follows international OECD standards. However, there are important nuances that differentiate it. Unlike other jurisdictions that permit English filings, Mexico requires documentation in Spanish. Specific annexes, such as contracts or comparative studies, can remain in English.
Another particularity is the level of detail requested by the SAT. A general description of the group’s structure is insufficient; otherwise, a more comprehensive functional analysis, detailed explanations of value generation, documentation of the supply chain, a precise description of intangibles, and clear evidence of the global Transfer Pricing policy are necessary. This additional requirement responds to a more proactive audit policy, where the authority requires tools to compare the information in the Master File, Local File, and the Country-by-Country Report.
In addition, the Master File in Mexico entails an affidavit, which means that the taxpayer assumes full legal responsibility for the veracity and accuracy of the information, thus reinforcing the importance of its correct preparation.
Filing Requirements and Thresholds
Taxpayers who comply with specific parameters and belong to multinational groups have to file the Master File. The filing deadline is December 31 of the year immediately following the reported fiscal year. Although this deadline is generous, it requires previous planning, as the collection and translation of global information can take several months.
For thresholds, the ITA and its regulatory provisions establish criteria related to both income volume and the obligation to file the Country-by-Country Report. Thus, the measure aims to focus on groups of significant economic relevance, avoiding overburdening smaller taxpayers.
Failure to file the Master File or file an incomplete document may result in significant financial penalties and, in alarming cases, tax adjustments that substantially increase the taxpayer’s tax burden.
Relationship with the Local File and the CbCR
Mexican regulations include the Master File within a tripartite documentation scheme along with the Local File and the Country-by-Country Report (CbCR).
This structure gives the tax authority both macro and micro views of the group. The Master File covers the global structure, the Local File details the entity’s transactions in Mexico, and the CbCR gives a consolidated financial overview by jurisdiction.
In this context, consistency between these documents is essential. The SAT may interpret inconsistencies in figures, descriptions of functions, or treatment of intangibles as signs of aggressive tax planning, leading to more in-depth audits or adjustments to correct perceived deviations.
Non-compliance Risks and Consequences
Failure to file the Master File not only results in fines, which can be significant, but also poses evidentiary risks. If this document is missing, taxpayers may no longer argue that their operations comply with the Arm’s Length Principle, placing the burden of proof entirely on their defense.
Additionally, penalties may include surcharges, updates, and fines due to omitted income, ranging from 55% to 75%, if the authority determines that the failure to file or the omission of information constitutes improper tax practice. Proper preparation of the Master File is therefore not only a formal obligation but also fundamental for preventive tax defense.
Conclusion
The Master File in Mexico is much more than a technical requirement: it is a strategic tool that, when accurately prepared, strengthens the taxpayer’s fiscal position and facilitates dialogue with the authorities.
To fully leverage its potential, companies should:
- Plan its preparation well in advance, coordinating local and global teams.
- Ensure consistency of content with the Local File and CbCR.
- Maintain updated and translated supporting documentation as required by regulations.
For increasing international tax cooperation, the Master File is establishing itself as a pillar of transparency and compliance that no multinational company can underestimate.
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