In December 2019, the Supreme Court of Justice in Mexico issued a ruling concerning evidential standards in tax matters.
The ruling was intended to address the risk of tax fraud presented by the issue of ‘backdating’ documents – in other words, documents produced by taxpayers in evidence which are claimed to have been created on a specific date, but which in fact were created at a later point in time.
Under the evidential rules created by the ruling, the “certain date” of a private document is deemed to be that date on which:
- the document is registered in the Property Public Registry in Mexico; or
- the signatories to the document appear before a notary public; or
- the death of any of the signatories occurs.
The ruling is highly significant for intercompany agreements in particular. The date of conclusion of an intercompany agreement can be pivotal for a number of purposes, including transfer pricing and the tax deductibility of related payments. Keep in mind, however, that the text of the ruling refers only to physical documents, and does not expressly address agreements which are concluded through electronic means, such as via electronic signature.
As a point of commercial application, it should be noted that although this ruling is widely known (at least, within Mexico), it is not widely followed. The question then arises: what approach should multinational corporates and their advisers apply in practice, when implementing intercompany agreements involving entities in Mexico?
As with many aspects of the legal implementation of transfer pricing policies, we would generally recommend adopting a risk-based approach. For high-value or high-risk transactions, it may well be appropriate to arrange for intercompany agreements to be notarised in Mexico. Such transactions may include:
- arrangements involving significant, one-off transactions, such as assignments of intangible assets; or
- other time-sensitive arrangements, such as agreements implementing new transfer pricing policies, which involve a significant change in the treatment of the relevant Mexican entities.
For other intercompany transactions, such as the routine annual updating of agreements to reflect updated benchmarking, the time and cost required for notarisation may be considered to be disproportionate, and the use of a recognised electronic signature platform may well be considered to be appropriate. So the advice is to operate on a case-by-case basis, evaluating each matter and its context independently to determine the appropriate action.
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