Limitations on payments made by foreign residents
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Limitations on payments made by foreign residents
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From 2014 on, some control measures were established concerning payments made by foreign residents for items relating to interest, royalties, and technical support, and which, if not qualifying as expenses, would not be considered deductible. The requirements are as follows: • That the payments be made to a controlling foreign entity or be controlled by the taxpayer. • It will be understood as monitoring when one of the parties has control over the other of its effective control or administration; in such a manner that it may decide the time of distribution or of sharing the income or profits. • That payments be made to transparent companies, meaning, that they not be considered Income Tax contributors in the country in which they are established or are managed or have their headquaters in; or that income be attributed to partners, shareholders, members, or beneficiaries. That the payment of these items be considered nonexistent for tax purposes in the country or territory of the foreign resident. • That the foreign resident not consider the payment as income (ratable) for tax, according to the applicable laws. For the last 2 assumptions, by means of a ruling on Periodic Amendments, it mentions that if a Mexican company is considered transparent in the country of the foreign resident, then this requirement does not apply, to the extent and amount in which the payments are taxable for the foreign resident in the same tax year or in the following, and that it have a fiscal agreement with Mexico. It is necessary that non-deductible payments be deemed as such in the tax year in which they are paid, and not be part of the sales costs. By reason of these recent changes in the interest payments, royalties, and technical support that may not be deductible, our recommendation is to perform an analysis in order to determine if the requested requirements are being fulfilled. Should you have any further questions or concerns, please don’t hesitate to contact me.
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