Entering Mexico: Tax Decisions to Make Before Funding Your Mexican Subsidiary
Most foreign groups decide how to fund a new Mexican subsidiary at the last minute, often when the first payroll
Many groups with several companies in Mexico centralize administration, IT, legal and management in one entity and charge the others a monthly fee. For the company that provides the services, the charge is income; for the one that receives it, it is a deduction. Mexico’s tax authority, the Tax Administration Service (SAT), usually focuses on the paying company: did it need the service, did it actually receive it, did it get something of value, and can the amount be explained?
This guide looks at intercompany services in Mexico from the side of the company that receives the charge. It complements our guide on tax materiality in Mexico, which covers how to build the evidence file for any transaction. Here we focus on three questions specific to these services: need and benefit, allocation keys and coordination with transfer pricing. Charges from a foreign parent raise additional issues that we will cover in a separate article.
Executive summary
Deductions must be strictly necessary for the taxpayer’s business (Income Tax Law, LISR, art. 27, section I) [1]. Mexico’s Federal Court of Administrative Justice has held that whether an expense meets that test depends on the nature of the underlying transaction, not on how it is described on the electronic invoice [3]. Since 2026, the Federal Tax Code also requires the electronic invoice (CFDI) to cover an existing and real transaction; otherwise, it is considered false [2].
In its list of non-binding criteria on improper tax practices, SAT treats as improper the deduction of service fees, paid to Mexican or foreign residents, when there is no evidence that the service was actually received, even if an invoice exists (criterion 44/ISR/PI) [4]. And if the charge is not deductible for income tax purposes, the value added tax (VAT) charged on it cannot be credited either, because the VAT Law treats as strictly necessary only the expenses that are deductible for income tax [5].
Two further rules apply when the charge comes from a related party. First, the transaction must be priced as independent parties would price comparable transactions, and documented [6]. Second, expenses incurred abroad and shared pro rata with parties that are not Mexican income taxpayers are not deductible [9].
The Income Tax Law states that the OECD Transfer Pricing Guidelines apply to the interpretation of its transfer pricing rules, to the extent they are consistent with the law and with Mexico’s tax treaties [6]. The Guidelines set the central test: an intra-group service exists when the activity gives the receiving company economic or commercial value that enhances or maintains its business position. This is judged by asking whether an independent company in comparable circumstances would have been willing to pay for the activity or would have performed it in-house [7].
Three practical exclusions follow from that test [7]:
| Activity | Examples | Can it be charged? |
|---|---|---|
| Shareholder activity | Consolidating financial statements for the parent, shareholder meetings, investor relations, the parent’s own compliance | No; the cost belongs to the shareholder |
| Duplicated service | Legal reviews that the company already buys from its own law firm, unless the duplication is temporary or a justified second opinion | Generally no |
| Incidental benefit | A better credit rating only because the company belongs to the group, with no specific activity | No |
| Service to the company | Payroll, accounting, IT support, procurement, operational legal advice | Yes, if it can be shown and is priced at arm’s length |
The line between management and shareholder activity requires analysis. A strategic decision made at headquarters and carried out by the Mexican company can be a service; a report that only helps the parent inform its investors is not.
When a service is provided to several companies, the cost is shared through an allocation key. The key should follow what drives the cost of each service, not what is easiest to calculate:
| Service | Reasonable key | Key that is often challenged |
|---|---|---|
| Payroll and human resources | Number of employees served | Revenue of each company |
| IT support | Users, licenses or tickets | Fixed percentage with no support |
| Accounting and treasury | Transactions or journal entries processed | Equal shares among all companies |
| Legal | Hours recorded by matter | Flat fee with no record of matters |
The chosen key should be applied consistently across companies and years; the OECD’s 2026 draft proposes allowing more than one key for the same cost pool [8]. The evidence behind each charge should make every service traceable: requests, activity reports, minutes, time records or tickets, deliverables and the allocation spreadsheet reconciled to the CFDI.
The services agreement should describe which services are provided, to whom, under which allocation key and with what markup, if any. An agreement with a generic purpose (“administrative services”) leaves the authority’s questions unanswered. The CFDI for each period should describe the services in the same detail.
A transfer pricing study shows that the price or markup is at arm’s length, and Mexican law requires it as documentation for related-party transactions [6]. But the study alone does not prove that each service was provided or that it benefited each company; that proof lies in the operational file. Mexican courts have held that the CFDI and accounting records are not, by themselves, full proof that a transaction took place [10].
On June 1, 2026, the OECD published a consultation draft revising Chapter VII of its Guidelines, which covers intra-group services, and announced a public consultation meeting for November 2026 [8]. Among other points, the draft proposes judging the benefit by what could reasonably be expected when the service was provided, not presuming that cost-based methods are the most appropriate, and clarifying the rules for pass-through costs charged without a markup [8]. The draft does not yet reflect a consensus and should not be used as final guidance; the 2022 version remains in force [7][8].
Illustrative example; it does not describe a client or a real situation.
A group has a corporate services company in Mexico City that charges its operating company in Guadalajara MXN 11,000,000 a year plus VAT: the cost of the services (10,000,000) plus a 10% markup. That share was obtained by allocating headquarters’ total cost among the group companies by revenue.
A review of the file finds that, of the cost charged to the operating company, MXN 1,500,000 relates to consolidating financial statements and to investor relations for the parent (shareholder activity), and MXN 1,000,000 to legal reviews that the operating company already buys from its own law firm (duplication).
| Concept | Amount (MXN) |
|---|---|
| Questioned cost (1,500,000 + 1,000,000) | 2,500,000 |
| Questioned charge with 10% markup (2,500,000 × 1.10) | 2,750,000 |
| Income tax on the rejected deduction (30% of 2,750,000), assuming enough taxable profit | 825,000 |
| VAT credit rejected (16% of 2,750,000) | 440,000 |
| Exposure before inflation adjustment, surcharges and penalties | 1,265,000 |
Because the services company has already reported that income, the group would bear the tax twice in economic terms on the same part of the charge. A reasonable fix is to remove shareholder activities from the shared cost pool, eliminate duplicated services, replace the revenue key with keys that reflect how each service is used and document the change in an annex to the agreement.
A matrix like the one below helps review each charge before it is invoiced:
| Service | Companies that receive it | Need and benefit | Allocation key | Evidence | Owner |
|---|---|---|---|---|---|
| IT support | Operating and sales companies | ERP continuity and user support | Tickets per company | Monthly ticket report | Corporate IT |
| Payroll | All | Payroll calculation and electronic payroll receipts | Employees per company | Payroll processing report | Human resources |
| Consolidation for the parent | None (shareholder activity) | Not applicable | Not allocated | Not applicable | Corporate finance |
Before invoicing each period’s charge, check:
Is a transfer pricing study enough to deduct intercompany services in Mexico?
Not on its own. The study tests whether the price is at arm’s length; the deduction also requires showing that the service was needed, was provided and benefited the company that paid for it.
What if the service did not produce the expected benefit?
The current Guidelines ask whether the activity provides value to the company that receives it, and the 2026 draft proposes clarifying that a benefit reasonably expected when the service was provided is enough [7][8]. Either way, document why the service was requested and what it was expected to achieve.
If your group shares corporate costs among its Mexican companies, the first step is knowing what is charged, to whom and with what support. At Tax Art we can review a year’s intercompany charges and, depending on the agreed scope, deliver the services, beneficiaries and support matrix with recommendations on allocation keys, agreements and CFDI.
Schedule a review of the charges and documentation between your group companies through our Tax Counseling team.
Schedule an intercompany charges review
This article is for information only and reflects the rules reviewed as of October 27, 2026. It does not replace an analysis of each group’s facts and documents.
Most foreign groups decide how to fund a new Mexican subsidiary at the last minute, often when the first payroll
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