With prior authorization from the Ministry of Finance and Public Credit, groups of companies may elect to be taxed on a consolidated basis if certain conditions are met. A group of companies is defined as a controlling or holding company resident in Mexico and at least one company that is under its control. Only the controlling company may make the election. In general, the controlling company is one that holds more than 50% of the voting shares of the other companies in the group or has effective control of those companies. As a rule, only controlled companies resident in Mexico may be consolidated, but nonresident companies may be included if they are resident in a country with which Mexico has a tax information exchange agreement and that country's rules for determining the tax profits and losses of companies are comparable to Mexico's. When nonresident companies are consolidated, their losses are not deductible from the consolidated tax results but may be set off against their own profits in subsequent years.
The consolidated taxable profit is determined by combining the tax profits and losses of all the companies in the group and then eliminating some intercompany transactions. The results of each controlled company are consolidated on the basis of the average of the controlling company's actual holdings in the controlled company during the year in question, which may be more or less than 50% of the total at the end of the year.
Companies included in a consolidated group must file their own annual income tax returns, but they pay only the tax relative to any interest not held by the controlling company. The tax relating to the controlling company's interest must be accounted for by the controlling company itself.
Dividends may flow freely between companies in a consolidated group and are not subject to a payment of income tax, even when they exceed the balance of the net tax profit account (see "WITHHOLDING TAXES") of the company paying the dividends.
In the case of related parties, tax authorities may change tax profit or loss by presumptively determining the price or payment in the following cases: loan or discount payments on transferred credits, payments for provisions of services, leasing or sale of tangible goods, and payments or royalties collected for the exploitation or transfer of an intangible good. This power is aimed at preventing transactions at prices different from those that would have been agreed upon by unrelated parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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