What are the implications for income tax purposes?
In recent years, the Tax Administration Service (SAT, by its Spanish acronym) has adopted the position of denying the deduction, for income tax (ISR, by its Spanish acronym) purposes, of all advertising and promotional expenses when the taxpayer incurring them is not the owner of the brand being promoted. This stance is based on the argument that such expenses are not strictly indispensable, as they allegedly benefit only the brand owner and contribute to strengthening a brand the taxpayer does not own.
Recently, professionals from KPMG Mexico’s Tax and Legal practice raised this issue before the Office of the Taxpayer Advocate (Prodecon, by its Spanish acronym), proposing that the matter be subject to systemic analysis, given that various taxpayers deduct these expenses for ISR purposes because they consider them necessary for generating income and aligned with their corporate purpose. As part of this process, arguments were submitted demonstrating these expenses are indeed deductible.
As a result, Prodecon issued Systemic Analysis 8/2025, concluding that the SAT’s position (denying this type of deduction) violates the principles of legality, legal security, and certainty, based on the following considerations:
a) Article 27, Section I, of the Income Tax Law (LISR, by its Spanish acronym) does not restrict the deductibility of advertising and promotional expenses on the basis of whether the taxpayer owns the registered brand; it only requires that such expenses be strictly indispensable for carrying out the taxpayer’s business activities
b) The Federal Law for the Protection of Industrial Property authorizes a licensee to exploit a brand as if they were the owner and to exercise all legal actions for its protection. Therefore, it is reasonable to conclude that the licensee has the right to deduct advertising and promotional expenses deemed necessary for the sale of the products or services they commercialize
c) Consequently, Prodecon determined that the SAT incorrectly applies the relevant legal provisions by failing to recognize that advertising and promotional expenses are strictly indispensable to the activity of a brand licensee. Through such expenses, the licensee informs potential customers about the goods or services being offered; therefore, these expenses cannot be considered solely for strengthening or positioning the brand, but rather for attracting customers and increasing sales
Conclusions
Based on the above, Prodecon concluded that the SAT should consider advertising and promotional expenses incurred by taxpayers holding a brand license granted by a related party (domestic or foreign) for use and exploitation in Mexico as deductible, since they are strictly indispensable for their operations, provided the taxpayer can demonstrate that the expenses are necessary to fulfill their corporate purpose.
Accordingly, through Systemic Analysis 8/2025, Prodecon suggests that the tax authority instruct its administrative units to correctly apply the tax provisions and recognize as deductible the advertising and promotional expenses incurred by taxpayers holding a brand license from a domestic or foreign related party for its use and exploitation in Mexico.
The SAT has a period of 20 business days to respond to the recommendation contained in Systemic Analysis No. 8/2025, a period that will expire during the first weeks of January 2026.
Favorable Ruling
In September 2025, the Federal Tax and Administrative Court (TFJA, by its Spanish acronym) issued a favorable ruling in a case represented by KPMG, concluding that advertising and promotional expenses are indeed strictly indispensable for the company, as failing to incur such expenses would negatively impact its revenue by preventing it from promoting the products it sells.
In this specific case, our firm demonstrated before the TFJA that, under the exclusive brand license agreement, advertising and promotional expenses correspond to and benefit the licensee, since these efforts the enable the licensee to promote the products it commercializes, thereby allowing it to fulfill its corporate purpose and, consequently, generate income.
Our Tax and Legal professionals through KPMG's Legal Services Practice in Mexico, specifically the Corporate Legal area, are at your disposal to assist in analyzing the potential implications arising from this initiative of amendment and, if necessary, to provide you the corresponding support.
