Mexico: Transfer pricing documentation for derivative financial transactions

Taxpayers in Mexico who carry out derivative financial transactions with related parties

Derivative financial transactions

Taxpayers in Mexico who carry out derivative financial transactions with related parties must have a transfer pricing study that documents that the prices are consistent with those that would be agreed to by independent third parties in comparable operations under similar circumstances. In particular, the study must:

  • Demonstrate that the ultimate goal of the derivative financial transactions is hedging, resulting from the exchange rate fluctuation of the peso with respect to other currencies.
  • Include a framework contract that regulates the intercompany transactions (in the case of over the counter (OTC) hedges, it is feasible to use base contracts that are established by recognized institutions such as the International Swaps and Derivatives Association (ISDA))
  •  List the following information:
    • Relationship between the parties
    • Type of derivative financial transactions
    • Contracted amount
    • Type of currency
    • Principal amount
    • Interest rate
    • Number of periods to be covered
    • Date on which the transaction expires
    • Reference to the underlying instrument
  • Identify the application of the agreements and the effect of accumulating the exchange profit or deducting the loss
  •  Support the capacity of the related entity in the provision of financial services to a certain group

Read an August 2022 report (Spanish) prepared by the KPMG member firm in Mexico


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