International Transactions And Cost-Sharing Limitations In Mexico

International worldwide transactions in Mexico face a weakness as a result of an old and outdated provision which disallows for income tax purposes, the deduction of payments made abroad on a prorated basis with other parties that are not subject to Mexican income tax, such as foreign residents with no permanent establishment in Mexico.

The rationale for such prohibition in 1959 was that the Mexican tax authorities did not have the legal means to verify whether such expenses were necessary or even actually made by a foreign resident.

At first hand it might seem that the economic burden of this provision is rather limited, but in practice it does represent an important downside for the Mexican side of worldwide transactions.