Tax Insight

Mexican Federal Tax Court examines beneficial ownership

Insight
5 minute read
April 20, 2026

What happened?

The Mexican Federal Tax Court (Tribunal Federal de Justicia Administrativa – TFJA) issued several isolated precedents examining the concept of beneficial ownership in the context of dividends and interest paid under Mexico’s tax treaties. In these decisions, the court concluded that an entity resident in a treaty jurisdiction will not be regarded as the beneficial owner where, based on contractual arrangements or a broader assessment of the surrounding facts and circumstances, it is effectively required to transfer the income to a related-party resident in a third jurisdiction (even if the third jurisdiction has a tax treaty in place with Mexico).

Why is it relevant?

These rulings reinforce Mexico’s substance-over-form approach in assessing entitlement to tax treaty benefits and confirm that reduced withholding tax rates or exemptions could be denied where the recipient does not demonstrate effective control over, and economic enjoyment of, the income. The decisions are broadly consistent with the OECD Model Tax Convention Commentaries and indicate an increased focus on the factual and functional analysis of holding and conduit structures involving Mexican-source income.

Actions to consider

Taxpayers should review their holding company or transaction structures, especially for dividend, royalty, and interest payment structures involving Mexico. They also should assess whether intermediate entities have sufficient economic substance and maintain robust documentation supporting beneficial ownership. Existing arrangements relying on treaty relief could require restructuring or additional support to mitigate potential withholding tax exposure upon a Mexican tax authorities audit.