SAT - Deductibility of Advertising Expenses for Licensed Brands.

In Study 8/2025, regarding the admissibility of deductions for advertising and promotional expenses incurred by taxpayers who operate brands in our country under licensing agreements between related parties, Mexico´s Taxpayer’s Protection Office (PRODECON) shared several requirements that the Tax Administration Service (SAT) considers must be met in such transactions. These requirements relate to demonstrating the strict necessity of the expense, the materiality of the transaction, and the direct economic benefit obtained that is linked to the company’s corporate purpose.

Below we share the most relevant ones:

• Payments must comply with the requirements of Article 27 of the Income Tax Law.

• Demonstrate the existence of the trademark and the reasonableness of the expenses incurred in connection with the activities of the taxpayer claiming the deduction.

• Demonstrate compliance with the terms and conditions of the trademark license agreement and the benefits obtained.

• Contracts must include the details of each transaction, the rights granted and obligations assumed between the trademark licensor and the licensee, the risks assumed, and the economic circumstances under which the transaction was agreed upon.

• Demonstrate the materiality of the transaction and its accounting and financial traceability through documentation.

• Provide documentary evidence subst

  antiating the economic benefits obtained; and

• In international transactions, provide an analysis in accordance with Double Taxation Treaties that define the tax treatment of advertising and promotional expenses.

This confirms the current trend in tax enforcement: the tax authority prioritizes economic substance and the demonstration of the actual benefit of the expenditure, particularly in transactions with related parties; therefore, having the appropriate documentation in place proactively becomes a key factor in substantiating the deductibility of transactions during tax audits.

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