The interquartile range (IQR) is a quite interesting topic in descriptive statistics and a critical tool in transfer pricing, though not explicitly mandated by the OECD Transfer Pricing Guidelines. Instead, its application is defined by individual jurisdictions. Most countries with transfer pricing regulations in their tax frameworks adopt the conventional IQR calculation method (often referred to as the "Excel Method"), with some exceptions like the IRS Method in the United States or the German Method which incorporate specific computational approaches, or the Canadian full range (an old common practice that was eliminated from Mexican legislation in the 2022 tax reform), among other specific jurisdiction IQR calculations.
In Mexico, the IQR is primarily referenced, though not explicitly named, in Article 180 of the LISR. This article states: "Application of any of the methods indicated in this article may yield a range of prices, consideration amounts, or profit margins when there are two or more comparable transactions." This provision underscores the need to build-up an statistical range, specifically the abovementioned IQR, also opens the pattern to tp adjustments derived from comparable transactions to reflect arm's length conditions, setting the stage for the IQR's application (but adjustments are subject to another post in my profile)
The methodology for calculating the IQR is explicitly outlined in Article 302 of the RLISR, which provides a clear and standardized procedure for IQR calculations.
This approach eliminates outliers, focusing on the central 50% of the data to enhance the reliability of the analysis. Constructing a robust IQR is essential for transfer pricing compliance in Mexico. It requires a thorough comparability analysis, incorporating factors such as the characteristics of the transactions, economic circumstances, and business strategies, as mandated in TP Regulations.
A well-documented IQR, supported by comprehensive economic analysis, not only ensures compliance with Mexican regulations but also aligns with international best practices, minimizing the risk of fiscal adjustments or penalties.
