Executive answer
The comparable uncontrolled price method compares consideration in a controlled dealing with consideration agreed by independent parties in comparable dealings. It may use an internal reference—one controlled party deals with a third party—or an external reference—independent parties deal with each other. CUP is direct, but demands close comparability of the subject and conditions.
Article 180, section I, of the Mexican Income Tax Law recognizes CUP and requires its application to be considered before other methods under the article’s terms. Rejection needs a specific analysis. “No comparables were found” is insufficient where third-party sales, independent purchases, quotations, financial contracts or public data may exist.
Feasibility has three stages: identify candidates, measure differences and determine whether reasonably accurate adjustments can address them. A price is not comparable merely because it relates to the same product, rate or service. Volume, market, date, credit, currency, security, supply-chain level, exclusivity and functions may materially change it.
Internal and external CUPs
An internal CUP exists when the tested entity sells to or buys from an independent party under comparable conditions, or when its related counterparty has the relevant uncontrolled dealing. It often offers superior access to agreements, invoices, costs and negotiations and may reveal actual pricing policy.
Access does not guarantee quality. A small promotional sale does not represent annual supply; an emergency purchase differs from a stable contract; a third-party service may include additional outputs. Review the full relationship.
An external CUP comes from third-party dealings: commodity quotations, financial databases, public licenses, regulated prices or observable agreements. It may cover a broader market but commonly offers less detail on conditions. The source should be independent, verifiable and contemporary.
Do not confuse a quotation with the final transaction price. Commodity quality, location, pricing date, freight and volume create differentials. A loan base rate needs a credit and term spread. Published royalty rates may lack essential context.
Critical factors
Property, service or right
Compare specifications, quality, brand, stage, territory, exclusivity, duration and support. The more unique the subject, the less tolerance for differences. Software modification rights are not equivalent to SaaS access.
Volume and market level
Volume discounts, commitment, channel and supply-chain position affect price. A manufacturer prices differently to a distributor and end customer. Record units, frequency and minimums.
Market and time
Country, competition, regulation, inflation, supply, demand and date matter. Another year’s or market’s price can be adjusted only with data that explain the difference.
Contractual terms
Term, currency, credit, delivery, warranty, returns, exclusivity, renewal and termination change consideration. Conduct should confirm the document.
Functions and risks
Identify who markets, warehouses, transports, finances, warrants or maintains. The uncontrolled price may include functions absent from the controlled dealing.
Strategy
Penetration, liquidation, launch or capacity may explain temporary terms. Require ex-ante evidence and a defined horizon.
Feasibility tree
- Is there the same category of uncontrolled dealing?
- Are agreement, invoice, period, volume and counterparty available?
- Is the subject identical or sufficiently similar?
- Are market, date and supply-chain level comparable?
- Do payment, delivery, warranty and currency terms align?
- Are embedded functions and risks equivalent?
- Do differences have a material effect?
- Can that effect be quantified with reliable data?
- Is the adjusted price more direct than another method’s result?
- Does the conclusion withstand sensitivity and period checks?
If the analysis fails early, document rejection. If only measurable differences remain, adjust. If conditions are met, CUP may be primary. Avoid cumulative adjustments that turn the reference into a hypothetical model.
Difference and adjustment matrix
| Difference | Potential effect | Adjustment source | Rejection signal |
|---|---|---|---|
| Volume | Discount or capacity | Internal curve, lists, contracts | Insufficient observations |
| Credit | Financing value | Rate and term | Unknown credit risk |
| Currency/date | Market and FX | Contemporary quotations | Unhedged volatility |
| Transport | Delivered price | Tariffs and invoices | Different routes or services |
| Quality | Premium or discount | Specifications and market | Non-substitutable product |
| Warranty | Cost and risk | Claims history | Incomparable duty |
| Market | Demand or regulation | Objective data | Structural unmeasurable gap |
| Exclusivity | Access and volume | Agreement and alternatives | Unique right |
Show formula, source, direction and sensitivity. Do not apply general percentages unrelated to the dealing.
Where sales, purchases or financing with third parties exist, evaluate them before rejecting CUP and moving to a margin method.
Case 1: sale of the same product
Mexico buys from a related supplier that also sells the same product to independent distributors. The product matches, but Mexico buys more volume, receives 90-day credit, gets marketing support and operates in another country.
Compare price by period and specification. Then quantify credit with an appropriate rate, identify observed volume discounts and value support only when cost and effect are known. Analyze market through price or margin data rather than general statements.
If adjustments are verifiable and moderate, adjusted CUP may be reliable. If support, territory and strategy transform the dealing and no data exist, a margin method may be stronger, with CUP as corroboration.
Case 2: intercompany loan
An observable bank rate is not an automatic CUP. Delineate debt, capacity, amount, currency, term, repayment, security, seniority, purpose and date. Build a credit profile and compare instruments or loans.
Separate base rate and spread. Adjust for term, credit, security and conditions when data exist. An indicative quote can support analysis, but confirm whether it was executable and which fees applied.
Subsequent conduct matters. Delays, capitalization or no repayment may contradict written terms. A rate CUP does not replace debt characterization.
Case 3: commodity
A public quotation is the starting point. Define pricing date, market, quality, volume, location, delivery, freight, insurance and processing. Build a bridge from quotation to invoiced price.
Retain source, time or window, contractual formula and logistics records. Do not select the most favorable date retrospectively. Where an agreement allows a window, document who decides and how third parties are treated.
Case 4: license
A royalty database may contain agreements from a similar industry but different rights. Compare intangible, exclusivity, territory, stage, base, duration, support, sublicensing and DEMPE functions.
Where sufficiently detailed agreements do not exist, a broad rate set may be corroborative rather than a primary CUP. Consider valuation or another method aligned with the facts.
Cumulative adjustments and reliability
An adjustment improves analysis when it removes a difference using observable data. Multiple adjustments can compound error. Record individual and cumulative effects, interval and sensitivity. If assumptions drive the adjusted price more than the reference, reconsider.
Compare methodological alternatives. An imperfect CUP may still be more reliable than TNMM with poor segmentation—or not. Selection addresses relative reliability, not perfection.
Period and refresh
Prices can move quickly. Define observation date, contractual period and update mechanism. Do not combine later quotations without explaining availability. For long-term agreements, review formulas, renegotiations and conduct.
Refresh an internal CUP when third-party volume, market or terms change. Preserve the full population rather than favorable dealings only. Include credit notes and subsequent discounts.
Common errors
- Rejecting CUP without searching internally.
- Comparing only the product name.
- Using list price instead of an executed transaction.
- Ignoring volume, credit or market level.
- Adjusting with unsupported percentages.
- Applying so many adjustments that the reference disappears.
- Selecting dates retrospectively.
- Using a bank rate without rating and terms.
- Treating royalty database agreements as identical.
- Retaining only the adjusted price, not the bridge.
File and quality control
The CUP Feasibility Memo includes candidates, documents, factors, differences, adjustments, sensitivity, rejection or acceptance and comparison with other methods. Attach reproducible data and source versions.
A second reviewer recalculates adjustments, signs, units, currency and dates and tests whether unfavorable observations were excluded. Operations validates product; treasury terms; legal rights; tax the legal framework.
Documenting that CUP is not reliable
A negative conclusion also needs evidence. Build a candidate table containing source, counterparty, product or right, period, volume, market, terms and material difference. For each candidate, distinguish unavailable information from information proving incompatibility.
When internal data are missing, record who received the request, which systems were searched and why the information cannot reasonably be recovered. The absence may reveal a control gap to fix for the next year. When the difference is economic, describe its expected effect and why no reliable basis exists to quantify it.
The memorandum should demonstrate that CUP was not rejected for convenience. Compare the unadjusted price, potential adjustments and alternative-method outcome. If CUP offers only a broad interval or directional signal, retain it as corroboration with appropriately limited weight.
In-year monitoring
Where CUP is primary, embed the formula in invoicing or treasury. Define source, observation date, currency, differentials, approval and missing-data handling. For commodities, control pricing windows and premiums; for loans, base rate and spread; for goods, list, volume and credit; for licenses, royalty base and contractual events.
Review exceptions monthly and compare controlled dealings with newly executed third-party transactions. A recent independent sale may create a CUP that did not exist when policy was designed. A prior CUP may also lose reliability when market or terms change.
At closing, reconcile calculated, invoiced and paid prices. Document credit notes and true-ups. The objective is to prevent a technically sound CUP from being applied using the wrong date, volume or differential.
Related topics
- PT-018 and PT-019: comparability and method.
- PT-020: range.
- PT-041 and PT-042: loans and rates.
- PT-066: commodities.
CUP feasibility test
Before searching external databases, review the group’s own sales or purchases with independents. Catalogue product or service, quality, volume, date, market, currency, credit, guarantees, transport, market level and rights. A contemporaneous internal price often provides valuable information, but only where it can be separated and its conditions are known.
For every difference, estimate direction, magnitude and available data. Adjust only where an economic relationship and reliable calculation exist. If several differences interact or information is missing, document why CUP reliability declines. Then compare other methods rather than forcing an observable price onto a different transaction.
The file retains agreements, invoices, lists, quotations, market data, adjustments and sensitivity. A reviewer reproduces the calculation and challenges date selection. The conclusion may be applicable CUP, CUP with adjustment or unreliable CUP; each requires verifiable reasoning.
Sources and verification date
- Mexican Income Tax Law, current text, Articles 179 and 180.
- OECD Mexico Transfer Pricing Country Profile.
- OECD Transfer Pricing Guidelines, a technical reference.
Sources checked on August 2, 2026. Feasibility depends on data, terms, date and material differences.
Request a CUP Feasibility Memo to identify internal and external references, measure differences and document acceptance, adjustment or rejection.