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2.2.5. DividendsThe aim of the ISR Law is for income tax to be paid only once, so if a dividend is distributedfrom the profits account of a company that has already paid tax thereon, no newtax need be paid, since the profit has already been taxed at the corporate level.On the other hand, when dividends are distributed from company profits on which taxhas not been paid, the company distributing them must apply the general income tax rateon the amount of the pyramided dividend (by multiplying it by the factor of 1.3889).2.2.6. Market valueThe ISR Law establishes that in the event that transactions are carried out at less thanmarket value, at cost or below cost, the tax authorities can change the tax profit or loss,estimating the price at which they believe the transaction should have been carried out.116C H A P T E R V I I2.2.7. Transfer pricingLegal entities with a tax residence in Mexico and a permanent domicile in the countrywho carry out transactions with related parties who are nonresidents must determinetheir income by taking into account the consideration that would have been paid amongindependent parties (“arm’s length transactions”).Two or more parties are considered to be related when one of them participatesdirectly or indirectly in the administration, control or capital of the other or when a personor a group of persons participates directly or indirectly in the administration, control,or capital of both companies.In order to determine if the price of the transaction used is that which would havebeen agreed between independent parties, any of the following methods may be used:(a) comparable price, (b) resale price, (c) added cost, (d) profit sharing, (e) surplus afterprofit sharing, and (f) transactional margins of operating profit.The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,approved by the Regulation Board of the Organization for Cooperation and EconomicDevelopment (OECD) in 1995, or any substitute thereof, should be used for theinterpretation of transfer pricing regulation, provided such guidelines are consistentwith Mexican law.2.2.8. Preferential tax regimesThe Mexican government has decided to ensure that the nature and content of investmentsmade in Preferential Tax Regimes (also known as tax havens) are revealed, suchthat income coming from these regimes will be considered taxable from the moment itis generated, even if such income, dividends, and profits have not yet been distributed.Income falling under any of the three following categories is considered to be incomecoming from a Preferential Tax Regime: (a) income not taxed abroad, (b) income taxed