Global

Details

  • Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 9/18/2013

Mexico - Tax reform proposals specific to maquiladoras 

September 18: The Mexican government’s tax reform package contains provisions that, if enacted as proposed, would specifically affect taxpayers operating in the maquila industry sector.

New definition

For instance, the proposals include a new definition of “maquila operations” that requires that exports must equal a minimum of 90% of the maquila entity’s total income (and not related to a minimum percentage of use of machinery and equipment of the foreign resident, as under current provisions).


This change could result in increased income tax liabilities for maquila entities and present possible permanent establishment issues.

Other proposals

Another proposal could affect foreign residents that maintain business relationships with “shelter maquilas” relating to manufacturing operation and logistics services.


Entities that comply with the proposed definition of maquila operations would need to comply with transfer pricing rules, by means of a “safe harbor” or request an advanced pricing agreement (APA) from the Mexican tax authorities.


Other measures would repeal certain tax incentives and tax exemptions.


In addition, there would be an additional 10% income tax imposed on profits and dividends distributed to Mexican individuals and foreign residents (this would not be a withholding tax but an additional tax to the companies’ current taxation). This new tax would apply to all Mexican entities, not only to maquilas.


Other changes would revise deductions currently available—e.g., deductions for salaries and employee benefits.

VAT changes

A proposal would repeal the value added tax (VAT) exemption on the temporary importation of goods (raw materials and fixed assets) into Mexico involving sales between foreign residents and physical transfers / deliveries with entities operating under the maquila program. If this proposal is enacted, there would be increased financial costs for the maquila sector—i.e., more working capital would need to be devoted to paying VAT upfront before a refund could be requested from the tax authorities.


Read a September 2013 report prepared by the KPMG member firm in Mexico: Effects to the Mexican Maquiladora Industry related with the Tax Reform Proposal for 2014




©2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.


The KPMG logo and name are trademarks of KPMG International.


KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.


The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

 

Share this

Share this

Subscribe

Subscribe to receive the latest TaxNewsFlash email alerts (you must select the option for TaxNewsFlash)


Already a Subscriber? Login


Not a member? Subscribe now