Proposed Mexico Tax Reform of 2013
The proposal submitted to the legislative branch of the government by the executive several days ago outlines a Mexico tax reform package that has caught the attention of many maquiladora industry watchers. This is the second in a series of blog posts on this subject.
In addition to narrowing the definition of what a “maquladora operation” is in an important way, the proposed Mexico tax reform of 2013 is worthy of scrutiny for several other reasons:
Once deemed a “maquiladora operation” a foreign manufacturing plant for export in Mexico the maquiladora regime provides or favorable treatment vis a vis Mexican tax law. In the proposed tax reform of 2013 maquiladoras “would have to comply with their transfer pricing obligations by following “Safe Harbor” provisions. Safe Harbor status shields foreign partners and ownership of a maquiladora by enabling them to avoid setting up a “permanent establishment.”
There are two ways to set up a Safe Harbor in Mexico for tax purposes:
(1) implement safe harbor rules and/or provide appropriate transfer pricing documentation
(2) obtain an APA, or an Advanced Pricing Agreement, via a private ruling by Mexican
In addition to an important issue such as permanent establishment, the Mexico tax reform proposal of 2003 also puts other significant items on the table. For instance:
- It examines a limitation on the deductions that can be made related to the payment of salary and wages
- It would provide for new methods of crediting corporate taxes paid at other locations
- The proposal would create a uniform rate of VAT taxation nationwide.