Maquila Tax Issues in Mexican Tax Amendment Proposal For 2014 Will Affect Operation And Cash Flow Of Maquila Program Holders - Tax - Mondaq Mexico - Mondaq Business Briefing - Books and Journals - VLEX 469720682

Maquila Tax Issues in Mexican Tax Amendment Proposal For 2014 Will Affect Operation And Cash Flow Of Maquila Program Holders

Author:Mr Mauricio Llamas and Javier A. Cortés
Profession:Jones Day

The amendment proposal presented to the Mexican Chamber of Deputies on September 8, 2013 by the head of the Executive Branch contains important amendments to the tax regime of maquila authorization holders. If approved as it stands by the Legislative Branch, the proposal would radically change the treatment of the value-added tax ("VAT") within transactions between maquila companies (a factory run by a U.S. company in Mexico), as well as those between maquila companies and foreign residents, and would also radically change the treatment of the income tax for those maquila companies. From the argument within the proposal's statement of purpose—specifically, the Mexican tax authorities' mention of a series of abuses by some maquila authorization holders and the recognition by these same tax authorities of their own incapacity to properly audit and survey the use of VAT in connection with other tax benefits under different foreign trade-promotion schemes—it can be concluded that these amendments are aimed primarily at controlling, and eventually excluding from the benefits of the program, companies that only look to fulfill the formal requirements of maquila programs in order to enjoy their tax benefits, without successfully carrying out exportations. However, such amendments are likely to affect the operation and cash flow of maquila holders who do comply with their obligations in form and substance. This could result in the pulling of investments from the manufacturing sector, which is highly sensitive to any change in its utility gap. Even though the proposal refers to an alleged financial-support program for the affected maquila holders, the fact that the scope and details of this program are not specified will create uncertainty in the maquila-company sector.

Value-Added Tax

The VAT amendments, if approved as presented, will have a profound impact with respect to: (i) temporary imports; and (ii) sales between maquila companies, sales between these and their national suppliers, and sales in which both maquila holders and foreign residents participate. In accordance with the proposal's text, all temporary imports made by the maquila authorization holder will be subject to VAT payments at the moment of entry into Mexican territory, and the VAT will be accredited (set off) only after the maquila authorization holder has either returned or sold the final manufactured goods abroad or else sold those final goods in Mexico. With respect...

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