Transfer Pricing – IRS announces changes in APA for Mexican Maquiladoras

IR 2016-133

IRS today announced that U.S. taxpayers with maquiladora operations in Mexico will not be exposed to double taxation if they enter into a unilateral advance pricing agreement (APA) with Mexico’s Servicio de Administración Tributaria (SAT) under terms discussed in advance between the U.S. and Mexican competent authorities.

Maquiladoras typically operate in Mexico as contract manufacturers of foreign multinationals.

To recap in 1999, the U.S. and Mexican competent authorities reached an agreement on transfer pricing and other aspects of the tax treatment of maquiladoras of U.S. multinational enterprises. The new agreement updates and expands upon the 1999 agreement in order to reflect recent revisions to Mexican domestic tax rules governing transfer pricing rules, documentation requirements and other tax attributes of maquiladoras.

Because the transfer pricing framework adopted under SAT’s program was discussed and agreed upon with the U.S. competent authority in advance, the transfer pricing results set forth in unilateral APAs executed between SAT and Mexican affiliates of U.S. taxpayers pursuant to this program will be regarded as “arm’s length” under section 482 of the Internal Revenue Code.

In conjunction with the 1999 agreement, this announcement will provide certainty for U.S. taxpayers regarding double taxation, foreign tax credits and permanent establishments in relation to transactions with their maquiladoras. Further guidance on the U.S. taxable years and tax consequences of these unilateral APAs will be included in a forthcoming IRS practice unit.

Please contact CPA Global Tax for further information and assistance.

 

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