The tax authorities of the United States and Mexico have agreed to continue a transfer pricing approach for maquiladoras engaged in contract manufacturing and assembly operations for U.S. taxpayers through the use of unilateral advance pricing agreements (APAs).
The IRS and Mexico’s Servicio de Administración Tributaria (SAT) agreed to renew the Qualified Maquiladora Approach (QMA) agreement—a coordination arrangement most recently agreed to between the U.S. and Mexican competent authorities in 2016. The QMA allows a U.S. taxpayer to avoid double taxation on the contract manufacturing and assembly functions performed by its maquiladora if the Mexican taxpayer enters into a unilateral APA with SAT’s “large taxpayer division” (Administración General de Grandes Contribuyentes) under terms negotiated in advance between the competent authorities.
According to an IRS release (November 2020), the renewal agreement culminated from lengthy collaborations between the U.S. and Mexican competent authorities addressing SAT’s inventory of unilateral APA requests involving maquiladoras.
The IRS release further explains that the renewal agreement has several additional features. Because there are situations in which the maquiladora has an outstanding accounts receivable balance that the competent authorities agree is inconsistent with the transfer pricing profile of the Mexican entity, a mechanism for addressing such situations has been included. In addition to providing certainty for tax years through 2019, the agreement also commits the competent authorities to commence work on another renewal of the QMA to cover tax year 2020 and beyond and to consider during those discussions the implications of current economic, commercial, and public health conditions affecting taxpayers and workstreams.
Taxpayers may inquire with the IRS Advance Pricing and Mutual Agreement (APMA) program regarding whether the QMA is appropriate for their facts and circumstances or whether a bilateral APA between the United States and Mexico may be more suitable.
Mexico’s SAT will directly notify eligible Mexican taxpayers. Notifications will include details on the steps a taxpayer must take with their pending unilateral APA requests.
Read a November 2020 report (Spanish) prepared by the KPMG member firm in Mexico
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