Mexico: Considerations for maquiladora transfer pricing strategy, given elimination of APAs

Steps for maquiladoras to consider in establishing a strategy for addressing transfer pricing issues

Steps for maquiladoras to consider in establishing a strategy for transfer pricing issues

An advance pricing agreement (APA) is no longer an alternative mechanism for resolving tax and transfer pricing obligations of maquiladora companies beginning 2022.

Under recent tax reform measures, beginning in 2022, the use of APAs was eliminated for resolving transfer pricing issues of maquiladoras—thus, leaving the “safe harbor” calculation as the only possible means for demonstrating maquiladora compliance with Mexico’s transfer pricing rules. Read TaxNewsFlash

Therefore, given that the safe harbor alternative is now the only method available regarding transfer pricing compliance, maquiladoras need to take into consideration the following steps in establishing a strategy for addressing their transfer pricing issues.

  • Analysis, key factor to mitigate risks: The first step would be to conduct various types of analysis to arrive at alternative calculations (even if estimated with different scenarios) regarding the transactions of the business. The analysis process would provide a basis for accurate decision-making while also avoiding miscommunication with the parent company as well as other risks within the business strategy.
  • Decision-making, a complete relationship: Once the calculations are made and the results obtained, the next step would be to reflect on and determine what is the best strategy for the operation of the company, always keeping in mind that the plan followed in Mexico would have corresponding implications in the country where the related company is a resident. Therefore, the decision regarding the transfer pricing strategy that best suits the needs of the multinational group would need to be one made by all concerned. 

KPMG observation

While these points briefly noted above may seem simple, taxpayers that anticipate and consider these elements and then properly execute their transfer pricing strategy would be prepared for questions from the local tax authority.

Read an April 2022 report (Spanish) prepared by the KPMG member firm in Mexico

 

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