Adriana Rodríguez International Tax Services Partner at PwC Mexico

Adriana Rodríguez
International Tax Services Partner at
PwC Mexico
www.pwc.com
Mexican Tax Reform 2014
VCT & Maquila Industry Update
Adriana Rodríguez
International Tax Services Partner at PwC México
Agenda
Proposed changes affecting the
maquila industry
3
How these changes may affect the
maquila industry?
4
PwC
3
Proposed changes affecting the maquila industry…
1
Abroad
Sale of raw
materials
Sale of finished
goods
Principal
Maquila Fee
Suppliers
Mexico
Suppliers
Mexican
distributor
Physical flow of finished
goods
Maquiladora
Physical flow of raw
materials
PwC
Foreign
distributor
2
VAT 16% on temporary imports
 VAT relief upon special certification.
 Deferred for one year from the release of the
certification rules.
Maquila operation requirement
 Total production exported (virtual
transactions are considered as exportations).
 M&E ownership rules are consistent with the
IMMEX decree.
3
TP OECD methods are eliminated
4
Other changes
 Only safe harbor TP methods are applicable.
 Option to negotiate unilateral APAs.
 Value driver approach from the authorities.
 16% VAT applicable to sales between foreign
principal and a Mexican maquiladora.
 No grandfathering rule has been issued.
 Tax benefits repealed.
4
Proposed changes affecting the maquila industry…
1
Abroad
Sale of raw
materials
Sale of finished
goods
Principal
Mexico
Suppliers
Mexican
distributor
Physical flow of finished
goods
Maquiladora
Physical flow of raw
materials
PwC
Foreign
distributor
Maquila Fee
Suppliers
VAT 16% on temporary
imports
 VAT relief upon special
certification.
 Deferred for one year from the
release of the certification
rules.
5
Proposed changes affecting the maquila industry…
Abroad
Sale of raw
materials
Sale of finished
goods
Principal
Maquila Fee
Suppliers
Mexico
Suppliers
2
Mexican
distributor
Physical flow of finished
goods
Maquiladora
Physical flow of raw
materials
PwC
Foreign
distributor
Maquila operation
requirement
 Total production exported
(virtual transactions are
considered as exportations).
 M&E ownership rules are
consistent with the IMMEX
decree.
6
Proposed changes affecting the maquila industry…
Abroad
Sale of raw
materials
Sale of finished
goods
Principal
Suppliers
3
Maquila Fee
Mexico
Suppliers
Mexican
distributor
Physical flow of finished
goods
Maquiladora
Physical flow of raw
materials
PwC
Foreign
distributor
TP OECD methods are
eliminated
 Only safe harbor TP methods
are applicable.
 Option to negotiate unilateral
APAs.
 Value driver approach from
the authorities.
7
Proposed changes affecting the maquila industry…
Abroad
Sale of raw
materials
Sale of finished
goods
Principal
Foreign
distributor
Maquila Fee
Suppliers
Mexico
4
Suppliers
Physical flow of raw
materials
PwC
Mexican
distributor
Physical flow of finished
goods
Maquiladora
Other changes
 16% VAT applicable to sales
between foreign principal and
a Mexican maquiladora.
 No grandfathering rule has
been issued.
 Tax benefits repealed.
8
How the changes may affect the current maquila industry…
1
VAT 16% on temporary
imports
Significant cash flow effects.
Additional burden to obtain certification.
OEMs not accepting virtual transactions.
2
Maquila operation
requirement
High PE exposure for non-pure maquilas.
Potential need to carve out operations.
PE profit on substance and value creation
TP OECD methods are
eliminated
PE exposure where TP methods are not
used.
Inconsistencies between Mexican safe
harbor rules and international OECD
methods.
Other changes
PE exposure also for Gran fatehered
maquilas.
ETR increases from 17.5% to 30%.
3
4
PwC
9
Thanks!
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