DECRETO IMMEX 2010 PDF

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These proposed changes are presumably an anti-abuse measure aimed at limiting companies from converting to maquiladoras or toll manufacturers operating pursuant to an IMMEX Decree in order to benefit from the abovementioned tax benefits.

It seems that for this reason, obtaining the IMMEX program now not only requires confirmation by the Ministry of Economy, but also from the Ministry of Finance tax authorities ; moreover, prior to approving an IMMEX program, both the Ministry of Economy and the Ministry of Finance will jointly visit the facilities of the company requesting the program.

The modified Decree also includes various changes and additions in multiple articles aimed at further controlling IMMEX operations from a customs point of view. For example, steel products are now considered sensitive goods which are subject to new requirements and are limited to certain benefits of the IMMEX decree. Notwithstanding, despite the proposed changes, use of maquiladoras should continue to offer opportunities for companies to structure their Mexican manufacturing operations in a manner that is efficient for tax, customs and treasury purposes.

Nevertheless, to the detriment of the Mexican economy, there may be cases where the proposed changes could adversely affect economically and commercially valid operations by incorporating taxpayer unfriendly and oftentimes confusing rules. The most commonly used duty deferral program was the maquiladora program. In general terms, the IMMEX program can be obtained if a tax payer transforms or repairs materials, parts or components into finished goods, that are destined for exportation.

Certain additional requirements have to be met, including maintaining a specific inventory control system that allows the authorities to track the imports and exports of the maquiladora.

Technology and technical assistance was generally also developed abroad and provided to the Mexican manufacturer. Many maquiladoras also perform some sort of research and development activities.

While in essence a customs program, the IMMEX program also allows tax payers - that meet certain requirements - to obtain protection against Mexican tax exposure and apply certain non-customs related tax benefits:.

Article Bis of the MITL provides specific transfer pricing methodologies safe harbor for companies operating under the maquiladora program. These transfer pricing methods may create a simplified transfer pricing compliance mechanism.

Maquiladoras are entitled to several beneficiary treatments regarding VAT, including the following:. Maquiladoras should also meet the requirements mentioned in the penultimate paragraph of Article 2 of the aforementioned law. Both rules in essence describe a toll- or consignment manufacturing operation whereby fixed assets and inventories are owned abroad and provided to the Mexican manufacturer under a toll manufacturing agreement.

The objective of limiting the definition of maquiladora activities to toll manufacturers was presumably to exclude - from aforementioned income tax and IETU benefits - regular Mexican owned companies that operate under a buy-sell model i. The requirement that assets and inventory be owned by a foreign related party would clearly take out these regular Mexican owned companies from the definition of maquiladora activities.

Nevertheless, Mexican tax authorities apparently still consider that certain non-eligible tax payers have access to the maquiladora income tax and IETU benefits and therefore propose to further limit the definition of maquiladora activities:. For purposes of the last paragraph of Article 2 of the Income Tax Law, the maquila operation referred to in Article 2, section - III of this Decree shall be the one that meets the following conditions:.

That the goods referred to in Article 4, section I of this Decree, provided by a foreign resident pursuant to a maquiladora agreement which gives rise to an authorized Program by the Ministry, be subject to a process of transformation or repair, be imported temporarily and be returned abroad pursuant to the provisions of the Law or this Decree, including virtual exports.

For purposes of this section, it shall not be necessary to return abroad the scrap and waste. The goods referred to in this section may also be owned by a foreign resident third party that has a manufacturing commercial relationship with the foreign resident company that has the maquila agreement through which it carries out the maquila operation in Mexico, to the extent that that these goods are provided as a result of such commercial relationships. For purposes of this section, transformation is also considered to be the processes carried out with the goods consisting of: dilution in water or in other substances; washing or cleaning, including the removal of rust, grease, paint or other coating substances; application of preservatives, including lubricants, encapsulation, protective or preservative paint, adjustment, filling or cutting; conditioning in doses; packaging, repackaging, packing or repacking; submission to tests and marking, tagging or rating;.

Companies that carry out the maquiladora operation referred to in the section above may use in their productive processes, Mexican and foreign goods that have not been imported temporarily. The goods provided by the foreign resident and introduced into Mexico via temporary importation must represent the majority of the total value of the materials incorporated into the final product.

When such goods are provided via virtual customs documents, the materials used for their production must in turn be in majority from abroad. Goods that are virtually exported by a Mexican resident supplier, and subsequently virtually imported on a temporary basis by the maquiladora shall not be considered as goods provided by the foreign resident;. The above shall not be applicable to companies that operated under a duly authorized maquila program prior to November 13, That the companies that carry out the transactions referred to in this article comply with the requirements established under the penultimate paragraph of Article 2 of the Income Tax Law.

The proposed sections I and II of Article 33 impose new requirements related to the origin of the sourcing of raw materials and components i. Section I lays out the general idea of maquiladora operations whereby raw materials are imported on a temporary basis, subsequently transformed or repaired and finally exported as finished goods the rules clarify that this includes virtual exports.

The paragraph also determines that it is not necessary to export any scrap and waste resulting from the transformation process and broadens the definition of transformation as to include certain processes that may not necessarily imply the transformation of one good into another. Section II of the proposed Article 33 allows for the use of domestic or foreign inputs that are not imported on a temporary basis.

Materials sold by a Mexican supplier to the foreign related party, but delivered through a virtual exportation and virtual temporary importation by the maquiladora, are not considered as materials provided by a foreign resident. This sourcing requirement therefore limits the possibility for the maquiladora to use materials and components provided by local Mexican suppliers and by foreign suppliers, in case the goods are imported on a permanent basis.

That is, the majority of the value of the components that are incorporated into a finished good should be provided by the foreign related party and should be imported on a temporary basis. Finally, the question remains what kind of abuses the Mexican tax authorities try to challenge with this sourcing limitation?

Why, to the detriment of the Mexican economy, would the tax authorities create a disincentive for companies to purchase from Mexican suppliers? The proposed language of section III of Article 33 now adds the requirement that such foreign owned fixed assets machinery, equipment, tooling, spare parts have not been previously owned by the maquiladora or another Mexican related party.

This new requirement is presumably included in the definition of maquiladora activities, in order to prevent Mexican manufacturing companies from selling their fixed assets to the non-resident related party as part of a conversion process with the main purpose of obtaining access to the aforementioned income tax and IETU benefits. This anti-abuse rule, however, is worded in such a broad way, that many companies that want to establish - or convert to a toll manufacturing model for commercial reasons with no intention to seek tax benefits , may be adversely affected by this requirement.

In addition, the requirement results in a discriminatory tax treatment compared to companies that operate under an IMMEX program before November 13, The rules may also affect companies that have transferred fixed assets to their foreign related party after November 13, For this reason, the proposed amendments may be in violation of the Mexican Constitution.

It is worth mentioning that the temporary importation by IMMEX companies of these sensitive goods will be allowed for up to 6 months and the proposed modifications state that IMMEX companies under the Services modality may not import such sensitive goods unless they also register as Empresa Certificada.

While IMMEX companies were in practice already exempt from filing the extension or amendment of their Program to include the goods established in article 4 i. In the case of IMMEX companies importing sensitive goods, they must file an amendment to its Program to be able to import additional goods not originally approved in their IMMEX authorization; thus, the importation of sensitive goods will be limited to HTS codes authorized in their Program.

Also, under the proposed modifications the situations that may trigger the cancellation of the program currently established in Article 27 are being modified.

The changes include the elimination of certain obligations of IMMEX companies and customs brokers that are currently regulated through other legislation. By releasing these proposed changes to the IMMEX Decree, the Mexican tax authorities reverse a trend that had existed over the past 10 years of providing laws and guidance to facilitate the use of operating companies under the IMMEX Decree.

Importantly, these rules appear to contradict the terms of the Mutual Agreement entered into between the Mexican tax authorities and the I.

Likewise, it is disappointing that changes of this nature could be enacted without the approval of the Mexican Congress and which modify rules that were previously issued via the MITL which is approved through the Mexican Congress.

Although the IMMEX Decree continues to offer opportunities to structure manufacturing operations in a way that is efficient for customs, treasury and tax purposes, the proposed rules create uncertainty in a number of areas at a time when one would expect the Mexican government to be concerned about facilitating investment into Mexico. For purposes of the last paragraph of Article 2 of the Income Tax Law, the maquila operation referred to in Article 2, section - III of this Decree shall be the one that meets the following conditions: That the goods referred to in Article 4, section I of this Decree, provided by a foreign resident pursuant to a maquiladora agreement which gives rise to an authorized Program by the Ministry, be subject to a process of transformation or repair, be imported temporarily and be returned abroad pursuant to the provisions of the Law or this Decree, including virtual exports.

For purposes of this section, transformation is also considered to be the processes carried out with the goods consisting of: dilution in water or in other substances; washing or cleaning, including the removal of rust, grease, paint or other coating substances; application of preservatives, including lubricants, encapsulation, protective or preservative paint, adjustment, filling or cutting; conditioning in doses; packaging, repackaging, packing or repacking; submission to tests and marking, tagging or rating; Companies that carry out the maquiladora operation referred to in the section above may use in their productive processes, Mexican and foreign goods that have not been imported temporarily.

Transfer pricing Article Bis of the MITL provides specific transfer pricing methodologies safe harbor for companies operating under the maquiladora program. Certain sales of goods that are physically located in Mexico and imported temporarily are exempt from VAT. This exemption includes sales between non-Mexican companies as well as certain sales between non-Mexican companies and maquiladoras. Companies operating under the IMMEX program that obtained a certified importer empresa certificada status will be eligible for VAT refunds within 5 business days.

Final remarks By releasing these proposed changes to the IMMEX Decree, the Mexican tax authorities reverse a trend that had existed over the past 10 years of providing laws and guidance to facilitate the use of operating companies under the IMMEX Decree.

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These proposed changes are presumably an anti-abuse measure aimed at limiting companies from converting to maquiladoras or toll manufacturers operating pursuant to an IMMEX Decree in order to benefit from the abovementioned tax benefits. It seems that for this reason, obtaining the IMMEX program now not only requires confirmation by the Ministry of Economy, but also from the Ministry of Finance tax authorities ; moreover, prior to approving an IMMEX program, both the Ministry of Economy and the Ministry of Finance will jointly visit the facilities of the company requesting the program. The modified Decree also includes various changes and additions in multiple articles aimed at further controlling IMMEX operations from a customs point of view. For example, steel products are now considered sensitive goods which are subject to new requirements and are limited to certain benefits of the IMMEX decree.

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