Transfer Pricing Regime Change for Maquiladora Companies

On October 26, the Mexican Congress passed the proposed 2022 budget (the “Bill”) which contains a significant change to the current transfer pricing regime for Maquiladora Companies.  If approved by the Mexican President, the change would be effective starting January 1, 2022.

The Bill would eliminate the option that maquiladora companies currently have to obtain an Advance Transfer Pricing Agreement (APA) in order to comply with their transfer pricing obligations and maintain the tax benefits of the maquiladora regime.  Maquiladoras will only be able to comply with their transfer pricing obligations through Safe Harbor rules established in Article 182 of the Mexican Income Tax Law.  This change has potential to significantly increase  Mexican income tax obligations for Maquiladora Companies.

Many tax professionals question the legality of such change and expect much heated discussion with and push-back from U.S. taxing authority, Internal Revenue Service.   Accordingly, the ultimate enactment of this change is yet to be confirmed.  However, taxpayers with Maquiladora subsidiaries are recommended to contact their Mexican tax service provider for further advise.