Atlanta companies that have maquiladoras in Mexico will pay higher Mexican taxes beginning fiscal year 2000 and should re-evaluate their transfer pricing, according to E. Miller Williams Jr., an international tax consultant at Arthur Andersen LLP in Atlanta.
Mr. Williams spoke at an international business conference sponsored by the Georgia Society of CPA’s and the Georgia Department of Industry, Tourism and Trade last week in Buckhead.
Maquiladoras are companies in Mexico that are separate legal entities but are owned by U.S. companies that use them for manufacturing or assembling products. There are some 2000 maquiladoras owned by companies of all sizes and a variety of industries such as auto parts, textile and apparel manufacturing. Traditionally set up in border-towns, they are now in many areas of Mexico where they can attract low-cost labor.
The U.S.-Mexico Tax Treaty, signed in 1992, gave Mexico the right to collect taxes from the parent companies of maquiladoras, but the country has not done so until now.
A separate agreement between the U.S. and Mexico, announced on Oct. 29, aims to help U.S. companies with maquiladoras avoid double taxation and will be in effect from 2000-2003.
For the U.S. companies to avoid paying income tax to Mexico, their maquiladoras will have to file one of two alternative tax plans, costlier versions of tax plans the companies have been using.
The Safe Harbor Plan, which formerly required companies to pay 5% of the value of assets used in maquiladora operations, will now require 6.9% of that value, or 6.5% of the total amount of costs and expenses, whichever is higher.
Maquiladoras also have the option of negotiating new transfer pricing anticipated resolutions, either with the Mexican Secretariat of Finance and Public Credit, or bilaterally with both the Mexican secretariat and the Internal Revenue Service. In the latter case, the two governments would agree on a resolution.
The resolutions, however, now must take into consideration all assets used in maquiladoras activity.
Mr. Williams may be reached by telephone at (404) 223-7136 or by fax at (404) 954-7925.