End of APAs and New Tax Regime
As of January 1, 2025, Mexican maquiladoras can no longer renew or apply for Advance Pricing Agreements (APAs). These instruments, valid for the 2020–2024 period, expired on December 31, 2024, thus closing this tax planning option.
What Does “Safe Harbor” Imply?
Now, under this new framework, all maquiladoras must calculate their taxable income by applying any of the following:
- 6.9% on total assets, including inventories and machinery provided by the parent company.
- 6.5% on total costs and expenses incurred in the maquila operation, whichever is greater. Additionally, they must file an annual information statement in June, according to current tax rules.
Risks of Not Adopting the Safe Harbor
Failure to adopt this regime would mean that operations would be treated as a Permanent Establishment (PE) in Mexico, increasing the tax exposure of foreign companies.
Strategic Recommendations for Maquiladora Companies
- Analyze the tax effects: It is a priority to evaluate profitability under the safe harbor, anticipating the effects on income tax payments.
- Review international treaties: It should be confirmed whether the PE can be avoided through double taxation agreements.
- Evaluate the possibility of determining remuneration according to two cases:
- Maintain the historical profile of toll manufacturers with limited functions and risks, which justifies lower remuneration.
- Modify the functional profile to a contract manufacturer, assuming additional functions, assets, and risks, which would justify higher remuneration.
The choice between one functional profile or another must be based on actual facts and circumstances, documented in the functional analysis, and adequately reflected in the Transfer Pricing policy.
Conclusion
This regulatory amendment represents a substantial transformation in tax planning for the maquiladora sector. Companies must act immediately: Review their structures, adjust their operating models, and ensure compliance with the Safe Harbor to mitigate risks and avoid penalties.
Source: Garrigues