The Mexican Tax Administration Service (SAT) has introduced a renewed Qualified Maquiladora Approach (QMA) applicable for fiscal years 2020 through 2024. This announcement, made on the exclusive microsite for maquiladoras, stems from a memorandum of understanding reached in June 2024 with the Internal Revenue Service (IRS).
Understanding the QMA
The QMA is a methodology co-developed by the SAT and the IRS to determine the arm’s length remuneration for maquiladora services provided by Mexican resident entities to their U.S.-based principals. Under the maquiladora regime, Mexican toll manufacturing service suppliers, known as maquiladoras, utilize machinery, equipment, and inventories owned by their non-resident related party principals. This arrangement helps prevent the establishment of a permanent business presence (permanent establishment) for the principal in Mexico, provided the maquiladora earns an arm’s length remuneration and meets other requirements.
Eligibility and Implementation
According to the SAT, only those maquiladoras that have requested, obtained, and correctly implemented an advance pricing agreement (APA) resolution for fiscal years 2019 or earlier, or that have determined their remuneration according to the safe harbor provisions in the Income Tax Law (ITL), can secure a resolution for fiscal years 2020-2024.
APA resolutions are applicable for the fiscal year in which they are requested, the immediately preceding fiscal year, and up to three fiscal years following the submission year. Notably, starting January 1, 2022, maquiladoras can no longer apply for APAs and must adhere to the safe harbor remuneration provisions outlined in the ITL. Consequently, APA resolutions for requests made in 2021 under the QMA will remain valid through 2024.
Looking Ahead
As of now, neither the SAT’s microsite nor Mexican tax legislation provide for a QMA applicable from 2025 onwards. This leaves some uncertainty for maquiladoras and their principals regarding future compliance and remuneration methods.
Conclusion
The SAT’s recent announcement on July 22, 2024, brings clarity and structure to the remuneration framework for maquiladoras through 2024. Tax professionals and investors should take note of these developments to ensure compliance and optimal financial arrangements within the existing regulations.
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