August 11, 2000
Mexican & U.S. Tax Authorities Extend Tax Regime
Applicable to Maquiladoras Beyond 2002
WASHINGTON - Mexican and U.S tax authorities have concluded negotiations on an Addendum to the United States - Mexico Competent Authority Agreement on the Maquiladora Industry, signed on October 27th, 1999. With this Addendum, both authorities agree to extend the Agreement beyond taxable year 2002.
The Addendum entered into force on August 3, 2000 and provides legal certainty
to current and new investors in this important industry sector.
One of the reasons for negotiating the Agreement in the first instance was the absence
of international guidance on the taxation of income attributable to manufacturing
activities of a permanent establishment. Therefore, the Addendum establishes that upon
the issuance of OECD guidelines in this regard either Competent Authority may notify
the other of its intent to terminate the Agreement (at the end of the taxable year in which
such notice is given if it is given in the first half of the year and at the end of the taxable
year following the year in which notice is given if it is given in the second half), during
which time both governments will attempt to agree on the proper application of such
guidelines or on extending the Agreement if that is determined to be more appropriate.
The Addendum also establishes that, based on new facts and circumstances,
either Competent Authority may request after taxable year 2002, through formal
notification, that the rates established in the Agreement as "Safe Harbor" options for the
computation of the taxable base be reviewed and adjusted. Failure to reach an
agreement on rate revisions within one year from the date of notification will cause the
Agreement to terminate at the end of the taxable year in which the one-year period
In no event will the Agreement be terminated before the end of taxable year
2002. The Parties agree to make a public announcement within 15 days if any of the
above-mentioned notifications is given.
Also, both Parties have agreed to discuss, on a case-by-case basis, permanent
establishment issues that may arise from the relationship between a U.S. resident and
an unrelated maquiladora (Shelter Maquiladoras).
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