Although the approved Economic Package for Fiscal Year 2022 did not increase the Income Tax (ISR) rate payable by legal entities, it does contain an amendment whose practical effect will be that many Mexican auto-parts companies will pay more ISR on the maquila operations they carry out.
A large number of companies operate in Mexico whose activity consists of temporarily importing inputs and consumables in order to manufacture or “maquila” auto parts on behalf of their “principal” abroad. These maquiladora companies only earn income taxed in Mexico for the provision of the maquila service, while the income from the sale of the auto parts they produce is taxed in the jurisdiction of the principal abroad, a situation that does not satisfy the Mexican tax authorities. Until 2021, maquiladoras may determine the ISR they owe under one of the following two methods: (i) the minimum taxable income or “Safe harbor” method, or (ii) in accordance with the specific profit margin agreed upon with the tax authorities in a particular ruling known as an “Advance Pricing Agreement” or APA. Whereas the “safe harbor” is a rigid method, the APA seeks to reflect the specific situation, characteristics, and conditions of each maquiladora. However, as of fiscal year 2022, the APA is eliminated as a method for determining the amount of ISR payable (art. 182 of the LISR). Therefore, all of the country's maquiladora companies will have to determine and pay the ISR they owe under the “Safe harbor,” that is, using as the taxable base the taxable income that is greater of applying 6.9% to the total value of the assets used and 6.5% to the amount of the operating costs and expenses. In capital-intensive companies, a common denominator among auto-parts companies, the application of this method generally results in the payment of ISR much higher than what would be paid under an APA. This is a highly relevant amendment that will surely affect auto-parts companies, and those of other sectors, that had been paying tax under an APA. We therefore suggest immediately evaluating the impact of this amendment on the company's operations and identifying the corresponding mitigation mechanisms, including the validity and fate of the particular rulings in process. Should you have any additional questions, please do not hesitate to contact our experts: Luis Miguel Jiménez, Partner: +52 (55) 5258-1058 | lmjimenez@vwys.com.mx Jorge Díaz, Associate: +52 (55) 5258 1008 | jdiaz@vwys.com.mx
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