On October 14, tax authorities in the United States and Mexico agreed to a new transfer pricing framework that will ease compliance burdens for some U.S.-based manufacturers with operations in Mexico. Those designated as maquiladoras – a special tax status allowing the tax-free import of materials and equipment used to assemble and manufacture exports – can now enter into advanced pricing agreements (APA) with Mexico’s SAT that will be recognized and accepted by the IRS. According to MNE Tax, the agreement paves the way for resolution of roughly 700 pending unilateral APA requests in Mexico. Specifications of the agreement are pending from the SAT and IRS.

While this arrangement will smooth one complexity faced by multinational manufacturers with contract operations in Mexico – transfer pricing – it further underscores the complexity companies face in Latin America and the attention with which maquiladoras need to approach compliance. Maquiladoras benefit from special tax arrangements that reduce their tax burdens in the interest of job creation. Under this new agreement, e-invoicing and e-accounting errors in Mexico can now affect both a maquiladoras tax status and its APA with the SAT. Worst case? In addition to fines, penalties and operational shut downs, maquiladoras failing to implement proper compliance measures can see an increase in tax liability if certification is lost, ultimately affecting cash flow.

This new U.S./Mexico partnership is yet another iteration of a growing global trend of governments working in concert to enforce tax and compliance initiatives. Governments are closing loopholes that have allowed profits to be shifted to other markets and shutting down other methods corporations have used to avoid tax liability. While a local approach to compliance has always been risky, it’s becoming even more so. In order to close visibility gaps and ensure compliance with local, regional and global standards, corporations must view compliance from a centralized, holistic level.

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