September 18, 2024 The IRS and Mexico’s Servicio de Administración Tributaria (SAT) have agreed to again renew the Qualified Maquiladora Approach Agreement (QMA), a coordination arrangement previously renewed between the U.S. and Mexican competent authorities in 2020 (2020 Renewal QMA). The 2024 renewal applies for the Mexican taxable years ending December 31, 2020, through December 31, 2024. The QMA allows a U.S. taxpayer to avoid double taxation on the contract manufacturing and assembly functions performed by its maquiladora if the Mexican taxpayer enters into a unilateral advance pricing agreement (APA) with the Large Taxpayer Division (Administración General de Grandes Contribuyentes) of the SAT under terms negotiated in advance between the competent authorities. This renewal culminated from lengthy collaborations between the U.S. and Mexican competent authorities addressing SAT’s inventory of unilateral APA requests involving maquiladoras. More than 700 U.S. taxpayers with maquiladoras are expected to qualify for the application of the renewed QMA, thus strengthening ties between the IRS and SAT and providing certainty to hundreds of multinational groups. In 1999, the U.S. and Mexican competent authorities reached an agreement on transfer pricing and other aspects of the tax treatment of maquiladoras of U.S. multinational enterprises. The 2016 QMA updated and expanded the 1999 agreement to reflect revisions to Mexican domestic transfer pricing rules, documentation requirements, and other tax attributes of maquiladoras. The 2020 Renewal QMA maintained the core elements of the 2016 QMA’s transfer pricing framework and addressed situations in which the maquiladora has an outstanding accounts receivable balance that the competent authorities agree is inconsistent with the transfer pricing profile of the Mexican entity. This renewal maintains the core elements of the 2020 Renewal QMA’s transfer pricing framework, provides additional details regarding the application of the agreed methodologies, and further addresses instances in which the maquiladora has an outstanding accounts receivable balance to ensure that the QMA framework continues to produce arm’s length results. Taxpayers may inquire with the Advance Pricing and Mutual Agreement (APMA) Program regarding whether the QMA is appropriate for its facts and circumstances or whether a bilateral APA between the United States and Mexico might be more suitable. Questions about this announcement may be directed to the APMA Director per the APMA contacts webpage.
