Qualified Maquiladora Approach for 2020-2024 maquiladora APA program renewed by Deloitte

During the first half of fiscal year (FY) 2024, Mexico’s tax authority (Servicio de Administración
Tributaria or SAT) and the US Internal Revenue Service (IRS) discussed open items relating to the
transfer pricing framework—known as the Qualified Maquiladora Approach (QMA) or Fast Track
Methodology—for Mexican taxpayers that entered into a unilateral advance pricing agreement
(APA) with the SAT’s Large Taxpayer Administration.

The purpose of the meetings between the SAT and IRS was to confirm the position of the competent
authorities and renew the QMA framework—initially signed in 2016 and updated in 2020—for the
2020-2024 APA program.

The renewal agreement, published on the SAT website on 23 July 2024, maintains the core elements
of the QMA framework applicable to FY 2019 and prior years, as the competent authorities of
Mexico and the US determined that it continues to produce results in accordance with the arm’s
length principle.

Note that, based on the agreement reached between the competent authorities of Mexico and the
US, maquiladoras will be able to obtain an APA ruling applicable for FYs 2020-2024 only if they have
requested, obtained, and correctly implemented an APA ruling through FY 2019 in accordance with
the QMA or , where applicable, have correctly applied the provisions of article 182, first paragraph of
the Mexican Income Tax Law (MITL) (safe harbor rules). It is worth mentioning that the 2019 APA
ruling must not be subject to a litigation process. In the event that it has been under such a process,
it must have been withdrawn and either the APA ruling must have been correctly implemented or
the provisions of article 182, first paragraph of the MITL must have been correctly applied.

Considering that the important features of the QMA for the 2020-2024 APA program may have a
direct effect on the financial and tax results of companies through 2023, we recommend updating
the QMA estimates for those years in order to assess the next steps to consider in the APA process.

It is noteworthy that the renewed framework does not address any of the economic impacts of the
COVID-19 pandemic on maquiladoras, despite the mandatory closure of several manufacturing
plants and other government-mandated measures aimed at abating the spread of the disease. Also,
the framework does not provide any relief for the production stoppage caused by the shortage of
electronic chips and semi-conductors.

In addition, while the SAT reviews the reasonableness and relevance of the nancial information
associated with the maquiladora’s activities, the QMA information must be consistent with the
statutory tax report (dictamen scal) and/or annual income tax return. This poses a challenge for
implementing the QMA in accordance with Mexican accounting standard (NIF) D-5 related to
accounting for leases. Accordingly, an important point to be discussed with the SAT during the APA
ruling process is whether the competent authority will accept the application of NIF D-5 for
purposes of the QMA, considering that, if the values determined based on this accounting standard
are not accepted, the APA ruling may conict with article 182 of the MITL or with the QMA
framework.

Lastly, it is important for taxpayers to remain attentive to any notication that the SAT may send
through their tax mailbox since this is the primary method for receiving notices regarding APA
information compliance. Note that SAT notices usually have a compliance deadline of 10 business
days. Taxpayers receiving such a notication in their tax mailbox should promptly contact their
trusted transfer pricing advisors for guidance and assistance in verifying that the due diligence
request includes all the necessary information so as not to delay the process with the SAT.