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14 percent of total U.S. exports, and Mexican products accounted for 11 percent of total U.S. imports.
Six years after the implementation of the NAFTA, Mexico has become the U.S.' second largest trading partner.
Mexico's Foreign Direct Investment Expected to Reach $12 billion in 2000
President Zedillo commented that foreign direct investment in Mexico is expected to reach US$12.4 billion, almost 25 percent more than in 1999. During the past six years of the NAFTA, foreign direct investment has reached US$54.5 billion dollars compared to US$27 billion between 1990 and 1994.
The President of Panasonic de Mexico, Yoshihisa Toki, stated that his company intends to make a significant contribution to employment creation and will transfer administrative responsibilities to local employees. In addition, Magna International, a Canadian group, is interested in investment opportunities in Mexico, mainly the result of the possibilities generated by the NAFTA for the automotive and auto-parts industries. Likewise, Thomson Multimedia plans to open a plant in Mexicali that will require an investment of US$280 million, and will continue to train and increase its workforce, while transferring the administration of plants and other facilities to Mexican personnel.
Tax Regime
Applicable to
Maquiladoras
The Competent Authorities of Mexico and the United States reached a mutual agreement on the tax regime applicable to maquiladoras for years 2000 through 2002. The agreement provides legal certainty to current and potential investors in the maquila industry by establishing specific procedures to comply with tax provisions applicable in each country, and by eliminating potential double taxation. Also, the agreement is intended to provide flexibility to taxpayers to negotiate the appropriate return from the maquila activity.
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The agreement constitutes a Mutual Agreement in accordance with the Convention between Mexico and the United States for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
The Competent Authorities agreed that no permanent establishment shall be deemed to exist, provided that maquiladoras comply with either of the following options:
A "Safe Harbor" where the taxable income of the maquiladora represents at least the higher of:
1. 6.9% of the value of assets owned by a foreign resident and by the maquiladora, used in the maquila activity; or
2. 6.5% of deductions (operating costs and expenses) of the maquiladora; or
B) The maquiladora secures an Advance Pricing Agreement (APA) from Mexico's Tax Administration Service, confirming that it has complied with the transfer pricing provisions of Article 64-A of the Mexican Income Tax Law.
For the purposes of determining the taxable income in Mexico, the APA shall take into consideration all the elements already being accounted for by the Mexican authorities, as well as the assets owned by the foreign resident, used in the maquila activity.
Also, the Competent Authorities have agreed that maquiladoras that decide to apply any of the options provided for by the mutual agreement, shall be considered to operate under conditions that are made or imposed between independent parties, in accordance with the provisions of article 64-A and 65 of Mexico's Income Tax Law, and Section 482 of the U.S. Internal Revenue Code, and Article 9 of the Tax Treaty.
It is important to note that those maquiladoras that have secured an APA for year 2000, or the following years, which was not issued taking into consideration the assets owned by the foreign resident, used in the maquila activity, must request a new APA in order to be entitled to the benefits set forth under the mutual agreement.
Submissions for opting for either the "Safe Harbor" or a new APA, in the case of maquiladoras that have not applied for an APA, must be filed no later than May 31, 2000 to Hacienda.
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