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November 20, 2020

US and Mexico renew competent authority agreement on unilateral APAs for maquiladoras

The United States (US) Internal Revenue Service (IRS) has announced that it has reached an agreement with the Mexican Tax Authority (SAT) to renew the competent authority agreement arrangement known as the Qualified Maquiladora Approach Agreement (QMA). Under the QMA, a US taxpayer can avoid double taxation on its maquiladora contract manufacturing and assembly functions by entering a unilateral advance pricing agreement (APA) with SAT’s large taxpayer division under terms agreed in advance by the US and Mexican competent authorities.

The US and Mexican competent authorities last negotiated a QMA agreement in 2016. The 2016 QMA updated and expanded a 1999 agreement between the US and Mexican competent authorities on transfer pricing and other aspects of the tax treatment of maquiladoras of US multinational enterprises. The 2016 QMA included changes reflecting revisions to Mexican domestic transfer pricing rules, documentation requirements and other tax attributes of maquiladoras.

The 2020 renewal agreement follows the framework of the 2016 QMA, which the competent authorities agree has continued to work to produce arm’s-length results. Following further collaboration between the US and Mexican competent authorities, however, the 2020 renewal agreement adds several new features. Specifically, the IRS notes that the 2020 agreement adds a mechanism for addressing 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.

The 2020 QMA covers tax years through 2019 and commits the competent authorities to continue collaborating on another renewal for tax years 2020 and beyond. The competent authorities intend discussions on future agreements to consider the impacts of current economic, commercial and public health conditions affecting taxpayers.

Over 700 US taxpayers with maquiladoras are expected to qualify for the QMA. SAT will directly notify qualifying Mexican taxpayers, and such notifications will include details on necessary steps for taxpayers with pending unilateral APA requests. Taxpayers can also reach out to the IRS Advance Pricing and Mutual Agreement program (APMA) with questions regarding whether the QMA or a bilateral APA would be more appropriate for its facts and circumstances.


Taxpayers with maquiladoras, particularly those with an outstanding accounts receivable balance, should consider the impact of recent revisions to Mexico’s transfer pricing rules and the renewed QMA.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, US Transfer Pricing Controversy Services



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