The Tax Administration Service website published on July 1st, 2014 a draft of the proposed Second Amendment of the Miscellaneous Tax Rules for 2014 (the "Amendment"). Among other relevant topics, the proposed Amendment includes the following with respect to the type of income that companies with maquila operations may continue to generate without jeopardizing the statutory protection of their foreign principal from a permanent establishment exposure in Mexico.

As established in the Income Tax Law in full force and effect as of January 1, 2014, among other requirements to meet a maquila operation concept required to exempt the foreign principal of a maquiladora company from a permanent establishment exposure in Mexico, all the income from productive activities of the maquiladora shall derive exclusively from its maquila operation (i.e. from transformation activities). However, under the proposed Amendment, such obligation would be extended to September 30, 2014. Thus, as of October 1, 2014, all income shall be derived from a maquila operation, with the limited exemption as follows (the below information is presented as a summary, we would be pleased to discuss with you any additional aspects if needed):

  1. Rendering of personnel services only between related parties.
  2. Lease of movable goods and real estate for a limited term of three years if the lease if with independent parties (otherwise, there is no limitation).
  3. Sale of movable goods and real estate.
  4. Sale of scrap materials generated during the productive process.
  5. Interests gained on loans granted.
  6. Other income directly related to the maquila operation.

Notwithstanding the above, the revenue generated by the maquiladora for the activities indicated in items 1, 2, 4, 5, and 6  (excluding sales described in item 3), shall not exceed in aggregate more than 10% of the total revenue generated by the maquiladora company, meaning that the income derived from manufacturing activities shall represent at least 90% of the total income.

With respect to the sale of assets and real estate, prior to the undertaking of such transactions, it would be mandatory to file a notice before the Transfer Pricing Auditing Central Administration , with a detailed explanation of the business reasons for such sales transaction, as well as an indication of the value amount and percentage of such transaction with respect to the total income of the maquiladora company, among other formalities.

For such purposes, income from non-maquila activities shall be duly segregated in the accounting and financial information of the company from the income derived as a result of the maquila services. Therefore, such non-maquila income may not be subject to any tax benefit granted to the maquila operation.

Similarly, please note that all payments between or among related parties shall be determined at arm's-length, following the corresponding transfer pricing methodologies.

The draft Amendment continues to specify that companies with maquila operations can not undertake any trading or commercialization activities. Therefore, if a company with a maquila operation participates in the commercialization of goods (other than the sale of fixed assets or own real estate previously utilized in the manufacturing activities), the tax authority may attempt to disregard the statutory protection of its foreign principal from a permanent establishment in Mexico.