Copyright 1999 Journal of Commerce, Inc.
Journal of
Commerce
September 17, 1999, Friday
SECTION: WORLD TRADE; Pg. 15
LENGTH: 799 words
HEADLINE:
Maquiladoras criticize tax changes
BYLINE: BY DANIEL J. MCCOSH
DATELINE: MEXICO CITY
BODY:
U.S. manufacturers, the Big Five accounting firms and the Border Trade
Alliance are pressuring the Clinton administration to help fight a Mexican
tax plan that would hit some foreign companies
with double taxation.
U.S. companies that conduct in-bond manufacturing,
called maquiladoras, are worried that Mexico next year will treat them as
domestic firms subject to corporate income taxes. Maquiladoras,
which get special tariff treatment, are centered mostly along the U.S.-Mexico
border and make everything from televisions to computers, from auto parts to
electronic components.
The rules for so-called permanent establishment
have long been on the books for maquiladora plants. But in the past a company
could sidestep them by using an alternative accounting method such as transfer
pricing for intracompany revenue and profit. OIL OUTLOOK FUELED CHANGE
A
grim outlook earlier this year for oil prices spurred Mexico to seek other
measures to collect revenue. In the 1999 budget, Mexico noted that as of 2000
maquiladoras would be treated as permanent establishments like any other
domestic company.
Under such an arrangement, U.S. companies with
manufacturing operations in Mexico would be subject to millions of dollars in
Mexican taxes but could not receive a foreign tax credit from the Internal
Revenue Service.
That's because of technical tax issues that led the
U.S. Treasury Department to consider maquiladoras cost centers instead of profit
centers.
""We would like to be able to continue with our current tax
regimen,'' said Larry Amrich, director of government relations for Delphi
Automotive Systems, Mexico's largest private-sector employer. ""We believe the
Mexican government understands the complexity of the permanent establishment
regimen. And we understand its need for more revenue. We are willing to
negotiate.''
WASHINGTON LOBBIED, TOO
But manufacturers aren't
afraid to seek some help in Washington, too. They stepped up lobbying efforts
this week in anticipation of a meeting scheduled in Washington between U.S. and
Mexican tax officials. The lobbying also is designed to pressure Mexican
President Ernesto Zedillo Ponce de Leon, who told maquiladora representatives
last month that a decision on the tax issue would be ready in October.
The Border Trade Alliance, a trade group representing maquiladora and
transport companies, sent a letter this week to Treasury Secretary Larry Summers
asking that the double-taxation issue be addressed when a U.S.-Mexico tax
agreement is reviewed. The alliance this week also courted congressmen to show
how the tax problem could affect jobs in the United States.
Maquiladoras
are primarily across the border from San Diego; Nogales, Ariz.; and the Texas
cities of El Paso, Laredo, McAllen and Brownsville. Many maquiladoras have their
distribution and transportation operations on the U.S. border.
INVESTMENT ENDANGERED
Those seeking to attract manufacturing in
Mexico warn that the taxation shift could chase away investment.
""If
you look at other countries that have permanent establishment rules, U. S.
companies tend to shy away from those countries,'' said Tony Ramirez, executive
vice president of maquiladora consulting firm Made in Mexico Inc. in San Diego.
""The implementation of the rules are almost impossible to decipher, and the
administrative costs are so high that it is often not worth the effort.''
Humberto Inzunza, president of the National Maquiladora Industry
Council, told Mexican newspapers that a major U.S. company is reconsidering
investments in Tijuana because of the uncertainty of future tax liabilities.
According to Sam Vale, chairman of the Border Trade Alliance,
representatives from Panasonic, Kimberly Clark and Delphi Automotive Systems
were on Capitol Hill this week pointing out how the tax changes could affect
maquiladora operations, and U.S. jobs of workers that produce supplies for the
plants.
PANASONIC SEES PROBLEMS
Panasonic said its picture-tube
plant in Ohio and its circuit-board plant in Tennessee could be affected by any
production shifts from its Matamoros, Mexico, plant.
U.S. manufacturers
warn that tax changes may drive them out of Mexico in search of cheaper
production sites if the changes are implemented.
In an effort to
maintain pressure, the Border Trade Alliance will meet on Oct. 5 at South Padre
Island, Texas, with the Big Five accounting firms - Deloitte & Touche;
Arthur Andersen; KPMG; Ernst & Young; and PricewaterhouseCoopers - and
maquiladora trade organizations.
The National Maquiladora Industry
Council will hold its annual meeting in late October.
""We will meet to
either celebrate or plan a strategy,'' said Maria Luisa O'Connell, executive
president of the Border Trade Alliance.
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September 17, 1999 
