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Exchange gains/losses and the taxable income for maquiladoras . WMTA - February 18, 2009. ©2009 Deloitte LLP. All rights reserved . Income Tax. ©2009 Deloitte LLP. All rights reserved . Exchange differences.

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exchange gains losses and the taxable income for maquiladoras

Exchange gains/losses and the taxable income for maquiladoras.

WMTA - February 18, 2009

©2009 Deloitte LLP. All rights reserved.

income tax

IncomeTax

©2009 Deloitte LLP. All rights reserved.

exchange differences
Exchange differences
  • By Law, General Ledger must be kept in Spanish and in Mexican Pesos. This originates that transactions denominated in Dollars must be adjusted at the end of the month accordingly. Balances generating differences are mainly:
  • Bank accounts in Dollars.
  • Intercompany account (receivable or payable)
  • Rents or deposit in foreign currency.
when the option is to have a tp study
When the option is to have a TP study
  • Taxable Income is directly affected by the exchange rate fluctuations. For the income tax law, exchange gains are taxable and deductible the exchange losses.
  • The more exchange gain, the higher the taxable income.
        • Intercompany (Receivable Account):
  • The more exchange losses, the lower taxable income.
        • Intercompany (Payable Account):
other points to consider
Other points to consider
  • It’s important to take into account the date of the accrual of exchange differences and the Mark Up determination
  • Analyze the impact of converting accounts receivable/payable into pesos
when the safe harbor is elected
When the Safe Harbor is elected
  • When the maquiladora is computing the taxable income based on the SH option, exchange differences are not affecting the taxable income of the maquiladora.
  • Exchange differences are transferred via service price to parent company and therefore recognized as additional cost (or lower cost) for the manufacturing services.
ietu flat tax

IETU (Flat Tax)

©2009 Deloitte LLP. All rights reserved.

slide10
IETU
  • Exchange differences do not accrue any IETU liability since income and expenses are deductible upon payment.
value add tax

ValueAddTax

©2009 Deloitte LLP. All rights reserved.

slide12
VAT
  • Similar as IETU computation, revenues and expenses are dedutible upon payment. No exchange differences are recognized and VAT credit is computed based on the exchange rate of paymente. Gross income for maquila services are 0% VAT taxed.
alternatives
Alternatives
  • The option is to consider the current situation as a casualty of the crisis and do nothing, or evaluate some of the following options:
  • Understand the tax situation for the parent company.
  • Transfer the exchange fluctuations to the parent company.
  • Stop differences in Mexico by capitalizing debt or paying a dividend.
  • Verify US consequences of the dividend payment.