A controversial case related to the collection of VAT from foreign trade companies has created uncertainty in investment in Mexico, according to the international law firm Pérez-Llorca.
The maquila sector in Mexico is facing a significant tax dispute that has reached the Supreme Court of Justice of the Nation (SCJN). The conflict centers on the double collection of the Value Added Tax (VAT), both on the import and sale of goods, the result of a specific interpretation of the tax and customs regulations.
This situation has created great legal and financial uncertainty, especially for companies that operate under this regime. ‘It is as if, in the middle of a soccer game, they stopped the game to change the rules,’ compared Luis Mancera, partner at Pérez-Llorca and leader of the Foreign Trade and Constitutional Litigation practices.
As background, on October 5, 2023, the Central-North Regional Chamber of the Administrative Court of Justice established a binding jurisprudential criterion, determining that it is not mandatory to withhold VAT on the purchase of imported goods sold by a foreign resident without a permanent establishment in Mexico, when a V5 declaration is used.
Later, on February 23, 2024, the Supreme Court of Justice of the Nation issued a resolution favorable to virtual operations, declaring that these sales should be considered to be made outside of Mexico. Therefore, the obligation to withhold VAT to a foreign resident without a permanent establishment in Mexico does not apply to virtual export operations with V5 declarations.
Accusation of virtual operations
However, the Tax Administration Service (SAT) has argued that maquiladora companies are improperly using virtual operations with V5 code to evade VAT payment. According to its perspective, the return of goods that actually remain in national territory would be simulated, which harms the tax authority.
The SAT estimates that these operations amounted to 279,000 million pesos between 2019 and 2023, and seeks to charge IMMEX companies 44,640 million pesos in taxes that, according to its criteria, were not withheld. ‘The great challenge here is to establish a symmetrical public policy that provides certainty to long-term investment and avoids immediate budgetary pressures,’ it said.
For his part, Félix Ponce-Nava, advisor to Pérez-Llorca and expert in foreign trade, customs and tax litigation, explained that, regardless of whether the VAT is incurred and paid at the time of the definitive importation of the merchandise, the benefit rule associated with the V5 customs declaration allows considering, through a legal fiction, that the sale occurs outside of Mexico (since the merchandise has been virtually re-exported), which implies that said tax is not incurred.