US companies with maquiladora operations in Mexico will be able to avoid double taxation by entering into a unilateral advance pricing agreement (APA) with Mexico’s tax agency, the Servicio de Administración Tributaria (SAT), the US’s Internal Revenue Service (IRS) announced.

The IRS’s position comes as a result of two years of negotiations between the US and Mexican competent authorities to address a backlog of approximately 700 pending APA requests from the maquiladora industry. Maquiladoras, mostly located along Mexico’s border with the United States, manufacture goods for export, typically under a contract manufacturing arrangement with a foreign multinational.

The new agreement between the countries updates and expands on a 1999 agreement, which governed transfer pricing and other aspects of maquiladoras owned by US multinational corporations. Under the new agreement, the two countries are implementing a transfer-pricing framework that both countries have agreed will produce arm’s-length results. It allows qualifying taxpayers with pending unilateral APA requests to elect to apply the new framework, and the IRS will treat the transfer-pricing results as arm’s-length under Sec. 482 of the Internal Revenue Code.

Taxpayers that elect not to apply the new framework may apply the safe harbours provided for in the 1999 agreement or request a bilateral APA from the Mexican and US competent authorities under the provisions of IRS Rev. Proc. 2015-41.

The SAT is expected to release details of how to make the election and the steps taxpayers must take regarding pending unilateral APA requests shortly. The IRS also said it will release future guidance on the tax consequences of the unilateral APAs.

Citigroup Inc (C.N) is investing another $1 billion in its Mexican bank and renaming it Citibanamex in the strongest signal from management that the business is worth keeping for the long run.

New York-based Citigroup said on Tuesday that the investments will be completed by 2020 and will improve digital tools, ATMs and branches.

The new funds come in addition to Citi’s 2014 commitment to invest $1.5 billion in the business, formerly known as Banco Nacional De México, or Banamex.

“These investments in Citibanamex reaffirm our commitment to Mexico and our confidence in its prospects,” Citigroup CEO Mike Corbat said in the announcement.

Corbat’s decision is a rebuttal to calls by some investors and stock analysts for Citigroup to consider selling Banamex. Some large Citigroup investors have privately questioned the wisdom of keeping Banamex after Republican presidential candidate Donald Trump has roused sentiment for restrictions on trade and travel with Mexico that could hurt the economy there.

Banamex contributes about 15 percent of Citigroup’s global consumer revenue, which makes Mexico second only to the United States in importance. It also earns about 15 percent return on shareholder equity, significantly better than Corbat’s goal of at least 10 percent for the whole bank.

Citigroup said the investments will be directed to five areas: digital banking, information technology, branches and ATMs. It will add 2,500 new ATMs to the 7,500 it has now.

The bank has more branch offices in Mexico than in any other country, with 1,500, compared with 700 locations in the U.S.

Citigroup shares were up 2.4 percent at $48.17 in early afternoon trading.

Corbat has made allegiance to Banamex a hallmark of this four-year tenure as chief executive.

In 2014 he went to Mexico City to pledge support for the unit to the president of the country. He also oversaw executive changes and new controls following the discovery of more than $500 million of fraudulent loans to an oilfield services company.

Mike Mayo, an analyst at CLSA who has long urged Citigroup to sell Mexico, said a sale is now off the table, at least for the short-term.

The new investment will add value, Mayo said. “The question is whether a sale and redeployment of the proceeds into stock buybacks and having a more simple structure would be even better,” he said.

Cisco Systems (CSCO) plans to spend as much as $4 billion in Mexico through 2018 to expand production, creating jobs in the country even as the American company cuts its global workforce by 7%.

The spending will lead to the 270 new direct jobs and 77 related positions, according to a statement from the Mexican government Tuesday. The biggest maker of equipment that runs the internet plans to upgrade its factories and increase production through contract manufacturers, a person familiar with the matter told Bloomberg News. The investment figure includes some spending that had already been planned.

The plan aids Mexican President Enrique Pena Nieto as he seeks to show his economic reforms are attracting more investment. The timing could be delicate for Cisco, coming just after the U.S. presidential debate this week in which Republican candidate Donald Trump threatened to increase taxes on companies that move jobs to Mexico and other countries.

Cisco, based in San Jose, Calif., announced about 5,500 job cuts six weeks ago, without saying which countries would lose positions. Savings from the job reductions will be invested in newer businesses that Cisco expects to fuel sales growth, such as cloud computing and connected services, the company said.

Including the new jobs, the spending plan will affect 4,830 direct employees in Mexico, the government said. The expansion enables the manufacturing in Mexico of products including routers, servers and video-conferencing screens.

“These facilities are expected to supply products to more than 110 countries, and directly complement our manufacturing efforts in the U.S. and around the world,” Cisco Chief Executive Chuck Robbins said in a blog post Tuesday after meeting with Pena Nieto. “Mexico is rapidly becoming one of Latin America’s economic success stories.”

Cisco started operations in Mexico in 1993 and now has more than 1,000 employees there, Robbins said.

The Cisco plan is one of the first major investment announcements by a U.S. company in Mexico since April, when Ford Motor (F) said it would spend $1.6 billion on a new small-car factory in Mexico, drawing a rebuke from Trump. It’s one of the top five spending announcements since Pena Nieto became president in 2012.

Ford has begun fighting back against Trump’s accusations and took to Twitter during the presidential debate to rebut the Republican candidate’s assertion the company is cutting U.S. employees to move work to Mexico. The second-largest U.S. carmaker tweeted it “has more hourly employees and produces more vehicles in the U.S. than any other automaker.” Earlier this month, Ford Chief Executive Mark Fields went on CNN to say the company is “absolutely not” cutting U.S. jobs.

In June of last year, AT&T (T) said it would invest about $3 billion to extend mobile internet service to Mexico in addition to spending $4.4 billion earlier in the year to acquire Iusacell and Nextel Mexico.

The Toyota Motor Corp. plant in San Antonio can’t build trucks fast enough, operating at full throttle six days a week with new Tundras and Tacomas rolling off its production line every 60 seconds.

“We’re pegged out. We can’t run any faster,” said Toyota Motor Manufacturing Texas spokesman Mario Lozoya.

The company is trying to relieve some of the pressure on its assembly line here by upping production at its facility east of Tijuana, in Mexico’s Baja California state. Toyota is investing $150 million in the Baja California plant to increase its production of Tacomas by 60,000 a year by 2018, adding roughly 400 jobs in Mexico.

The Mexico investment comes despite a slowdown in overall truck sales. Toyota has sold 177,055 Tacoma and Tundra pickups through August — 304 less than the same time period in 2015. The drop is due to lagging Tundra sales, which are down 8.5 percent year-over-year through August. Tacoma sales are up 5.5 percent during the same time period.

Ford Motor Co. Chief Executive Mark Fields said Wednesday the car maker will shift the production of its small cars from the U.S. to Mexico, a move aimed at “reinventing” Ford’s small vehicle business and cutting costs to help boost profitability.

“Within the next two to three years, a majority of our small vehicles will be built in low-cost areas,” Fields said at the company’s investor day, according to the archived audio provided by FactSet. “And for example, here in North America, we will have migrated all of our small car production to Mexico and out of the U.S.”

In August, Ford Chief Financial Officer Robert Shanks said the company was seeing “sort of [a] car recession,” according to a transcript of a conference call with analysts provided by FactSet.

A spokeswoman for Ford F, -1.94% said Fields’ comments weren’t new news as Ford indicated last year it would stop making the Ford Focus and the C-Max small cars at the its Michigan assembly plant by 2018.

Weak growth, low oil prices and difficulties in making promised spending cuts all threaten Mexico’s push for a budget surplus next year as credit rating agencies consider downgrading its debt.

After running primary budget deficits since 2009, Mexico last Thursday pledged to turn a projected primary deficit of 0.4 percent of gross domestic product into a surplus of 0.4 percent of GDP next year.

Standard & Poor’s and Moody’s put Mexico’s credit outlook on negative this year, flagging concerns that weak growth could keep pushing up debt after a collapse in oil prices hit Mexico’s income from crude sales.

Jaime Reusche, Moody’s senior analyst on Mexico, said higher-than-expected income from tax reform passed in 2013 had helped offset the decline in oil income. But if tax revenue doesn’t hold up, the government may not meet its targets.

“The budget continues to signal consolidation and that may indeed be favorable for maintaining the rating where it is, but the proof is in the pudding,” he said on Friday.

Mexico’s austere 2017 budget lays out deep cuts that fall heaviest on the education, communications and transportation and agriculture ministries. The government proposed cuts worth nearly 240 billion pesos, or about 1.2 percent of GDP, compared to the 2016 budget.

Moody’s and S&P are concerned that debt as a proportion of GDP could keep rising in the coming years.

But Luis Madrazo, the finance ministry’s chief economist, said the government has already made deep budget cuts in 2016 to stabilize the trajectory of debt to GDP. “We need to make sure the cuts are permanent,” he said on Sunday.

Meeting the goal may be tough. Last year, when sinking oil prices sent the peso into free fall, Mexico announced spending cuts of 124.3 billion pesos, nearly 3 percent of the budget.

While the government made some cuts, total spending still overshot its original budget by more than 4 percent, or 197 billion pesos last year.

The finance ministry said in a statement to Reuters that discretionary spending without financial investments, such as absorbing part of state oil company’s Pemex’s pension liabilities, was only 1.5 percent above budget.

Reaching a surplus “is not going to be easy, the pressure is enormous,” said Ernesto Cordero, a senator in the opposition center-right National Action Party (PAN) and a former finance minister.

Mexico’s central bank last month warned that the country faced a “unpostponable” deadline to cut back its debt in order to maintain the confidence of foreign investors.

Spending last year rose nearly 5.9 percent in real terms, the biggest increase since 2008, according to a Reuters analysis of finance ministry reports to Congress.

The finance ministry said the increase was only 2.6 percent, when excluding financial investments and pension costs.

Mexico was still able to cut its total public sector borrowing requirements last year with the help of a one-off boost to its balance sheet from a surplus transfer from the central bank.

“Even if Mexico does hit the target, the quality of the adjustment is always important, not to have too many one-off items in there,” said Pramol Dhawan, an emerging markets fund manager at Pimco.

Helped by better-than-expected tax revenue, Mexico was able to map out big spending cuts at Pemex this year, easing concerns the state oil company could require a major bailout.

But spending by the federal government has been harder to rein in. One measure of discretionary spending, known as current structural outlays, rose 3.7 percent last year in real terms, shooting past the 2 percent ceiling set by the Finance Ministry in its own austerity rule approved in late 2013.

The law allows the government to exceed the limit since its recent tax reform lifted government income, according to the finance ministry.

Analysts said it would also be hard for the government to contain expenditures ahead of state elections next year after President Enrique Pena Nieto’s Institutional Revolutionary Party (PRI) lost seven gubernatorial races in 2016.

(By Michael O’Boyle and Alexandra Alper. Additional reporting by Dave Graham; Editing by Simon Gardner and Jeffrey Benkoe)

Written by: Reuters

MEXICO CITY (AP) — One of President Enrique Pena Nieto’s closest advisers and confidants, Finance Secretary Luis Videgaray, resigned Wednesday in a move seen as linked to the unpopular decision to invite Republican presidential candidate Donald Trump to visit Mexico.

Pena Nieto has taken responsibility for inviting Trump, but a former government official familiar with the workings of the administration said Videgaray would have played a preponderant role in the decision. Newspaper columnists in Mexico have reported Videgaray was behind last week’s visit, after which Pena Nieto was criticized for not being forceful enough in rejecting Trump’s proposals and comments about Mexico.

Videgaray “was the architect” of Trump’s visit, because he was the adviser that Pena Nieto had “the most reliance on, and was closest to,” said columnist and political analyst Raymundo Riva Palacio.

Even Trump himself said Videgaray’s resignation was related to his visit. Trump told a televised U.S. national security forum Wednesday night that “the people that arranged the trip in Mexico have been forced out of government. That’s how well we did.”

Videgaray acted as Pena Nieto’s campaign manager during his 2012 election campaign and has been seen as the architect of many administration policies. He led Mexico’s Treasury Department and is sometimes referred to as treasury secretary or minister, but because he oversaw budgets and fiscal policies, his role was closer to that of a finance secretary.

He has shared both in the president’s triumphs and embarrassments. In 2014, Videgaray acknowledged he had bought a house from the same government contractor that sold a mansion to Pena Nieto’s wife, Angelica Rivera, in the administration’s deepest scandal.

Pena Nieto thanked Videgaray for leading financial reforms during a ceremony at which the president announced he was accepting the resignation. He did not announce a new post for Videgaray.

“He has been an official very committed to Mexico, and very loyal to the president,” Pena Nieto said.

Former finance secretary Jose Antonio Meade, who has since served as foreign relations secretary and social development secretary, will replace Videgaray. Luis Enrique Miranda Nava will take over the social development post.

Pena Nieto said Meade will be in charge of turning in a primary budget surplus for next year, meaning government spending will have to be less than revenues, not including interest payments on debt.

In comments to local media, Meade defended the president’s meeting with Trump, saying it had lowered the risk of confrontations and helped moderate some of Trump’s policy proposals, especially his vow to change the North American Free Trade Agreement. Pena Nieto has said the meeting was needed to build bridges in case Trump is elected.

But Pena Nieto was ridiculed for not confronting Trump more directly during the visit about him calling migrants from Mexico criminals, drug-runners and “rapists” and promising to build a border wall and force Mexico to pay for it. The wall proposal has been criticized widely and fiercely in Mexico.

Speaking at a town hall last Thursday where he fielded questions from young people, Pena Nieto sought to defend the decision to invite Trump to visit.

He said the easier path would have been to “cross my arms” and do nothing in response to Trump’s “affronts, insults and humiliations,” but he believed it necessary to open a “space for dialogue” to stress the importance of the U.S.-Mexico relationship.

“What is a fact is that in the face of candidate Trump’s postures and positions, which clearly represent a threat to the future of Mexico, it was necessary to talk,” Pena Nieto said hours after his annual state-of-the-nation report was delivered to congress. “It was necessary to make him feel and know why Mexico does not accept his positions.”

Pena Nieto acknowledged the “enormous indignation” among Mexicans over Trump’s presence in the country and repeated that he told the candidate in person that Mexico would in no way pay for the proposed border wall.

The president came under fire for not responding to Trump’s mention of the wall during a joint news conference after their meeting Aug. 31, something he has since sought to correct.

A day later, Trump tweeted that Mexico would pay for the wall. Pena Nieto fired back his own tweet saying that would “never” happen.

Democratic presidential candidate Hillary Clinton, also invited to visit by Pena Nieto, said this week that she won’t be coming to Mexico before Election Day. She called Trump’s quick stop in Mexico City “an embarrassing international incident.”

Several countries from around the world are interested in striking trade deals with Britainas it prepares to leave the European Union, new Prime Minister Theresa May said today.

“The leaders from India, Mexico, South Korea, and Singaporesaid that they would welcome talks on removing the barriers to trade between our countries,” May told reporters after a G20 summit in the Chinese city of Hangzhou.

“The Australian trade minister will visit the Ukthis week to take part in exploratory discussions on the shape of a UK-Australiatrade deal,” she added.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

LEÓN, Mexico (Aug. 24, 2016) — Group Michelin has started construction in Mexico of its 21st factory in North America — eight years after the global economic crisis of 2008 forced it to postpone the project.

“I’m really excited because a few years ago, in 2008, I had to come to this country to postpone our investment because of the crisis,” Michelin CEO Jean-Dominique Senard told Tire Business Aug. 22.

“At the same time I was incredibly impressed by the way the Mexican authorities took the news. So coming back with the decision (to revive the project) is a joy.”

Mr. Senard had earlier hosted a groundbreaking ceremony at the 242-acre site in central Mexico where the French tire company is investing $510 million in what, according to one senior executive, will be Michelin’s first greenfield passenger tire plant in North America in three decades.

In a speech, Mr. Senard said the León investment is the tire maker’s largest investment anywhere in 2016.

“The last time we launched a greenfield passenger tire plant in North America was over 30 years ago,” Scott Clark, executive vice president and COO of Michelin North America, said in a separate interview with Tire Business.

“So this is not something we do every day. This is a big deal and this is exactly the right place to be and at the right time.”

The factory, which will employ 1,000 when finished in late 2018, will be within a three-hour drive of 18 car maker assembly plants, Mr. Clark said. It is located in a new industrial park called León-Bajio, which stands beside the León-Silao highway.

The facility will have an annual installed production capacity of between 4 million and 5 million Michelin-brand tires, mostly in 18-inch-plus sizes for North American original equipment and replacement markets.

The plant’s output will “reflect the tremendous growth in the SUV, CUV and pickup markets, followed closely by high-performance tires,” Mr. Clark said. Most of the replacement tires will go to the U.S. and Canada, he added.

The plant, which will cover 1.5 million square feet, will have its own rubber mixing capabilities, according to the executive — something which he said is “not completely unique in the Michelin group.”

Asked about possible expansion plans, he said: “We take it one step at a time. We have almost (240 acres), which is an enormous amount of space. The likelihood of the plant expanding is very high.”

“There’s no plan as we speak to expand (this plant). But it’s bound to expand one day,” Mr. Senard replied when asked the same question.

Michelin already employs 700 in Mexico, primarily at a plant in Querétaro, 107 miles southeast of Leon, which makes non-Michelin brand tires such as BFGoodrich, Uniroyal, Taurus and Tigar. The plant has an installed annual capacity of 2 million tires.

Pete Selleck, chairman and president, Michelin North America Inc., told Tire Business separately that Michelin has “figured out how to operate within Mexico’s labor laws, which has given us much more confidence in taking this huge step (in León).”

He said that “labor issues” forced the company to mothball the Querétaro facility between August 2000 and April 2002.

“We had a situation that was untenable. I was involved. We tried to resolve it.”

Closing the plant, he said, was “one of the most difficult decisions” as it meant several hundred jobs were lost.

Referring to the León project, known internally as MX2, he added: “I’ve been with the company for 34 years, and so for me it’s very gratifying to see us reach this point.”

Idelfonso Guajardo Villarreal, Mexico’s federal economy secretary, told the groundbreaking ceremony’s audience of several hundred that by year-end 2018 the Mexican tire industry’s annual installed production capacity will be 31 million, compared with 21 million today.

“The new Michelin investment in Mexico represents a vote of confidence that strengthens the positioning of Mexico as an investment destination, because it comes from a company with a long tradition in the industry and widely recognized for its commitment to innovation,” Mr. Guajardo Villarreal said.

Miguel Márquez Márquez, governor of the Estate of Guanajuato, Mexico, called Michelin’s arrival the “most important investment for León so far” and said the tire maker’s investment “will trigger social and economic development….”

León Mayor Héctor López Santillana said Michelin’s choice of León recognizes the strengths we have and our ability to become an international economic actor.

“With this new plant, León will provide greater dynamism to the expanding automotive sector in the Bajio region. We are confident that together, we will open a new era of opportunities and shared development.”