Mexico’s Withheld VAT Refunds: Correction or Bargaining Chip?
- Sep 3, 2015 | Gail Cole
The Mexican government is delaying hundreds of millions in value added tax refunds from multinational companies, including Colgate, Procter & Gamble, and Unilever. There is evidence to suggest the refunds are being withheld in order to pressure the companies to agree to income tax deals, although the Mexican government insists that is “[a]bsolutely not” true.
Income tax breaks have long been used to lure multinational companies to set up shop in Mexico and elsewhere. Yet now the Mexican government is being encouraged by both the Organisation for Economic Co-Operation and Development and the country’s slumping oil production to bring in more tax revenue. Withholding VAT refunds may be one way to successfully do so.
The Mexican Tax Authority, SAT, denies such allegations and says the refunds are due to heightened vigilance. SAT planning director Adrian Guarneros told Reuters, “We realized there was a series of inconsistences in some refunds and we decided to be more careful, more scrupulous in the reviews.”
Unilever has agreed to pay more Mexican income tax and, perhaps coincidentally, has since received approximately $131 million in VAT refunds.
Colgate and P&G haven’t reached such a deal and are still awaiting their VAT refunds (which are typically granted in two months or less). They won’t comment on the current situation in Mexico.
So are the refunds being withheld as a correction, or are they being used as a bargaining chip? You decide.