Essay on Hypothetical United States-Based Multinational Corporation

Doing business in Mexico, suggests engaging in international trade directly from the home office. Doing business "in" Mexico suggests the additional step of establishing a physical presence in Mexico and regularly engaging in commercial activities. The primary purpose of doing business "with" Mexico is to avoid, or at least minimize, involvement with the Mexican tax system and other areas of regulation such as Mexican labor laws and the social security system. On the other hand, those foreigners who need to establish more of a presence in Mexico may find that the additional business and geographic advantages of a permanent presence in Mexico outweigh the tax and regulatory burden. (Lustig, 2002.)

A Multinational distribution company can do business in Mexico in order to minimize the tax and regulatory consequences arising from the establishment of a permanent presence in the Country. When structuring operations in this way, however, foreigners must be extremely careful to ensure that they do not create a "permanent establishment" in Mexico as the Mexican tax law considers taxable the income derived by foreigners from such entities.

The Mexican Income Tax Law ("ITL"), when defining the concepts of "permanent establishment" (Art. 2) considers taxable the income derived by foreigners from certain activities within the Mexican Territory. Generally, a foreign concern is deemed to have created a permanent establishment base in Mexico when it (i) establishes a place of business, or (ii) employs a subordinate agent with powers to enter into contracts in order to develop its entrepreneurial activities.

A foreign company doing business in Mexico from abroad has traditionally used four basic commercial vehicles: (1) appoint a sales agent in Mexico; (2) appoint a commission (sales) agent (commercial intermediary) for the promotion of its goods or services; (3) enter into an agreement with an independent distributor in Mexico; or (4) license technology (for example in a franchise operation). (Bowen, 1999.)...........................

ESSAY ON THE AMERICAS