A nother provision applies to the partial processing of metal articles and assembly of U.S. parts in an underdeveloped country. Duty is then assessed only on the value added in the foreign country and the required processing and production operations can be performed in Puerto Rico. A U.S. corporation has the labor-intensive portion of a production process done by either its own subsidiary or a contract manufacturer in a CBI country in which labor costs are low, and uses a Section 936 corporation to perform the other operations in Puerto Rico. In some cases the U.S. company may have business reasons for preferring a joint venture with a Mexican partner, but it must enter into it under Mexican law in order to avoid being treated as engaged in business in Mexico. A third possibility is to operate in Mexico through a branch, in which case it must pay Mexican income tax on its branch income and is then allowed a credit for at least a substantial part of the Mexican tax against its U.S. income tax.
M anufacturing operations in Mexico are subject to full Mexican income tax.
All taxpayers must use a calendar year. Tax returns must be certified by an independent CPA if the taxpayer and its affiliates in Mexico have consolidated taxable income or assets exceeding certain limits, or more than 300 employees. The statute of limitations on deficiencies is five years, beginning when the tax authorities start an investigation, rather than the return due date. Indexing is used to avoid taxing inflationary gains. Taxable income is reduced by an inflationary component announced each year by the government and historic cost can be written up to current levels before deducting depreciation.