Mexican government withholds tax refunds to personal care multinationals

By Simon Pitman contact

- Last updated on GMT

Mexican government withholds tax refunds to personal care multinationals

Related tags: Tax, Income tax

The Mexican government is withholding tax rebates to companies such as Procter & Gamble, Colgate and Unilever worth hundreds of millions of dollars, according to reports.

Over the past decade the Mexican government has been offering more and more tax incentives, and breaks in recent years, as a means of attracting investment from foreign multinationals.

The policy has worked and has served to contribute to an annual growth rate of 3.1% for the country’s service sector in the year ending June 2015.

Slowing Mexican economy puts skids on tax breaks

But overall the rate of growth for the country’s GDP slumped to 2.1% in June of 2015, a figure that has been significantly impacted by a reduction in global energy prices, particularly for oil.

The situation has left the Mexican government looking for alternative sources of revenue to make up the shortfall, undoubtedly putting a bolder question mark over investigations into tax breaks and incentives that have been going on since 2012.

Following a recent probe related to tax avoidance in the country authorities have now held back more than $384m in value-added tax that is believed to be owed by nearly 270 companies, according to a Reuters report.

Tax breaks for P&G, Colgate and Unilever questioned

According to sources close to formal discussions on the matter, the tax probe is specifically targeting P&G, Colgate and Unilever in an effort to get them to pay more income tax locally, the report also states.

Last year Cosmetics Design reported that Unilever had come to an agreement with the Mexican government that it would pay a higher rate of income tax in the country, which is said to have led to a VAT refund in excess of $100m.

So far Unilever is believed to be the only one of the three personal care giants that has come to an agreement over its rate of taxation, and the Reuters report states that P&G continues to seek a VAT refund of almost $250m from the Mexican government.

P&G takes big hit from Venezuela currency valuation

P&G was also amongst the top ten US multinationals operating in Venezuela that are estimated to have lost more than $7bn after the country’s government chose to once again devalue the local currency.

The Cincinnati-based consumer giant took by far the biggest hit, wiping more than $2bn off its results for its most recent fourth quarter.

The Venezuelan economy has been highly volatile for some years, with international companies being hard hit by a series of currency devaluations that have impacted businesses primarily trading in other currencies.

Related topics: Business & Financial

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