U.S. Mexican Bar Association (USMBA), a national lawyers association with members across the U.S. and Mexico, awards Javier Salinas and Michael Santos, members of BPM’s International Tax Practice, second place for their article, “NAFTA, Taxes, and the Digital Economy: A Case of Targeted Revisions to Strengthen the Trading Bloc by Reducing Barriers Affecting Digital Services and Increasing Protection of Intellectual Property Rights.” Participants of the writing competition were asked to write an original article on “Enhancing North American Trade” and include one or more specific proposals to revise NAFTA generally or any particular parts or regulations of improving cross-border trade, and how it can benefit the U.S and/or Mexico.

Salinas and Santos’ article suggests that the North American Free Trade Agreement (NAFTA) should not only include an e-commerce chapter to protect IP rights of multinational enterprises but also seek to complement the existing income tax benefits under the relevant income tax treaties by removing barriers that hinder the free movement of digital services within the U.S., Canada and Mexico.

This is of particular relevance to Bay Area companies in the technology industry that may have a software-as-a-service platform and are forced to structure access by foreign customers in an inefficient way from a tax perspective due to limitations on certain legal protections, or in the financial services industry where local requirements obligate companies to establish local servers for certain operations and investment expense and tax implications that may cause.

Specifically, the article suggests that the addition of the NAFTA provisions with respect to digital trade could act as an impetus for tax authorities and legislators to provide much-needed guidance to the taxation of digital goods and services. In that manner, a U.S. company with investments in Canada or Mexico, for example, would be better equipped to structure operations in ways that generate economic and operational efficiencies by eliminating customs duties on electronic data transmissions without undue risk to a company’s IP. These suggested changes would allow the company to benefit from both local tax rules within the respective NAFTA countries and provisions of the relevant income tax treaties that can lower a company’s income tax expense and encourage trade and investment in North America.

To read the article, you can download it here.

For more information, please contact Javier Salinas, Managing Director, International Tax Services, at [email protected] or (415) 288-6291. Learn more about BPM’s full range of International Tax and Transfer Pricing services by clicking here.