Exclusive: Mexico withheld millions in tax refunds from P&G, Unilever, Colgate

Tue Sep 1, 2015 3:17pm EDT
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By Alexandra Alper

MEXICO CITY (Reuters) - Mexico's government withheld hundreds of millions of dollars in tax refunds owed to Procter & Gamble, Unilever, and Colgate combined as it sought to coax them and other multinationals to pay more income tax locally, according to people close to the talks.

After luring foreign companies with corporate tax breaks for years, Mexico moved to boost its tax take as oil output has slumped, encouraged by an Organisation for Economic Co-Operation and Development crackdown on profit-shifting to low-tax countries.

Mexico's tax authority SAT held back more than $384 million in value-added tax (VAT) from the three companies while it was probing them and nearly 270 others for possible tax avoidance after President Enrique Pena Nieto took office in late 2012, people familiar with tax negotiations say. While local business chambers have complained about refund delays, Reuters has obtained information about refunds being linked to corporate tax negotiations only in the case of the three consumer goods companies.

Unilever (ULVR.L: Quote) reached a deal last year to pay more income tax in Mexico, three people familiar with the negotiations said. One said the firm has since received about $131 million in VAT it was owed. Procter & Gamble (PG.N: Quote) and Colgate (CL.N: Quote) have not reached deals, sources say.

Four former SAT officials and 10 other people close to the negotiations say tax authorities are using the withheld refunds as a bargaining chip to pressure firms into declaring more revenue in Mexico.

"You negotiate because your money is stuck there," said a person close to the talks between SAT and one of the firms. "It's the best leverage in the world."

Four tax attorneys and two accountants interviewed by Reuters said linking VAT refunds to income tax deals amounted to violating Mexico's constitution.

"They don't have the right to condition your returns or blackmail you," said Rodrigo Munoz, a Mexico City tax attorney and former President of the Mexican Academy of Tax Law.   Continued...

A logo of Mexico's tax authority SAT is seen on a wall outside the offices in Mexico City headquarters, Mexico August 25, 2015. REUTERS/Henry Romero