First Majestic Silver, a publicly traded Canadian mining company, has resorted to international arbitration to resolve an ongoing transfer pricing dispute with the Mexican government over tax reassessments the government made in conflict with the terms of an advance pricing agreement (APA).
According to a March 10 company announcement, First Majestic acquired Primero Mining, the owner of a San Dimas silver mine, in 2018. Prior to this acquisition, in 2012, Primero had entered into an APA with the Mexican government related to its silver production and sales under a “streaming agreement” to a Canadian metals company unrelated to First Majestic.
The APA, which covered 2010–2014, specified that taxes payable under the streaming agreement would be calculated based on actual revenue realized rather than market prices. In acquiring Primero, First Majestic assumed the obligations under the streaming agreement covered by the APA.
Notwithstanding the APA, the Mexican government issued tax reassessments based on market prices for 2010–2012. The assessments amount to approximately US $260 million and include US $75 million in additional taxes, as well as penalties, interest, and denied intercompany interest expenses. The Mexican government subsequently issued another reassessment for 2013 equaling approximately US $132 million.
Having failed to negotiate a resolution with the Mexican government, First Majestic has now filed a North American Free Trade Agreement (NAFTA) request for arbitration through the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).
The ICSID is an independent forum for arbitrating international investment disputes between investors and states. The ICSID Convention entered into force for Mexico in August 2018.
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