A bill approved by Mexico's Senate contains several provisions regulating outsourcing arrangements, including a prohibition on personnel outsourcing.
On April 20, 2021, the Senate approved the bill sent by the president of Mexico that contains several provisions regulating outsourcing arrangements (the "Bill"). The Bill seeks to amend the Federal Labor Law, the Social Security Law, the Law of the National Workers' Housing Fund Institute, the Federal Tax Code, the Income Tax Law, and the Value Added Tax Law. Having been approved by the Senate, the Bill will move for publication in the Official Gazette, which is likely to occur on or before May 1, 2021.
With respect to labor matters, the most important terms of the Bill are as follows:
- With limited exceptions, the Bill prohibits personnel outsourcing (between third parties, as well as with related parties), meaning a service by which an individual or legal entity provides its own workers for the benefit of another business or individual.
- The prohibition on personnel outsourcing does not include those who perform "specialized" services, meaning services that are distinct from the corporate purpose or economic activity of the beneficiary of the service ("Specialized Services").
- The performance of Specialized Services must be memorialized in a written agreement, and the Specialized Services provider must be registered with the Ministry of Labor and Social Welfare ("STPS") in order to render such services.
- If the provider of Specialized Services fails to comply with its obligations to its employees, the beneficiary of the services will be jointly and severally liable for labor and tax obligations.
- The Specialized Services provider must be up to date with its labor, tax, and social security obligations and prove the specialized nature of the services in order to obtain its registration from the STPS. This registration must be renewed every three years.
- Engaging in personnel outsourcing/insourcing or providing Specialized Services without the required registration may result in fines of 2,000 to 50,000 times the Measurement and Update Unit ("UMA" for its Spanish acronym) to both the service provider and the beneficiary of the services. For 2021, the value of the UMA is $89.62 MXN.
The most relevant amendment to the Bill made by the House of Representatives sets limits on the amount employees must pay for Statutory Profit Sharing ("PTU"). Accordingly, the PTU payable by employees will be the lesser of: (i) 10% of the employer's tax base for income tax purposes; or (ii) the greater amount between three months' salary of the employees and the average PTU paid in the three previous fiscal years.
From a tax standpoint, the Bill proposes that payments made for outsourcing/insourcing services will neither be deductible for income tax purposes nor creditable for value-added tax purposes unless: (i) the services are provided by a provider that is registered before the STPS as a Specialized Services provider; and (ii) the services provided are distinct from the corporate purpose and core business of the beneficiary of the services.
Utilizing outsourcing arrangements that are not compliant with the Bill would be deemed a "tax fraud."
Finally, from a corporate standpoint, because Specialized Services must be distinct from the corporate purpose of the beneficiary of the services, businesses intending to utilize such arrangements should review and, if necessary, redefine their corporate purposes to minimize the risk of potential liability.
Once published, the Bill would become effective on August 1, 2021, and employers would have until that date to satisfy the Bill's requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.