2021 – 1 Tax Consulting
Outsourcing Reform bill approved
On April 23 of this year, the Outsourcing Reform Decree was published in the evening edition of the Official Gazette of the Federation, contemplating a general entry into force as of April 24th, 2021, with the exception of certain provisions, such as tax provisions, which will enter into force on August 1st, 2021.
The reform amends, adds and repeals several provisions of 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, the Value Added Tax Law, the Federal Law of Workers in the Service of the State, which regulates Section B of Article 123 of the Constitution, as well as the Law Regulating Section XIII Bis of Section B of Article 123 of the Constitution of the United Mexican States.
As a result of the amendments to the Federal Labor Law, the provisions that currently govern work carried out under a labor subcontracting regime, also known as outsourcing, are repealed, and the concept of "intermediary" and other provisions related to this concept are eliminated.
Below you will find a summary of what we consider the most relevant aspects of the outsourcing reform.
Prohibition of outsourcing schemes
The reform prohibits the outsourcing of personnel, defined as cases where an individual or legal entity provides or makes available its own employees for the benefit of another individual or legal entity.
However, it is emphasized that employment agencies that intervene in the hiring process of personnel may participate in the recruitment, selection and training, but they will not be considered as employers, since such capacity is held by the individual/entity who benefits from the services provided.
Exception for specialized and similar services
The outsourcing of specialized services or execution of specialized works that are not part of the corporate purpose or the main economic activity of the beneficiary is allowed as an exception, provided that the contractor is registered in the public registry indicated below.
Complementary or shared services or works provided by companies belonging to the same business group will be considered as specialized, taking into consideration the concept of business group as established in the Stock Market Law.
The contracting party of specialized services or for the execution of specialized works will be jointly and severally liable for any failure to comply with labor obligations by the contractor, in connection with the workers used to provide services under such contracts.
Contractor´s registration before the Ministry of Labor and Social Welfare
Those who provide outsourced specialized services or execution of specialized works must be registered with the Ministry of Labor and Social Welfare (STPS per its acronym in Spanish), for which they must prove that they are up to date with their tax and social security obligations. The registration must be renewed every three years.
Within 30 calendar days following the entry into force of the reform, the SPTS must issue the general rules applicable in order to obtain said registration. Once such rules are issued, those who provide outsourcing services must obtain their registration within 90 calendar days. It is also provided that The STPS may deny or cancel, at any time, the registration granted for those that do not comply with the requirements set forth in the Federal Labor Law (FLL).
Concept of employer substitution
The reform contemplates as a new requirement for employer substitutions to take effect, which consists in the assets of the company or establishment that carries out such process being transferred to the substitute employer.
Notwithstanding the above, by means of a transitory provision, the reform establishes that during a period of 90 calendar days after the entry into force of these amendments, such requirement will not be applicable in the case of companies operating under an outsourcing regime, provided that, within such period, the contractor transfers the workers to the beneficiary, and to the extent that their labor rights are recognized, including their seniority generated as a result of the original employment relationship.
Employee Statutory Profit Sharing
A new rule is established regarding the distribution of profits to employees. The amount of profit sharing will be capped to three months of the employee's salary, or the average of the profit sharing received in the last three years, whichever amount is more favorable to the employee.
Inspection and surveillance
In the event that the employer does not allow the inspection and surveillance ordered by the labor authorities, it will be notified by means of an instruction to appear in order to exhibit all the required information, being informed that, in case of not complying with such instruction, it will be presumed that the employer does not maintain such information, regardless of the applicable fine of 250 to 5000 times the Current Measurement and Updating Unit (UMA per its acronym in Spanish).
Penalties for non-compliance
Whoever carries out prohibited outsourcing of personnel or outsourcing services without having obtained the corresponding registration, will be fined with 2,000 to 50,000 times the value of the UMA, without prejudice of any other obligations that may arise, in which case the STPS will report the facts to the competent authorities.
The same sanction will be applicable to those who benefit from outsourcing in contravention of the provisions of the new rules on this matter.
Mexican Social Security Institute (IMSS per its acronym in Spanish)
In line with the amendments to the FLL, the provisions referring to labor intermediation and outsourcing are modified, establishing that the contracting of specialized services or the execution of specialized works must comply with the conditions and requirements established in the FLL.
Likewise, it is provided that those contracting the provision of services or the execution of works with another individual or legal entity that fails to comply with any social security obligation will be jointly liable for any unpaid contribution for the workers involved in the execution of such services.
In addition, whoever provides specialized services or executes specialized works must provide no later than days 17th of the months of January, May and September, a simple copy of the registration issued by the STPS for the provision of such services, as well as several information of the contracts entered into in the four-month period of reference. Information regarding the list of workers or other parties that will render the specialized services or perform the specialized works in favor of the beneficiary must be provided, indicating their name, Unique Population Registry Code (CURP per its acronym in Spanish), Social Security Number and contribution base salary, as well as the name and Federal Taxpayers Registry (RFC per its acronym in Spanish) of the beneficiary of the services for each one of the contract. The IMSS will inform the STPS of noncompliance with the above requirements.
In turn, the IMSS and the STPS must enter into collaboration agreements for the exchange of information and the performance of joint verification actions, within their respective areas of competence.
By means of a transitory provision, the reform establishes that the obligation to provide the aforementioned information, as previously described, will commence within 90 calendar days as of the entry into force of these amendments, except for the registration in the STPS contractors' registry, which must be submitted once the STPS reveals the mechanism to obtain such document.
In case of failing to provide the aforementioned information or when provided after the legal term, a fine equivalent to the amount of 500 to 2,000 times the value of the UMA will be applicable.
Disappearance of National Registry by Class
As a result of the aforementioned amendments, the benefit applicable for purposes of the classification in the work hazard insurance and the registration of workers at a national level, in the case of employers that were under the labor subcontracting regime, consisting in the possibility of having a national employer registry for each of the classes of law, instead of several registries per municipality, is eliminated.
For such purpose, by means of a transitory provision, it is established that the beneficiaries of such national registry by class will have a term of 90 calendar days as of the entry into force of the aforementioned reform to cancel such registries and to request the granting of one or various regular employer registries, as applicable.
Once said term has expired, employer registrations per class that have not been cancelled will be cancelled by the IMSS.
Temporary Benefit in Work Hazard Insurance
A transitory provision establishes that, during the 90 calendar days following the entry into force of the reform, the migration of workers from companies that operated under the labor subcontracting regime will be considered as employer substitution, as long as the company to which the workers are transferred recognizes their labor rights, including their seniority and the terminated work risks before the corresponding legal authorities.
In such case, beneficial rules will be applied for purposes of determining the class, fraction and premium of the Work Hazard Insurance. The company that receives the workers must classify itself in accordance with the Social Security Law (SSL), and must keep the premium with which the company that had the workers registered with the IMSS had been contributing, provided that such company has been correctly classified in accordance with the risks inherent to the activity of the business in question and the applicable regulatory provisions. Otherwise, it will have to pay the contributions in accordance with the average premium of the corresponding class.
In the case of a company that receives the workers from another or other companies, with the same or different classes, and that, as a consequence, must adjust its classification to the new activities to be carried out, the class and fraction will be determined according to the risks inherent to the activity of the business in question and the premium will be obtained by applying a process that will result in a weighted premium based on the contribution base salaries and the premiums assigned to the companies involved.
The above, provided that the companies have been correctly classified in accordance with the risks inherent to the activity of the business or businesses in question and the applicable regulatory provisions; since, otherwise, they will have to pay these contributions at the average premium of the corresponding class.
In addition to the foregoing, it is established that companies that have, as of the entry into force of the amendments, a Medical Services Subrogation Agreement with Reversion of Fees in force, and that in terms of these provisions carry out an employer substitution, will not be subject to modification of the conditions agreed therein, but once the term of 90 calendar days has expired, the provisions of the law will apply.
National Workers' Housing Fund Institute (INFONAVIT per its acronym in Spanish)
The period of joint liability to which the substituted employer and the substitute employer are subject in the event of employer substitution is reduced from two years to three months.
On the other hand, as in the case of the IMSS and in line with the modifications to the FLL regarding outsourcing, it is established that the persons who are registered in the list of contractors of the STPS must periodically provide, no later than days 17th of January, May and September, the services agreements and related information, such as the amounts of the contributions and amortizations, information about the employees, determination of the contribution base salary, and a simple copy of the registration issued by the STPS.
Within 60 calendar days after the entry into force of the reform, the INFONAVIT must issue the rules establishing the procedures to comply with such requirements, as well as the filing dates before such Institute.
The individual or legal entity that contracts the provision of services or the execution of works with a company that fails to comply with the obligations contained in the INFONAVIT Law will be jointly and severally liable in relation to the employees involved in the execution of such services.
For the verification of compliance with the obligations set forth in the FLL and INFONAVIT Law, the STPS and INFONAVIT must enter into collaboration agreements for the exchange of information and the performance of joint verification actions, within their respective areas of competence. The INFONAVIT will inform the STPS of non-compliance with the aforementioned requirements.
Individuals or legal entities rendering specialized services or executing specialized works must begin to provide the aforementioned information once the STPS discloses the mechanism for obtaining the referred document.
In the Federal taxes area, the reform includes the following changes, which will enter into force on August 1st, 2021:
Federal Tax Code (FTC)
The reform included an article that provides for the rejection of the deduction of expenses, as well as any credit associated with them, when deriving from the subcontracting of personnel, when activities related to the corporate purpose and the main activity of the contracting party are performed, as well as regarding services in which personnel is provided or made available to the contracting party and: (a) personnel has been transferred from the contracting party to the contractor; or (b) the services involve the preponderant activities of the contracting party.
For these purposes, the deduction and the respective crediting of expenses related to the subcontracting of specialized services will be allowed, provided that: (a) they do not form part of the corporate purpose or preponderant activity of the contracting party; (b) the contractor is registered before the STPS; and (c) the requirements set forth in the Income Tax Law (ITL) and Value Added Tax Law (VATL) are met.
Likewise, the possibility of contracting complementary or shared services between companies of the same group is provided, also considered as specialized services, when the services are not part of the corporate purpose or preponderant activity of the contracting party.
In the matter of joint liability, the FTC provides that the contracting party of subcontracting services will be jointly liable for any unpaid contributions associated with the workers involved in the service received.
Claiming the deduction of expenses associated with personnel subcontracting services or claiming any credit deriving from such expenses is included as an aggravating factor for the imposition of fines. Also, a fine of $150,000 to $300,000 pesos is added for each omission of the contractor to deliver to the contracting party the information referred to in the ITL and VATL, as mentioned below.
The use of simulated schemes of services or execution of specialized works, and the subcontracting of personnel is incorporated as a crime of qualified tax fraud. However, it is established that criminal conducts committed prior to the entry into force of the reform will be punished in accordance with the regulations in force at the time of the commission of the acts.
Income Tax Law (ITL)
The following requirements are added to allow the deduction of expenses associated with the rendering of specialized services or execution of specialized works:
- When making the payment, the taxpayer must verify that the contractor has obtained the specialized-service provider registration referred to in the labor legislation.
- A copy of several documentation related to the employees involved in the services rendered must be obtained from the contractor, such as a copy of the corresponding payroll tax receipts, bank payment receipts for the withholding of taxes from such employees, payment of IMSS contributions and INFONAVIT contributions.
Providers of specialized services or work must provide to the beneficiary of said services the information referred to in the aforementioned paragraph.
In accordance with the modifications made to the FTC, payments for the concept of labor subcontracting will be considered as a non-deductible expenses when activities linked with the corporate purpose or preponderant activity of the contracting party are carried out. Likewise, payments for services involving the provision of personnel to the contracting party will also be considered as non-deductible expenses, when (a) such personnel has been transferred from the contracting party to the contractor, or (b) the services involve activities that are part of the preponderant activities of the contracting party.
Value Added Tax Law (VATL)
The obligation to withhold a 6% VAT on any consideration paid by taxpayers receiving services under agreements through which personal is made available to them or to any related party, is repealed.
The reform establishes that the VAT transferred for labor subcontracting services will not be creditable, when activities linked with the corporate purpose or preponderant activity of the contracting party are carried out, as well as payments for services involving the provision of personnel to the contracting party when (a) such personnel has been transferred from the contracting party to the contractor, or (b) the services encompass preponderant activities of the contracting party.
The following requirements are established in order to be able to claim a credit for the VAT shifted to the taxpayer in connection with the provision of specialized services or the execution of specialized works:
- When carrying out the payment for the services, it must be verified that the contractor has obtained the specialized-provider registry referred to in the labor legislation.
- No later than the last day of the month following that during which the contracting party made the payment for the services, the latter must obtain from the contractor a copy of its VAT monthly tax return and evidence of payment, for the period corresponding to that during which the contracting party made a payment for the services.
- In case the contracting party does not obtain the aforementioned documentation within the applicable period, an amended tax return must be filed, reducing any amounts that were credited in connection with such concept.
Also, the reform establishes the obligation for contractors that provide specialized services or execute specialized works to provide to the contracting party the aforementioned documentation.
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