On November 12, the Federal Executive, in use of its powers, announced the presentation of the Initiative of the Draft Decree to amend, add and/or repeal, regarding outsourcing, several provisions, such as: 

• Federal Labour Law 
• Institute of the National Fund for Workers’ Housing (INFONAVIT) Law 
• Social Security Law 
• Federal Tax Code 
• Income Tax Law 
• Value Added Tax Law 

It should be noted that the aforementioned Initiative has not been officially published in the Official Gazette of the Chamber of Deputies, so there could be adjustments or modifications derived from its analysis in the Congress. 

The explanatory memorandum is based on protecting the rights of the workers, eliminating simulated subcontracting practices. The simulation of the transfer of workers from one company to another may produce several situations in detriment of the employees, such as the registration before the Social Security Authority (IMSS), of a lower salary than the actually received. 

Among the most outstanding aspects of the Initiative, we can find: 

Outsourcing 

It is intended to prohibit subcontracting practices, for this purpose, the authority defines them as follows: “A individual or legal entity that provides or makes available their own workers for the benefit of another” 

Specialized services or works 

The provision of specialized services and/or execution of specialized works will not be deemed as outsourcing as long as they are not part of the core business or the principal economic activity of the beneficiary of the contracted services or works. In addition, the Secretariat of Labor and Social Welfare must authorize the Contractor Company for those purposes. 

For those purposes, a Specialized Services and Specialized Works Providers’ Registry will be established, where companies may obtain this authorization for a period of 3 years (renewable upon expiration).  

Intermediaries 

Intermediaries will be defined as “employment agencies”, which will be deemed as the individual or legal entity that participates in the hiring of personnel to provide services to an employer. Said intermediation services may consist of: 

• Recruitment 
• Selection 
• Coaching 
• Training and others 

For those purposes, employment agencies will not be considered as employers under any circumstances, since this character is reserved for the Company that benefits from the services or works. 

Reforms to the Federal Labour Law 

Fines between 2,000 and 50,000 times the Unit of Measure and Update –UMA– ($176,760 to $ 4’344,000 MXN) will be imposed when the employers that subcontract, as well as the Companies that provide services and/or perform specialized works, hinder or do not allow the inspections carried out by the Secretariat of Labor and Social Welfare. 

Reforms to the Social Security Law 

It is intended to incorporate a penalty for submitting the requirements requested by the authorities after the deadline, and to increase the amount of penalties for not submitting such information. 

The individual or legal entity that contracts the provision of services and/or the performance of specialized works from a Company that fails to comply with its social security obligations will be jointly and severally liable for the workers who participated in the performance of said services or works. 

The specialized services and specialized works providers’ must submit every three months the detailed information of the celebrated contracts, and in case of late submission or failure to submit such information, the employer (jointly responsible) will be liable to fines of up to 2,000 times the UMA ($173,760 MXN). 

Reforms to the INFONAVIT Law 

Regarding the employer substitution, the replaced employer will be jointly and severally liable with the new employer for the legal obligations arised before the date of the substitution and up to a term of six months after that. 

The contracting employer of the services will be jointly and severally liable for the workers who participated in the performance of said acts. 

In addition, the contracting individual or legal entities must provide the Institute every four months, no later than the 17th of the following month, information related to general data, service contracts, information and amount of contributions from workers, determination of the base salary and copy of the authorization issued by the Secretariat of Labor and Social Welfare. 

Reforms to the Federal Tax Code 

In general, the invoices issued regarding outsourcing that do not meet the new requirements, may not be deducted or set off. 

In the event that the outsourcing provider does not supply the contracting part the necessary information referred to in the Income Tax Law and Value Added Tax Law, nor does comply with its obligations; sanctions will be considered for said provider. In these cases, the fine will be between $150,000.00 and up to $300,000.00 for each obligation not fulfilled. 

The use of simulated schemes for the provision of specialized services, the execution of specialized works or carrying out any type of prohibited outsourcing, will be considered as qualified tax fraud and its equivalents, with penalties of up to 13 years. 

Reforms to the Income Tax Law 

For the deductibility of payments derived from the provision of specialized services or the execution of specialized works, it will be necessary that the contracting part requests the provider: 

1. Copy of the current authorization issued by the Secretariat of Labor and Social Welfare. 

2. The tax receipts of the payment of wages of the workers that participated in the provision of the service or the execution of the corresponding work. 

3. Payment to the IMSS of the social security contributions, as well as the corresponding contributions to the INFONAVIT. 

Reforms to the Value Added Tax Law 

The Initiative seeks to eliminate the obligation to carry out the withholding of 6% of the VAT, regarding the outsourcing payments made. 

It is proposed that the VAT transferred regarding the outsourcing payments will not be creditable for the purposes of this law, if all the requirements are not met. 

Essential requirements for the VAT crediting regarding the provision of specialized services: 

1. Copy of the current authorization issued by the Secretariat of Labor and Social Welfare. 

2. Copy of the VAT statement and the acknowledgment of receipt of the payment corresponding to the period in which the contracting part made the payment of the compensation and the VAT transferred. 

3. As part of its obligations, during the month following the one in which the contracting part made the payment of the compensation for the service received and the VAT transferred, the provider must handle the contracting part all the aforementioned documentation, 

In the event that the contracting part does not obtain from the contractor the aforementioned documentation within the term established, a complementary statement must be submitted, establishing as non-creditable VAT the VAT transferred. 

Close collaboration between IMSS and STPS (Secretariat of Labor and Social Welfare) 

It is important to mention that to verify the taxpayers’ compliance of its obligations and to be able to exchange information; IMSS and STPS will celebrate collaboration agreements. 

If approved, the reform will enter into force on January 1, 2021; therefore, the STPS must issue and publish the applicable rules, and once these rules are published, specialized service providers will have 6 months to obtain the authorization from the Secretariat. 

We will keep you informed of the official publication of the Reform in the Official Gazette of the Chamber of Deputies to provide you a detailed analysis of any changes made to this initiative. 

We remain at your service for any questions or clarification in this regard.