However, in said final resolution it was determined that the Ministry of Labor and Social Welfare (MLSW) is not entitled to define the concepts of specialized services or works.

Comments

From the analysis of the aforementioned final resolution, we highlight the following premises and conclusions of the MSCJ:

• From article 13 of the Federal Labor Law (FLL), the elements that allow to define what is the type of subcontracting allowed are derived, by expressing in said provision that the services or works should not be part of the corporate purpose or the predominant economic activity of the beneficiary.

• In such a way, the “specialization” is linked to the analysis of the corporate purpose and the predominant economic activity of who would benefit from the services or works, and these must not coincide with the contracted services or works.

• However, the “Ruling by which the general dispositions for the registry of individuals and companies that render specialized services or execute specialized works set forth in article 15 of the Federal Labor Law are specified” (Ruling) exceeds the provisions set forth in the article 13 of the FLL.

• Although article 15 of the FLL empowers the MLSW to issue general rules, this only entails the issuance of the administrative regulation of the registration procedure before the Register of Contractors of Specialized Services or Specialized Works (REPSE). In other words, said authorization in no way implies that the MLSW is empowered to define what should be understood by specialized services or works.
• The fact that the MLSW intends to establish or develop the material content of the specialized services or works is not reduced to a technical aspect of the registration procedure before the REPSE but allows the cases in which subcontracting is possible to be expanded or restricted.

• In addition, the FLL does not indicate as distinctive factors those set forth in the second article, section VII of the Ruling; that is, the training, certifications, permits or licenses that regulate the activity, equipment, technology, assets, machinery, risk level, average wage range and experience.

• Due to the above, the MSCJ resolved that the second article, section VII of the Ruling through which the MLSW defines what should be understood by specialized services or works, is unconstitutional.

In addition with the foregoing, we consider that the “Guide for complying with the obligations regarding the registry upon the Register of Contractors of Specialized Services or Specialized Works for individuals or legal entities that provide specialized services or carry out specialized works within the framework of the amendments in labor subcontracting matters” issued on August 26^th, 2021 by the MLSW is illegal, considering that specialized services or works are configured according to the space or place in which the contractor’s workers provide such services or execute those works.

Recommendations

It is important to continue expediting pertinent preventive actions, as well as the review and analyze the contracting schemes for the provision of services implemented or to be implemented, considering the previous comments, due to the escalation of coordinated inspections carried out by the Tax Administration Service, the Mexican Social Security Institute, the National Institute Housing Fund for Workers and the MLSW according to the Bulletin 39/23 issued by the latter.

If you have any questions regarding the foregoing, please do not hesitate to contact us

Mexico City, August 16^th, 2023

Comments

The referred communication sets forth that the Second Chamber of the MSCJ validated diverse requirements imposed to the companies dedicated to specialized subcontracting; nevertheless, it notes that it was determined that the Ministry of Labor and Social Welfare (MLSW) is not entitled to define the concept of specialized services or works.

The communication points out as background the “Amparo” Review 687/2022[1] through which the complaining party exposed, among other matters, that article 13 of the Federal Labor Law (FLL) violates the legal security principle by conditioning the exercise of subcontracting to specialized services without promptly and precisely defining such concept; that is to say, the elements in order to esteem a specialized service or work are not delimited, leaving it to the discretion of the tax and labor authorities.

Also, the complaining party mentioned that it is not enough that the denoted legal disposition refers to the corporate purpose and economic activity of the beneficiary, since those elements are related to the prohibition itself but do not form part of the concept of specialized services or works, as such.

Finally, the complaining party stated that the “Ruling by which the general dispositions for the registry of individuals and companies that render specialized services or execute specialized works set forth in article 15 of the Federal Labor Law are specified” (Ruling), published in the Official Gazette of the Federation on May 24^th, 2021, precises the definition of “specialized services or works”, which violates the hierarchical subordination principle for going beyond the FLL provisions themselves, since in these articles, the MLSW was limited to regulate the inscription process upon the Register of Contractors of Specialized Services or Specialized Works (i.e. REPSE).

Until the resolution through which the “Amparo” Review 687/2022 was resolved is published, we will know with detail the meaning and scope of the referred resolution.

Nevertheless, we esteem that the precision pointed out in the communication is relevant, because if it is confirmed that the MLSW does not have powers to define what must be understood regarding specialized services or works, intrinsically would demonstrate the illegality of the “Guide for complying with the obligations regarding the registry upon the Register of Contractors of Specialized Services or Specialized Works for individuals or legal entities that provide specialized services or carry out specialized works within the framework of the amendments in labor subcontracting matters” issued on August 26^th, 2021 by the MLSW, with which it has supported the exercise of verification powers, regardless of the impact that the aforementioned Ruling may suffer.

If you have any questions regarding the foregoing, please do not hesitate to contact us

Mexico City, June 29^th, 2023

[1] The origin of the present matter is the “Amparo” Review 121/2022 resolved by the Second Collegiate Court in Labor Matters of the First Circuit, who determined the applicability of the original jurisdiction of the MSCJ (i.e jurisdiction reservation) for the resolution of the constitutionality of the challenged provisions, and the Indirect “Amparo” 1934/2021 resolved by the Eight District Court in Labor Matters of Mexico City.

Currently in the Mexican Senate is under discussion the Draft Decree amending, among others, articles 76 and 78 of the Federal Labor Law (FLL), under the argument of providing to the workers a decent vacation increasing the minimum of six days of annual vacation to twelve for such period.

Comments

Said Draft Decree proposes in article 76 of the FLL that “workers who have more than one year of service will enjoy an annual paid vacation period, which in no case may be less than twelve working days, and which will increase by two business days, up to eighteen, for each subsequent year of service.”

On the other hand, in the case of article 78 of the FLL it is proposed that “workers must continuously enjoy at least twelve days of vacation”.

If this Draft Decree is approved it will bring several implications, such as an increase in the payment of the vacation premium for workers, which in terms of the Social Security Law will integrate the employee’s contribution base wage, and therefore, will impact the payments for employee-employer dues to the Mexican Social Security Institute, as well as the contributions to the National Workers’ Housing Fund Institute and the Retirement Fund Administrators.

In the same way, this increase in the payment of the vacation premium will be a disbursement destined to remunerate subordinate personal work, which will impact the taxable base of the payroll tax, depending on each State.

Finally, the payment of the vacation premium could be an exempt income for workers and whose deduction for income tax purposes will be limited for the employer (taxpayer), either to 47% or 53%, depending on the case.

There are high possibilities that such Draft Decree will be approved, which would enter into force the day after its publication in the Official Gazette of the Federation according to the sole Transitory article of the Draft Decree.

Recommendations

It will be required to analyze and recalculate, according to each case, the benefits granted to workers to determine the necessary adjustments in terms of employee-employer dues, local payroll taxes and the corresponding deductions for income tax purposes for prevent any contingency due to such implications.

If you have any questions regarding the foregoing, please do not hesitate to contact us.          

Mexico City, September 29, 2022

Comments

Among the additions to the General Regulations regarding Labor Inspections and Application of Sanctions are the implementation of the Inspection Alternative Mechanisms, including: (i) the voluntary compliance programs; (ii) the alternative procedures for the compliance of labor provisions; and, (iii) the collaboration actions that the Ministry of Labor and Social Welfare determines through the conclusion of agreements with the Federal Entities in which the employers inform and/or demonstrate the fulfillment of the labor provisions. 

The voluntary compliance programs exempt the employers to receive visits from the labor authorities (i.e. ordinary inspection visits); nevertheless, advisory, and technical assistance visits may be performed.

Regarding the labor subcontracting, will be subject to personal notification, or by official letter delivered by courier or certified mail with acknowledgment of receipt, or through electronic means, (i) the performance of inspections and application of sanctions resulting from the violation to the labor provisions; (ii) the rulings issued regarding the determination of the registry upon the Register of Contractors of Specialized Services or Specialized Works, and (iii) those regarding the denial or cancelation of the referred registry.

Concerning the surveillance of the labor subcontracting provisions it was included that the Labor Inspectors designated specifically by the Head of Labor Inspections, will carry out the ordinary and extraordinary inspections due to the expertise that they required.

Finally, the Labor Inspectors will implement and notify the administrative requirements in the inspection visits, when an employer does not allow the labor authorities to carry out the inspection and surveillance in his establishment, which may result in the imposition of penalties that will range between MXN $24,055.00 to MXN $481,100.00 MXN in accordance to article 1004-A of the Federal Labor Law.

Recommendations

Since the entry into force of the labor subcontracting provisions, the labor and tax authorities are intensifying their faculties to monitor the due fulfillment of such provisions. In that sense, in addition to reviewing and analyzing the contracting schemes for the provision of services implemented with several contractors for establish preventive and/or corrective measures in order to continue operating said schemes, it is indispensable to be accompanied during the inspections and/or audits performed by the referred authorities due to the contingencies that may result, especially in tax matters, which are the most sensitive.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, September 6, 2022

On August 26^th, 2021, the Ministry of Labor and Social Welfare (MLSW) issued a document denominated “Guide for complying with the obligations regarding the registry upon the Register of Contractors of Specialized Services or Specialized Works for individuals or legal entities that provide specialized services or carry out specialized works within the framework of the amendments in labor subcontracting matters” (Guide), which establishes, among others, a Section with several “aspects to consider ”in connection to what is understood by providing or making own workers available in benefit of a third party. The Guide may be accessed in the following website https://repse.stps.gob.mx. 

Comments

In the referred Section the following “aspects to consider” are highlighted:

a) It is understood that own workers are provided or made available for the benefit of a contracting party, when one or more workers carry out specialized services in a working space or workplace different than the one with whom they have a working relationship (g. owned by the contracting party or under his management or responsibility).

b) In cases in which the contractor’s workers carry out work at the contracting party’s facilities, it will be considered that it is provided or made available personnel, when those workers perform their work at the contracting party’s facilities permanently, indefinitely, or periodically.

c) Will be indications that workers of the contractor are provided or made available, those tasks that are carried out in the facilities, establishment, or workplace of a company by personnel who are not workers of such of the same.

d) Individuals or legal entities that provide personnel in terms of an agreement related to advertising, marketing and dissemination of products or brands, must have to specify their activities in the agreement subject or purpose without being able to carry out activities that concern to the contracting party.

In the cases indicated in the aforementioned subparagraphs, the contractor must registry in the Register of Contractors of Specialized Services or Specialized Works (Register) before the MLSW.

e) Those individuals or legal entities through them carry out promotional or advertising activities of a brand of their own, and its personnel are provided or made available in a workplace other than their own, must also registry in the Register before the MLSW.

It should be noted that the Guide denotes a total absence of legal grounds, in addition that such document it is not issued by an MLSW official who has sufficient powers for this purpose, so we estimate that such Guide has no legal force, but rather be a merely informative document and that it is not binding.

On the other hand, we consider that the Guide shows a lack of legal reasoning and technique, because the simple fact that the contractor’s personnel carry out specialized services in a working space or workplace, facilities, or establishments of the contracting party, would not necessarily imply that the contractor provides or makes his own workers available for the benefit of the latter.

Recommendations

We suggest reviewing and analyze the contracting schemes for the provision of services implemented in order to determine how to continue operating said schemes or carry out the necessary modifications or restructures, due to the potential contingencies that may be produced, and if applicable, the contractors must apply for registration in the foregoing Register.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, August 30, 2021

Due to the new provisions on labor subcontracting published on April 23^rd, 2021 in the Official Gazette of the Federation (OGF), on May 6^th, was published in the website of the Federal Commission of Regulatory Improvement the preliminary draft containing the “Agreement by which the General Provisions for the registration of individuals or legal entities that provide specialized services or carry out specialized works referred to in article 15 of the Federal Labor Law are disclosed” (Agreement). Said preliminary draft is pending for publication in the OGF.

Comments

We highlight that the Agreement states that it should be understood by “specialized services or works”, being those that gather elements or distinctive factors of the activity carried out by the contractor, which are supported, among others, by training, certifications, permits or licenses that regulate the activity, equipment, technology, assets, machinery, risk level, average wage range and experience, which provide added value to the beneficiary or contracting party.

On the other hand, the Agreement establishes the information that the contractors must provide to the Ministry of Labor and Social Welfare (MLSW) through the corresponding IT Platform to obtain the registration in the Register of Contractors of Specialized Services or Specialized Works (Register). Such information is, among other: (i) the current electronic signature; (ii) several identification data of the contractor; (iii) the geolocation; (iv) the corporate purpose, which must include specialized services or works; (v) the total number of employees at the moment of applicating for the registration; (vi) the specialized economic activity in accordance with the catalog of activities depending on the work risks of the Mexican Social Security Institute; and (vii) the predominant economic activity.

Likewise, the procedure for obtaining the registration in the Register consists in that once the respective information has been provided, the IT Platform will assign a folio number and the MLSW will have a period of 20 business-day-term after receiving the information to resolve the application. In the event that the MLSW does not resolve within the aforementioned term, the contractor may require it to issue the registration notice within 3 business-day-term following said request and, if it does not do so, the registration will be deemed made for all legal purposes; that is, an “implied affirmation” (afirmativa ficta) would be configured.

Finally, the Agreement states various assumptions both for the refusal of registration in the Register, as well as for its cancellation. Regarding the aforementioned refusal of registration there are the following assumptions, among others: (i) not proving the specialized nature; (ii) not being up-to-date with tax, social security, and housing fund obligations; and (iii) provide false information or apocryphal documents. Regarding the cancellation of the registration, there are the following assumptions, among others: (i) provide specialized services or works that are not registered in the Register; (ii) provide services that are part of the corporate purpose or predominant economic activity of the beneficiary; and (iii) there are definitive assessments derived from non-compliance with tax, social security, and housing fund obligations. In both cases, the contractor will have a period of 5 business-day-term to express what is appropriate for him.

The Agreement denotes certain deficiencies that will cause legal uncertainty to the contractors, such is the case of the configuration of an “implied affirmation” (afirmativa ficta), since we estimate that in practice it will generate problems between the contractors and the beneficiaries, especially in cases of tax issues or well, the refusal of registration in the Register because the assessments that are sub judice in a strictly speaking does not imply a breach of tax, social security and housing fund obligations, among other cases.

Recommendations

Although the aforementioned Agreement is a preliminary draft of the general provisions that will set forth the procedure for the registration of contractors of or specialized services or works before the Register, we consider that it will not undergo relevant amendments, so it is indispensable that the contractors perform the pertinent actions, review and analyze the contracting schemes for the provision of services implemented in order to determine how to continue operating said schemes, or carry out the necessary modifications or restructures and, if applicable, prepare the information for applicating for the registration in the foregoing Register.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, May 11, 2021

On April 23, 2021, the Decree that amends several provisions, among others, of the Federal Labor Law, of the Social Security Law, of the National Institute Housing Fund for Workers Law, of the Federal Tax Code, of the Income Tax Law, and the Value Added Tax Law regarding the labor subcontracting, was published in the Official Gazette of the Federation (OGF).

Comments

The most relevant provisions are the following:

• Labor subcontracting is prohibited, except that it will be allowed in cases in which the specialized services or execution of specialized works that are not part of the corporate purpose or the predominant economic activity of the beneficiary, and the contractor is registered before the Ministry of Labor and Social Welfare (MLSW).

• For both labor and tax purposes, it is established that the complementary or shared services or works provided between legal entities that are part of the same business group will be considered as “specialized”, as long as they are not part of the corporate purpose or the predominant economic activity of the legal entity that receives them. In connection with the foregoing, it follows that in certain cases and complying certain requirements, the internalization of labor subcontracting (insourcing) will be allowed.

• The amount of the workers’ profit sharing will have a maximum limit of 3 months of the worker’s wage, or the average of the participation received in the last 3 years. The amount that is most favorable to the worker will be applied.

• The contractors must have to submit certain data and information every 4 months to the Mexican Social Security Institute and to the National Institute Housing Fund for Workers.

• For labor, social security and housing purposes, the beneficiary will be jointly and severally liable in connection to the workers used to execute contracts, when the contractor does not comply with its obligations derived in said matters.

• Labor subcontracting expenses will not have tax effects regarding the income tax (deductions) and the value added tax (credit), when carrying out activities related to corporate purposes or regarding the predominant economic activity of the beneficiary.

• The considerations derived from the aforementioned specialized services or execution of specialized works will have tax effects, as long as the contractor is registered before the MLSW.

• There will be joint and several liabilities for the legal entities or individuals who receive services or contract works derived from illegal labor subcontracting, regardless of the infractions and sanctions that may be imposed to each Party (beneficiary and contractor).

• In those cases, in which the beneficiaries receive the aforementioned specialized services or the execution of specialized works, they must obtain certain information and documentation from the registered contractors, so that the expenses incurred can be deductible for income tax purposes and creditable for value added tax purposes.

• The use of simulated schemes for the provision of specialized services or the execution of specialized works or carrying out an illegal labor subcontracting will be considered an aggravated tax fraud.

• The amendments to the Federal Labor Law, the Social Security Law, and the National Institute Housing Fund for Workers will enter into force the day after their publication in the OGF.

• The amendments to the Federal Tax Code, the Income Tax Law, and the Value Added Tax Law will enter into force on August 1^st, 2021.

• No later than May 24, 2021, the MLSW must issue the general rules regarding the registration before her.

• Individuals or legal entities that provide specialized services or execute specialized works must obtain their registration before the MLSW within a 3 months-period from the publication of the general rules issued by said Ministry.

• In connection to the employer substitution due to a labor subcontracting regime, the employers will not be required to transfer the goods of the legal entity or establishment to the substitute employer, as long as the respective workers are transferred to the beneficiary no later than July 23, 2021.

Recommendations

We suggest expediting the pertinent preventive actions and review and analyze the contracting schemes for the provision of services implemented in order to determine how to continue operating said schemes or carry out the necessary modifications or restructures, pursuant the potential contingencies that may be generated.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, April 26, 2021

On November 12^th, 2020, the Federal Executive Branch submitted the draft Decree amending several provisions of the Federal Labor Law, the Social Security Law, the National Institute Housing Fund for Workers Law, the Federal Tax Code, the Income Tax Law, and the Value Added Tax Law regarding the labor subcontracting (Original Proposal).

On April 5^th, 2021, the Federal Executive Branch, as well as some representatives of the labor and business sectors, and the Legislative Branch itself, reached various consensus in connection with the Original Proposal.

On April 7^th, 2021, the Labor and Social Welfare Commission, and the Finance and Public Credit Commission of the House of Representatives, issued the Positive Opinion with a draft Decree amending the aforementioned provisions regarding the labor subcontracting, which will be discussed for approval this Tuesday, April 13^th, 2021 in the House of Representatives Assembly.

Comments

In said Positive Opinion, non-substantial modifications are noted with respect to the provisions contained in the Original Proposal, such as:

• Labor subcontracting is prohibited, except that it will be allowed in cases in which the specialized services or execution of specialized works that are not part of the corporate purpose or the predominant economic activity of the beneficiary, and the contractor is registered before the Ministry of Labor and Social Welfare (MLSW).
• The contractors must have to submit certain data and information every 4 months to the Mexican Social Security Institute and to the National Institute Housing Fund for Workers.
• Labor subcontracting expenses will not have tax effects regarding the income tax (deductions) and the value added tax (credit), when carry out activities related to corporate purpose or the predominant economic activity of the beneficiary.
• The considerations derived from the aforementioned specialized services or execution of specialized works will have tax effects, and the contractor is registered before the MLSW.
• There will be joint and several liability for the legal entities or individuals who receive services or contract works derived from illegal labor subcontracting, regardless the infractions and sanctions to each Party (beneficiary and contractor).
• In those cases, in which the beneficiaries receive the aforementioned specialized services or for the execution of specialized works, they must obtain certain information and documentation from the registered contractors, so that the expenses incurred can be deductible for income tax purposes and creditable for value added tax purposes.
• Finally, the use of simulated schemes for the provision of specialized services or the execution of specialized works or carrying out an illegal labor subcontracting will be considered aggravated tax fraud.

However, in such Positive Opinion some aspects that we consider sensitive and relevant are noted, such as:

• For both labor and tax purposes, it is established that the complementary or shared services or works provided between legal entities that are part of the same business group will be considered as “specialized”, as long as they are not part of the corporate purpose or the predominant economic activity of the legal entity that receives them. In connection with the foregoing, it follows that in certain cases and complying certain requirements, the internalization of labor subcontracting (insourcing) will be allowed, which the Original Proposal does not foresee.
• The MLSW will have a period of 3 months following the entry into force of the Decree to issue the general rules regarding the registration before her. It should be noted that the Original Proposal states a period of 4 months for this purpose.
• Individuals or legal entities that provide specialized services or execute specialized works must obtain their registration before the MLSW within a 3 months-period from the publication of the general rules issued by said Ministry. For this purpose, the Original Proposal foresees a term of 6 months.
• It is specified that, in relation to the employer substitution due to a labor subcontracting regime, it will not be a requirement to transfer the goods of the legal entity or establishment to the substitute employer, as long as the respective workers are transferred to the beneficiary within a 3 months-period following the entry into force of the Decree. It should be noted that the foregoing would enter into force 3 months after the aforementioned Decree enters into force (6 months for practical purposes). The Original Proposal only mentions that for the employer substitution takes effect, the goods of the legal entity or establishment must be transferred to the substitute employer, without specifying the aforementioned 3 months exception with respect to said transfer.
• The amount of the workers’ profit sharing will have a maximum limit of 3 months of the worker’s wage, or the average of the participation received in the last 3 years. The amount that is most favorable to the worker will be applied. The Original Proposal did not contemplate setting a maximum limit on the amount of the workers’ profit sharing.

It has been spread by several means that the intention is that on May 1^st, 2021, the Decree amending the mentioned provisions on labor subcontracting shall enter into force.

Recommendations

We estimate that the aforementioned Positive Opinion that will be discussed this Tuesday, April 13^th, will hardly undergo any significant changes, so we suggest expediting the pertinent preventive actions and review and analyze the contracting schemes for the provision of services implemented in order to determine how to continue operating said schemes or carry out the necessary modifications or restructures, pursuant the potential contingencies that may be generated.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, April 12, 2021

In this regard, whenever an employment relationship is developed in more than the 40% of the time in the employee’s domicile or location selected, such relationship will be subject to the provisions applicable to Teleworking. Such Decree will enter into force the following day of its publication.

Comments

 Teleworking is defined as a form of subordinated employment organization consisting in the performance of remunerated activities in a location different from the employer’s establishments, that does not require the physical presence of the employee in the work center, since the employee is able to use the communication and information technologies to maintain contact and be in control under the employer’s instructions. Conversely, those tasks performed in an occasional or sporadic manner are not considered Teleworking.

The conditions of this modality must be laid down in written form and when applicable, in the corresponding Collective Agreement, with the possibility to modify such modality in a volunteer basis and in written form to the on-site employment modality and vice versa (Reversibility Right).

Under this new modality, the employers will be entitled to the following obligations: (i) provide, install and undertake the maintenance of the working equipment that result necessary to the employees (e.g. computer equipment); (ii) bear the costs that result from Teleworking (e.g. use of internet and the proportional amount of electricity; (iii) keep a registry of the working equipment provided to the employees; and, (iv) respect the right of the employees to “disengage” (log-off) from work when the working hours conclude.

Whereas this modality of Teleworking compels employers to various obligations in which a series of unusual expenses shall be made, we estimate that such expenses are strictly and absolutely essential to the employer’s activities (i.e. taxpayers), and hence deductible for income tax purposes, as long as the provisions set forth in article 27 of the Income Tax Law are fulfilled.

Therefore, we consider that amendments to the Income Tax Law will not necessary; however, we anticipate that the tax authorities would issue general rules thereon. 

Recommendations

In addition of being necessary the review, analysis and, where appropriate, modification of the current employment relationships, all expenses and costs incurred by employers (i.e. companies) under the Teleworking modality, must be duly documented in order to demonstrate the indispensability, materiality, and origin for its subsequent deduction.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, January 11, 2021

The statements of reasons appoint that, by prohibiting the subcontracting of personnel and establishing rules for individuals or legal entities to only contract provision of specialized services or execution of specialized works, the practices currently operating through several forms of simulation to the detriment of workers and the public treasury, will be eradicated.

Some comments

The use of the figure of labor subcontracting is strictly prohibited, establishing supposed rules to be able to contract, only and exclusively, the provision of specialized services or the execution of specialized works and, setting the corresponding sanctions in the event of non-compliance.

It will not be considered labor subcontracting in those cases in which the specialized services or execution of specialized works that are not part of the corporate purpose or the economic activity of the beneficiary, are provided or executed by a contractor who has authorization from the Ministry of Labor and Social Welfare. This authorization will be valid for 3 years.

The contractors must have to submit certain data and information every three months to the Mexican Social Security Institute and every four months to the National Institute Housing Fund for Workers.

Labor subcontracting expenses will not have tax effects regarding the income tax (deductions) and the value added tax (credit), inclusive may be a joint and several liability for the legal entities or individuals who receive services or contract works derived from a prohibited labor subcontracting, regardless the sanctions applicable to each Party (beneficiary and contractor).

In those cases in which the beneficiaries receive specialized services or for the execution of specialized works that are not part of their corporate purpose or their economic activity, they must have to obtain certain information and documentation from the authorized contractors, so that the expenses incurred can be deductibles for income tax purposes and creditable for value added tax  purposes.

Finally, the use of simulated schemes for the provision of specialized services or the execution of specialized works or carrying out a prohibited labor subcontracting will be considered aggravated tax fraud.

Recommendations

The aforementioned draft Decree completely misrepresented the legal figure of labor subcontracting, so it will be essential to review and analyze the contracting schemes for the provision of services implemented with its several contractors and restructure them, as appropriate, being necessary to establish a diagnosis and recommendations to continue operating such schemes, paying special attention and emphasis on tax issues due to the potential contingencies that may be generated.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, November 12, 2020