TAX. Elimination the Data Application on Subcontracting Labor and its implications August 20, 2019
On August 20, 2018, was published on the Official Gazette of the Federation, the First Amendment Resolution of the Miscellaneous Tax Resolution (“MTR”) of 2019, repealing the rules that establish the existence and use of a data application through the Tax Administration Service (“TAS”) website, so that the contracting party can consult the authorized information by the contractor in connection with labor subcontracting activities in substitution of the obligation to get documentation referred in articles 27, section V, last paragraph of the Income Tax Law (“ITL”); 5, section II and 32, section VIII of the Value Added Tax Law (“VATL”) for purposes to deduct the expenses for income tax (“IT”) and credit the corresponding value added tax (“VAT”).
The Fourteenth Transitory article establishes that the information submitted through the data application before to the entry into force of such Resolution will be kept in the TAS databases and may be used in tax audits.
Finally, it states that as of August 1st, 2019, all taxpayers must comply with the obligations set forth in articles 27, section V, last paragraph of the ITL; 5, section II and 32, section VIII of the VATL.
With the elimination of the data application its essential that the taxpayers who have entered into subcontracting labor agreements, invariably get a copy of several supporting documentation required by the aforementioned provisions regarding the fulfillment of the contractor’s tax obligations, otherwise they will not be able to deduct the corresponding expenses for IT purposes neither to credit the VAT transferred.
There has always been legal uncertainty in order to define when we are in presence of a provision of independent services, a labor intermediation, or a labor subcontracting, in which case the aforementioned provisions must be observed.
The aforementioned, because on many occasions the TAS has considered that the agreements for provision of services that require workers or employees of the contractor to provide the services to the contracting party, are not provision of services, re-characterizing the legal relationship between both parties and, therefore, causing a tax contingency to the contracting party.
It is essential to review and analyze the contracting scheme for provision of services implemented with its several contractors (e.g. suppliers), in order to establish a diagnosis and the necessary recommendations to continue operating such scheme, paying special attention and emphasis on tax issues because the potential contingencies that may be generated.
If you have any questions regarding the foregoing, please do not hesitate to contact us.
Mexico City, August 20, 2019