On November 12, the Federal Executive submitted to the Chamber of Deputies the “Initiative with Draft Decree amending, adding to, and repealing various provisions of the Federal Labor Law, the Social Security Law, the Law of the Institute of the National Housing Fund for Workers, the Federal Tax Code, the Income Tax Law, and the Value Added Tax Law” (the “Initiative”).
The statement of purpose of the Initiative indicated that its aim is to prohibit the subcontracting of personnel and to establish precise rules so that persons contract only specialized services or the execution of specialized works, in order to eradicate certain practices that currently operate through simulation to the detriment of workers and the public treasury. It should be noted that in our note of November 13 we discussed the main labor-related amendments contemplated by the Initiative, which may be consulted here, so below we will address only the amendments to the tax-related statutes contemplated therein. As a first comment, it is important to bear in mind that the tax laws are amended in order to harmonize them (with the proposed reform to the Federal Labor Law) in relation to the concepts of: (i) subcontracting (prohibited under that same proposal) and (ii) the rendering of specialized services. A) Social Security Law It is established that a person who contracts the rendering of services or the execution of works with an individual or legal entity that fails to comply with its social security obligations shall be jointly and severally liable in relation to the workers used to carry out such engagements. Likewise, the elimination is proposed of the administrative facility granted to personnel service providers to open a single employer registration by class at the national level. B) Law of the Institute of the National Housing Fund for Workers (“INFONAVIT”) It is established that an individual or legal entity that contracts the rendering of services or the execution of works with a company that fails to comply with its social security obligations shall be jointly and severally liable in relation to the workers used to carry out such engagements. The obligation is incorporated for persons authorized to render specialized services or to execute specialized works to submit various information to INFONAVIT on a four-month basis. Should the Initiative be approved on the terms proposed by the Federal Executive, in the event of employer substitution, the substituted employer shall be jointly and severally liable with the new one with respect to the obligations before INFONAVIT arising before the date of the substitution, for a term of up to six months. Once such term concludes, all responsibilities shall be attributable to the new employer. C) Federal Tax Code For its part, it is proposed to establish that payments or considerations made for the subcontracting of personnel may not have tax effects of deduction or crediting. Nor would tax effects of deduction or crediting be granted to services in which personnel is provided or made available to the contracting party, when any of the following circumstances arise: 1. When the workers that the contractor provides or makes available to the contracting party were originally workers of the latter and were transferred to the contractor, and 2. When the workers provided or made available by the contractor cover the predominant activities of the contracting party. Notwithstanding that, in accordance with the proposed reform to the Federal Labor Law, subcontracting would be prohibited, it is proposed to incorporate into the situations of joint and several tax liability the party contracting personnel subcontracting services with respect to the contributions that may have been assessed against the workers of the service provider. Likewise, it is proposed to add, as an aggravating factor for the imposition of fines, taking the deduction or crediting of personnel subcontracting services. In line with the foregoing, it is also proposed to establish a penalty for the case in which the contractor (of specialized services or of the execution of specialized works) fails to provide the contracting party with the information necessary for the expense to be deductible or the transferred tax creditable. Finally, it is established that the conduct consisting of using simulated schemes for the rendering of specialized services or the execution of specialized works, as well as carrying out the subcontracting of personnel, constitute qualifying circumstances in the commission of the crime of tax fraud and its equivalents. D) Income Tax Law The deduction of the corresponding payments, for purposes of the referenced tax, is conditioned when it involves the rendering of specialized services or the execution of specialized works. The foregoing consists of the contracting party obtaining from the contractor the documentation detailed below: 1. The valid authorization that the Ministry of Labor and Social Welfare would issue. 2. The tax receipts for the payment of the salaries of the workers who provided the service or executed the work. 3. Proof of payment issued by the corresponding banking institution regarding the return declaration of the tax withholdings made on such workers. 4. Payment of the employer-employee contributions to the Mexican Social Security Institute, as well as payment of the contributions to INFONAVIT. On the other hand, in order to maintain consistency with the provisions of the Federal Tax Code, it is proposed to specify in the Income Tax Law that payments for the subcontracting of personnel shall not be deductible. E) Value Added Tax Law In line with the reforms to the other tax provisions, it is proposed that the Value Added Tax transferred for personnel subcontracting services shall not be creditable. Additionally, the 6% withholding applicable to services through which personnel is made available to the contracting party or to a related party thereof, in force as of 2020, is eliminated. For its part, the following are established as requirements for the crediting of the tax transferred to the contracting party for the rendering of specialized services or execution of specialized works: 1. The valid authorization that the Ministry of Labor and Social Welfare would issue. 2. Value Added Tax return and proof of payment, corresponding to the period for which the considerations were paid and for the Value Added Tax that was transferred to it. The contracting party must meet such requirements no later than the last day of the month following that in which the considerations were paid. We will remain attentive to the legislative process that the Initiative follows through to its approval, if applicable, as well as to any relevant change it may undergo. For additional information, please contact our experts: Fernando Moreno, Partner: +52 (55) 5258 1008 | fmoreno@vwys.com.mx Jorge Díaz Carvajal, Associate: +52 (55) 5258 1008 | jdiaz@vwys.com.mx Diego Benítez, Associate: +52 (55) 5258 1008 | dbenitez@vwys.com.mx
