Outsourcing schemes: possible changes to tax laws

November, 2020

Today, this bill continues under discussion in the houses and a proposal is expected to be passed by the end of the year. It should be pointed out that, since the 2020 tax reform, the Federal Government has shown intent to limit the use of the outsourcing scheme, as an example this year’s tax reform included a 6% Value Added Tax (VAT) withholding for services in which personnel or staff are placed at the disposal of the contracting parties.

As can be seen, the text does not specifically mention outsourcing services, which has made it difficult for taxpayers to define whether or not the withholding applies. Based on the foregoing, we believe that the possibility exists that such reform is passed; however, over the last few days, the private sector agreed to set-up a round table with the Federal Government, with the aim of achieving that the Government agrees not to eliminate the outsourcing scheme and instead incorporate a regulatory framework for such figure.

The main points of the proposal are:

1. Prohibition of job outsourcing: when a contractor places its own personnel at the disposal of the contracting party, without the latter acting as employer.
2. Specialized service and joint and several liability: Internationally, the outsourcing of specialized services is a common figure and Mexico should not be the exception, as the bill proposes defining what specialized services and works consist of, adding that in all cases the contracting party will be jointly and severally liable with regards to social security obligations.
3. National register: The establishment of a national register of specialized service providers, which accredits and authorizes those providers included on such register to render the corresponding services and works.
4. Limitation of placement agencies: Limiting the work of placement agencies so that they can only carry out personnel recruitment and training, without, under any circumstance, being able to include the hiring thereof among the activities of the agencies.
5. Tax effects: Provisions would be harmonized with the aim of considering the VAT of the payments for job outsourcing as being both non-deducible for Income Tax purposes and not creditable.

Consequently, it is believed that most taxpayers who operate under an outsourcing scheme, or which has a two-entity structure, i.e. operating company and service company with employees (insourcing), could be found to be in this situation.

In the case that you believe that you are in a job outsourcing scenario, we invite you to contact us, together with your legal counsel, to examine the implications and options that this may have with regards to your line of business. The Mazars tax team will keep you up-to-date in the case that this bill is amended.