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April 12, 2021
Mexico: Government reaches agreement with representatives of labor and business sectors on outsourcing services in Mexico
If approved by Congress, the agreement will very likely have an important economic impact on Mexican structures that contemplate outsourcing services. Taxpayers should analyze how this Bill and the terms of the agreement would affect their operations in Mexico.
On 5 April 2021, Mexico’s Government and representatives of the labor and business sectors in Mexico reached a verbal agreement on the outsourcing prohibition included in the proposed legislation introduced by Mexico’s Executive branch in November of last year (the Bill). This Bill has not yet been enacted. For more information, see EY Global Tax Alerts, Mexico introduces bill to amend labor and tax laws to prohibit outsourcing, dated 16 November 2020 and Mexico postpones legislative action on outsourcing bill to 2021, dated 9 December 2020.
Although the labor and business sector representatives filed several petitions on the Bill’s potential effects on the distribution of profits, the essence of the November Bill remains. If the Bill is enacted, outsourcing services would be prohibited. Individuals and entities could only hire entities to provide services of a specialized nature or to perform specialized work to the extent the services or work (1) are not part of the business purpose or the “main” economic activity of the beneficiary, and (2) comply with certain requirements.
As part of the agreement, an amendment to the Bill would add the word “main” to a provision that could allow groups of companies to contract shared services. The agreement also:
Legislators will consider these items when amending the Bill. Regarding the three-month transition period to transfer employees to the actual employer’s payroll, it is unclear whether this transition period will apply to labor and tax regulations, so this would have to be reviewed once Congress amends the Bill. Congress is expected to approve the Bill during April 2021.
Given the Bill’s potential economic impact on service company structures, taxpayers should carefully analyze how the Bill would affect their operations in Mexico and consider whether restructuring would be required to comply with the Bill.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), Latin American Business Center
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific
Ernst & Young LLP (United Kingdom), Latin American Business Center, London