Subcontracting Reform Initiative.

On November 12 of this year, President Andrés Manuel López Obrador presented the Initiative with a Draft Decree amending, supplementing and repealing various provisions of the Federal Labor Law, the Social Security Law, the Act on the Institute of the National Housing Fund for Workers, the Federal Tax Code, the Income Tax Act and the Value Added Tax Act, changes that together seek to limit the application of the figure known as subcontracting or outsourcing.

In the explanatory memorandum to this reform project, it is considered that the implementation of the outsourcing or subcontracting scheme has helped employers to evade payment of their tax obligations and directly affect them, the rights of workers.

This proposal seeks a new regulation for the figures identified below:

• Subcontracting of personnel. It is proposed to prohibit the subcontracting of personnel, meaning the situation where a natural or legal person provides or makes available own workers for the benefit of a third party.

• Specialized services and works. The provision of such services or the execution of works shall be permitted, provided that they do not form part of the social object or of the predominant economic activity of the person benefiting from them.

• Placement agencies. They may only be involved in recruitment, recruitment, selection, training, training and the like. In no case shall he be considered a master.

In addition, other aspects include the following:

a) Natural or legal persons who resort to the provision of specialized services to a contractor in breach of their obligations to their workers shall be jointly and severally liable to the workers concerned.

b) Legal entities providing specialized services must be authorized by the Ministry of Labour and Social Security, which must be renewed every three years and be registered in a public register.

In view of the fact that the proposed reforms are approved by the Congress of the Union, natural or legal persons who use subcontracting schemes that do not comply with the above conditions, may become creditors to the following consequences and/or sanctions:

• Imposition of fines ranging from $173,760.00 to 4,344,000.00 for not having the corresponding authorization.

• Payments for subcontracting shall have no tax deduction or crediting effect.

• Irregularities linked to the previous point shall be considered as constituting the offence of tax fraud.

In this connection, it is proposed to add paragraph i) to article 108 of the Federal Fiscal Code, which provides that anyone who uses mock schemes for the provision of specialized services or the execution of specialized works shall be deemed to have committed the offence of tax fraud, or to subcontract personnel.

In this context, the penalties currently available for this type of crime would apply:

I. Imprisonment from three months to two years, when the amount of the defrauded does not exceed $1,734,280.00.

II. Imprisonment from two years to five years when the amount of the defrauded exceeds $1,734,280.00 but not $2,601,410.00.

III. Imprisonment from three years to nine years when the amount of the defrauded is greater than $2,601,410.00.

Finally, it should be noted that the implementation of the proposed reforms will depend on the issuance of rules by the Ministry of Labour and Social Security, and once published, natural or legal persons shall have a period of six months to obtain the relevant authorisation.

In Bandala | Díaz | García we underline the importance of sizing the scope that the reforms can have in comment and the impact that they will have on the operation of your company and we put at your disposal our communication channels to solve any concerns.

LEGAL NOTICE

THIS INFORMATION HAS AS ITS MAIN OBJECTIVE TO GUIDE THE GENERAL PUBLIC. DOES NOT REPLACE THE PROVISIONS OF THE APPLICABLE LEGISLATION. NOR DOES IT REPLACE THE SPECIALIZED LEGAL ADVICE OR CONSULTANCY THAT MAY BE OFFERED BY ANY OF BANDALA’S LAWYERS AND/OR ACCOUNTANTS BANDALA | DÍAZ | GARCÍA