September 25 2009
Personnel service companies have been used in Mexico for many years as a legal and effective means of managing labour-related risks, protecting assets and optimizing compensation schemes. Unfortunately, in some cases this practice has given rise to abusive schemes in which the real nature of an employment relationship is concealed or misrepresented in order to avoid payroll-related taxes, including income tax. The use of abusive schemes has grown dramatically in recent years and the tax authorities have responded by:
Among the legislative changes published so far, the amendments to the Income Tax Law are particularly significant. Although many different abusive outsourcing schemes have been created, most are based on a structure whereby:
Such schemes claim to offer a number of tax benefits to the parties involved. Among other things, it has been wrongly stated that income received by partners of a personnel service company is tax exempt in the hands of the partners. The amendments to the law simply state that such companies are not entitled to a full deduction of amounts paid to their partners; nor are such amounts always tax exempt in the hands of such partners.
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