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Draft's judgment in connection with the tax requirements of the labor subcontracting regime. Mex

The Mexican Supreme Court of Justice (MSCJ), published the draft of the resolution that the Second Chamber will vote in the hearing on the next April 25, 2018, which will resolve the amparo review 98/2018, regarding the constitutionality of articles 27, section V, last paragraph of the Income Tax Law (IT) and 5, section II of the Value Added Tax Law (VAT), referring to outsourcing and in which it is proposed to deny the amparo petition according to the following:

  • There is no violation to the tax proportionality principle because the requirements contained in those articles do not eliminate the possibility that the contracting party deducts expenses for IT purposes or credit the transferred VAT, since simply establishes some formal requirements.

  • The right to legal certainty is not contravened, since the contracting party is able to access the necessary information of the contractor, because the Federal Labor Law requires him to permanently monitor the compliance of the contractor obligations.

  • The right of legal certainty is not violated, because even when the articles do not establish a specific date for the contractor to deliver the documentation, from an interpretation of such articles that it will be when the contractor pays the VAT and the corresponding wages withholding.

  • The legal provisions claimed are reasonable and proportional to the measure imposed by the legislator, since their intention is to combat tax evasion.

Pending issues

In such draft the MSCJ will not analyze several issues like the followings: i) if the proportionality principle is breached since the right to the deduction of the IT and the credit of the transferred VAT will depend on the decision of the contractor; ii) if the documentation that the contractor should provide is sufficient to prove that the taxes were duly paid, and; iii) if the tax equality principle is not breach due to the fact that the payment of any other independent service is not subject to the requirements of the subcontracting regime.

Our Comments

In case that the draft is approved, such judgment will constitute a non-biding precedent, however is likely that the MSCJ will resolve additional cases of the same matter in order to issue a Jurisprudence.

In addition, is pending the publication of the First Resolution of Amendments to the Miscellaneous Tax Resolution for 2018, which establishes in its latest anticipated version some rules in connection with the data application related to outsourcing for IT and VAT purposes, and of which there are some illegalities that could be challenged with the corresponding legal remedies, when the referred amendments are published on the Federal Official Gazette.

If you have any question regarding the above please do not hesitate to contact us:

Alejandro Arzate

Meyzin de la Cruz

Humberto Rodríguez

Ricardo Martín

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