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ADOPTION OF LAWS AND REFORMS CONCERNING THE FEDERAL JUDICIARY

As part of the implementation of the Constitutional Reform related to judicial matters, published in the Federal Official Gazette on March 11, 2021, the Mexican Congress approved the laws and reforms to reorganize the structure and functioning of the Federal Judiciary.

The draft law approved by the Congress provides the expedition of a new Federal Judiciary Organic Law and the Federal Judiciary Career Law. It also amends, supplements, and repeals several provisions of the Injunction Law (or Amparo as it is known in México), the Federal Public Defender’s Office Law, the Federal Code of Civil Procedure, the Federal Law on Workers in State Service, Regulatory of paragraph b) of Section 123 of the Constitution, and the Regulation Law of paragraphs I and II of Section 105 of the Constitution.

The amendments approved by the Congress include (i) the incorporation of the Judicial Disputes Commission of the Federation related to labor conflicts, (ii) the establishment of the Institute of the Public Defender’s Office and the training of its staff by the Federal Judicial Training School, (iii) adjustments to focus the jurisdiction of the Supreme Court of Justice of the Nation in exceptional constitutional matters and fundamental rights, as well as to transit from a system of jurisprudence of reiteration of criteria to one of obligatory precedents, and (iv) the replacement of Unitary Circuit Courts for Collegiate Courts of Appeal.

According to its authors, the new laws and reforms intend to strengthen actions to address nepotism, conflicts of interest, sexual harassment, and corruption within the Federal Judiciary, to guarantee independence, impartiality, suitability, stability, professionalization, and specialization of public servants, and provide the mechanisms to achieve an adequate administration of justice.

One of the most controversial points in the legislative process was the incorporation of a transitory provision for implementing the constitutional reform of the Federation Judiciary and the corresponding regulatory Acts, which establishes that the current president of the Supreme Court of Justice of the Nation and the Council of the Federal Judiciary extends the duration of his assignment until November 30, 2024, on the understanding that the period for which Minister Arturo Zaldivar was elected runs from January 2, 2019, to December 31, 2022. Several sectors of society have expressed their opposition to this extension of the mandate as unconstitutional. It is foreseen that the Supreme Court of Justice of the Nation will carry out the analysis corresponding to this transitory provision through the action of unconstitutionality that may be filed once the laws and reforms mentioned herein be published by the Executive in the Official Gazette of the Federation.

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Modifications to tax legislation regarding outsourcing

On April 23rd, 2021, a Decree was published in the Official Gazette of the Federation (“DOF”) amending, adding and repealing several provisions of the Federal Labor Law; the Social Security Law; the Law of the National Workers Housing Fund Institute; the Federal Fiscal Code (“CFF”); the Income Tax Law (“LISR”); the Value Added Tax Law (“LIVA”); the Federal Law of Workers in Service of the State, Regulatory of Section B) of Article 123 of the Constitution; and, of the Regulatory Law of Section XIII Bis, Section B of Article 123 of the Mexican Constitution (the “Decree”).

 

Such Decree states that the amendments to the mentioned laws will become effective until August 1st, 2021.  Among the main changes to the tax laws are the following:

 

  1. Federal Tax Law

 

1.-       Deduction and crediting.  The provisions of the CFF establish several limitations so that invoices arising from the payment of subcontracting services may not be deducted or credited.

 

Payments for services in which personnel is placed at the disposal of the contractor may not be deducted or credited.  This, only in the case that: (i) the workers made available to the hiring party, were originally its employee, and (ii) when the workers made available perform the same predominant economic activities, according to the bylaws and business object of the hiring party.

 

The exception to the general rules applies only if the outsourced service consists on specialized services or, for the execution of specialized works, different from the predominant economic activity of the hiring party.  However, the application of such exception is subject to the condition that the person rendering the outsourcing services complies with the following: (i) is registered before the Ministry of Labor and Social Welfare (“STPS”), and (ii) it complies with the provisions of Articles 27, Section V of LISR and article 5, section II second paragraph of the LIVA.

 

2.-       Penalties.  If any of the aforementioned points are not complied with, the CFF establishes the following penalties:

 

  1. a) Deducting or crediting the payment for outsourcing services without complying with the provisions of articles 27, section V of the LISR and article 5, section II, second paragraph of the LIVA, will be considered as an aggravating circumstance in the commission of infractions. In addition, a fine of MXN$150,000.00 to MXN$300,000.00 will be applied for each failure to comply with the provisions of the articles.

 

  1. b) In the event that a taxpayer simulates schemes for the rendering of specialized services, the execution of specialized works or keeps its personnel outsourced, it will be equivalent to the crime of qualified tax fraud.

 

  1. Income Tax Law

 

1.-       Deduction requirements.  Regarding payments for the provision of specialized services or execution of specialized works, the hiring party must comply with the following: (i) verify that, at the time of the payment, the service provider is registered before the STPS, and (ii) request from the service provider a copy of the following:

 

  • The invoices covering the payment of worker’s salaries.

 

  • The receipt of payment of the withholding taxes made to the workers.

 

  • Payment of labor-management contributions.

 

  • Payment of INFONAVIT contributions.

 

III.     Value Added Tax Law

 

  1. A) Withholding of 6%. Pursuant to the Decree, the six percent (6%) withholding that was established in article 1-A, section IV of the LIVA, for cases in which a person benefits from outsourcing services, was repealed, and therefore, as of August 1st, 2021, it will no longer have to be withheld.

 

  1. B) Requirements for crediting. Now, in order for the value added tax to be creditable, in the case of subcontracting activities of specialized services or the execution of specialized works, when paying for those services, the hiring party must comply with the following: (i) verify that the service provider is registered before the STPS, and (ii) request from the service provider a copy of the value added tax return and acknowledgment of receipt of payment, corresponding to the period in which the payment was made.

 

In the event that such information is not collected, the hiring party must file a supplementary return in which it will have to reduce the amounts credited for those services.

 

We hope you find this information useful.  The complete publication of the Decree can be found through the following link:

 

https://www.dof.gob.mx/nota_detalle.php?codigo=5616745&fecha=23/04/2021

 

If you have any questions or comments, please contact us at the following e-mail addresses:

 

Rafael Tena Castro rtena@acsan.mx

Luis Kanchi Gómez lkanchi@acsan.mx

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