Since 2011, Michael Mundaca has served as co-director of Ernst & Young’s (EY) National Tax Department and Americas Tax Center. In this role, Michael Mundaca co-leads EY’s Americas-wide network of tax professionals who provide tax law consulting and other tax services in both North and South America.
In the December 12 edition of the Americas Tax Center Roundup newsletter, EY shared 2017 compliance rules regarding outsourcing relationships for companies in Mexico, where it is common for businesses to outsource certain employee services, such as payroll, to service companies. Service companies typically recognize income for a service fee, transfer the value-added tax (VAT) on that service fee to operating companies, and deduct payments to employees. Operating companies then deduct the service fees and issue a credit for the VAT paid on those fees.
On July 15, 2016, a court in Jalisco ruled that if an outsourcing relationship does not fulfill certain requirements outlined in Article 15-A of the Federal Labor Law (FLL), the relationship between the operating company and the service company will be considered a payroll cost instead of an independent personal service cost. If the operating company is considered an employer, the VAT does not apply to service fees, and the operating company cannot credit the VAT.
To learn more about this new tax law, visit http://www.ey.com/gl/en/services/tax/international-tax/alert--mexicos-new-compliance-rules-for-outsourcing-relationships-will-go-into-effect-in-january-2017.
