On February 7, 2018, the Tax Administration Service (Servicio de Administración Tributaria (SAT)) published on its anticipated version of the Amendment Resolution to the Miscellaneous Tax Resolution for 2018, the rules for compliance with obligations as to labor subcontracting established on the Income Tax Act (Ley del Impuesto Sobre la Renta (LISR)) as a deduction requirement and on the Value Added Tax Act (Ley del Impuesto al Valor Agregado (LIVA)) as a requirement for crediting this tax.
Since 2017, taxpayers under the labor subcontracting assumption, in order to deduct the expenses for subcontracting this service and credit transferred VAT on the tax receipts for these expenses had to comply with the following:
• The contracting party was obliged to obtain from the contractor a copy of the payroll tax receipts (CFDI) evidencing payment of the salaries to the workers rendering the subcontracted service, return receipt requested, the tax return on the payment of the tax withheld from the workers and payment of worker-employer fees to the Mexican Social Security Institute (Instituto Mexicano del Seguro Social (IMSS)). Contractors are obliged to provide this information to contracting parties.
• In addition, the contractor shall provide copy of the tax return for VAT and the receipt for payment of the tax during the month the contractor performed the payment.
SAT, through the Federal Revenue Law for 2018 and under transitory provision stated: “it shall be understood that these provisions were complied during 2017 when taxpayers use the general computer application in 2018 disclosed in a general manner by the Tax Administration Service and the terms and requirements established on said rule are followed.”
Compliance with contracting party and contractor obligations in labor subcontracting activities.
Regarding labor subcontracting, the obligations upon the contracting party and contractor for the 2018 fiscal year may be complied using the application
“Contractor authorization for consulting CFDI and tax returns” available on each taxpayer’s tax mailbox. A taxpayer will be deemed choosing this facility when at least one authorization is used, therefore it is released from providing the information on the section “Labor subcontracting” payroll CFDI. In addition, the application shall be used for all labor subcontracting executed in the fiscal year with the same contractor.
Proceeding for authorizing contracting parties by contractors with labor subcontracting activities.
The contractor shall enter the application “Contractor authorization for consulting CFDI and tax returns”, available on the tax mailbox and shall enter certain information such as: contracting party’s TIN, contract number, period of service engaged and data on employees object of the agreement and who participate in the labor subcontracting service.
In addition, each contracting party shall be authorized using the e.signature, for the term of the labor subcontracting agreement, in order for the former to verify the contractor complied with the issuance of payroll CFDI, submitting and payment of taxes and employee-employer fees to the IMSS for the employees rendering the subcontracted service.
A receipt shall be obtained for the authorization of each subcontractor.
In order to prevent inconsistencies on consults made by contracting parties, the contractor shall:
* Promptly issue payroll CFDI for the workers it is responsible for,
* Update the application every time a contract employee is registered or terminated.
* Update contract agreement dates when these are modified, no later than the last day of the month when it takes place.
* Promptly and correctly file monthly tax returns on VAT and Income Tax withheld for salaries;
* Promptly and correctly pay the employer-employee fees to the Mexican Social Security Institute on each of the employees.
Proceeding whereby the contracting party carries out a consult on the information authorized by the contractor on labor subcontracting activities.
The contracting party shall enter the application “Consultation of CFDI and tax returns by the contracting party” available on the tax mailbox, as of the 27th of the month following the month the consult is to be made on, and shall select the period of consultation. In addition, the following procedure shall be carried out:
* Identify the CFDI with which subcontracting services were paid and confirm the amount of VAT paid, as well as the date of payment.
* Verify and validate the name and number of employees for which authorization was received match those on the agreement object of subcontracting.
* Use its e.signature to generate the receipt regarding the consult on the information authorized by the contractor and keep it as part of its accounting records.
When inconsistencies are found in the period and fiscal year selected, the contracting party shall be deemed failing to comply with the mentioned deductibility or crediting requirements, therefore expenses on labor subcontracting shall be non-deductible and the VAT on these expenses will not be credited either.
Procedure to be observed by the contracting party to request clarification regarding labor subcontracting on the application functionality.
Contracting parties may submit clarification requests when, derived from the consult of the application “Consultation of CFDI and tax returns by the contracting party” they have questions in connection with the application’s functionality. When the receipt on the application “Consultation of CFDI and tax returns by the contracting party” indicates there are inconsistencies, the contracting party shall require the contractor to solve these, pursuant to the terms indicated on the SAT website.
The SAT may also establish that taxpayers executing transactions other than subcontracting may choose aforesaid facilities.
It is important to mention that, during 2018, for taxpayers who will not carry out labor subcontracting activities, the filing of a notice of compliance with 2017 obligations, no later than February 28, 2018 shall suffice.
Failure to comply with these obligations shall render companies unable to deduct the expenses on labor subcontracting services and VAT corresponding to the CFDI issued by the suppliers of this service cannot be credited either.
At JA Del Río we can advise and aid you in compliance with these obligations.