The Mexican Tax Administration (Servicio de Administracion Tributaria – SAT) has determined that the employment outsourcing activities performed by certain Mexican outsourcing companies violate tax laws, according to a SAT press release dated June 16, 2007.  The violations involved the transfer of workers to various partnerships with the purpose of avoiding the required employee profit sharing, federal taxes, and social security contributions under Mexican law.

U.S. companies with Mexican subsidiaries that retain outsourcing companies should always make certain they are contracting with outsourcers that fully comply with Mexican tax laws.  If an outsourcing deal seems to good to be true, it probably is, and the outsourcer probably isn’t complying with such laws. 

In due diligence investigations pending acquisitions of Mexican companies, we have seen business structures where one or more services companies designed to lease workers to the target (and thereby enable the target to avoid employee profit sharing obligations) is organized as a partnership.  Among the problems with these structures for the acquirer is that the SAT and/or the Mexican Social Security Institute could, after the close of the acquisition, retroactively impose liability and penalties on the target and/or such affiliates for unpaid employee profit sharing, social security payments, and other obligations arising from the improper use of the partnership.