Mexico seeks to ban subcontracting after agreement with companies

(Bloomberg) – The Mexican government said it reached an agreement with union and business leaders on a controversial bill to ban subcontracting in a measure that seeks to close tax loopholes.

On Monday, during a meeting at the National Palace in Mexico City, the group agreed to prohibit the subcontracting of personnel to third-party companies, except for specialized jobs outside the company’s main economic activity, as well as to implement a new participation model in profits, the Ministry of Labor and Social Security said in a statement.

The president, Andrés Manuel López Obrador, said that the “important” agreement was reached after the meeting this Monday between union leaders, leaders of the business chambers and main legislators, without providing details. Business lobby group CCE said in a separate statement that profit sharing will be limited to avoid “potential distortions in capital-intensive companies.”

Outsourcing was one of several sticking points between the government and Mexico’s business elite, which has slowed investment after López Obrador’s interventionist policy measures, such as the cancellation of a new airport in Mexico City and, more recently , legislative measures designed to roll back some reforms in the energy market.

In late 2020, the president had sent the outsourcing bill to lawmakers, arguing that current agreements unfairly limit employers’ obligations and evade taxes. However, business lobbies fought back, saying rising costs would further complicate recovery from last year’s deep recession, opening up a negotiation period with the government.

Earlier, business leaders had proposed limiting profit-sharing rates when they began talks with officials to soften the bill. Companies operating in Mexico generally establish separate firms to employ the majority of their workers as a way to avoid legal and tax burdens, including a mandatory annual profit-sharing payment for employees.

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This Monday’s agreement will be presented to the Chamber of Deputies, which is reviewing the original bill that López Obrador sent to legislators last year. Currently, the government party, Morena, controls both legislative chambers together with its allies.

Original Note: Mexico Seeks to Ban Outsourcing After Agreement With Business

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