Outsourcing, a Vulnerable Activity
By Miguel Gallardo Guerra and Marco A. López García / Compliance / Published on November 30th, 2016.
This memorandum analyzes the legal opinion that was recently published by the Financial Intelligence Unit (“UIF”) on the Anti-Money Laundering portal of the Tax Administration Service (“SAT”) in which the Outsourcing activity was included as a Vulnerable Activity in Mexico, pursuant to the provisions of the Federal Law on the Prevention and Identification of Operations from Illicit Sources (“LFPIORPI”).
1. What does Outsourcing mean?
Outsourcing refers to a subcontracting or service scheme. In other words, it is a legal and tax concept that allows an employer to indirectly hire, i.e. through an external company, the services provided by one or more employees.
The tax benefits offered by this contracting model, such as tax deduction, are one of the reasons why more and more businesses opt for this solution. However, the advantages or drawbacks of this system will depend on how both the contracting company and the service provider manage their business relationship, which may adversely affect or positively benefit their respective interests.
Outsourcing is an effective strategy consisting in assigning some of the daily operations of any given company to a third party. Said operations are related to business processes that do not directly affect service provision of the contracting company. Thus, the company’s management may focus on other critical processes.
2. UIF’s legal opinion.
In October 2016, UIF published a new legal opinion on the Anti-Money Laundering portal of the Tax Administration Service. This opinion classifies Outsourcing, i.e. external service provision, as a Vulnerable Activity in which there are no labor relations; the foregoing pursuant to the LFPIORPI, article 17, paragraph XI, subparagraph b). Consequently, the management of clients’ goods, securities, and any other assets will be subject to identification.
Notwithstanding the foregoing, Outsourcing will not be deemed as a Vulnerable Activity whenever two or more companies are part of the same Business Group and whenever said companies provide professional services to one another. Indeed, the LFPIORPI, article 17, paragraph XI, establishes that professional services will be only considered a Vulnerable Activity when performed independently (i.e., when the parties involved are not part of a same Business Group).
It is critical to note that the Vulnerable Activity scheme is applicable to commercial companies, as well as individuals offering the mentioned Outsourcing services. Identification parameters indicate that the corresponding client must always be identified. In addition, whenever said Vulnerable Activity is conducted, a notice must be submitted through the AML-TAS portal of the Ministry of Finance and Public Credit, within the next 17 calendar days of the month to be reported.
Failure to submit the notices regarding Vulnerable Activities may result in fines ranging from $1,295.20 to $647,600.00 MXN or imprisonment.
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