Mexico Seeks to Ban Outsourcing After Agreement With Business

Mexico’s government said it reached a deal with union and business leaders on a controversial bill to ban outsourcing in a move that seeks to close tax loopholes.

The group agreed during a meeting at the National Palace in Mexico City on Monday to forbid the outsourcing of personnel to third-party firms, except for specialized work outside a company’s main economic activity, and to implement a new profit sharing model, the labor ministry said in a statement.

President Andres Manuel Lopez Obrador said the “important” deal was reached after Monday’s encounter among union heads, business chamber leaders and top lawmakers, without providing details. Business lobby CCE said in a separate statement that profit sharing will be limited to avoid “possible distortions in capital-intensive companies.”

Outsourcing was one of several friction points between the government and Mexico’s business elite, who have slowed investments after interventionist policy moves by Lopez Obrador such as the cancellation of a new airport in Mexico City and, more recently, legislative measures aimed at rolling back some market energy reforms.

The president had sent the outsourcing bill to lawmakers late last year, arguing that current arrangements unfairly limit employer obligations and evade taxes. But business lobbies fought back and said increased costs would further complicate the recovery from last year’s deep recession, opening a period of negotiation with the government.

Business leaders had proposed capping profit sharing rates in December when they began talks with officials to tone down the bill. Companies operating in Mexico usually set up separate firms to employ most of their workers as a way of avoiding legal and tax burdens including a mandatory annual profit sharing payment to employees.

Monday’s agreement will be submitted to Mexico’s lower house of congress, which is reviewing the original draft bill that Lopez Obrador sent to lawmakers last year. The government’s party, Morena, controls both legislative chambers together with allies.

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