On July 15, 2016, the Third Circuit Court on Administrative Matters, acting in plenary session (based in Jalisco), published a Judicial Interpretation titled, “Provision of Independent Services: In order to determine whether or not outsourcing personnel falls within the scope of the exemption under the Value Added Tax, as set forth in the second to last paragraph of article 14 of the applicable law, it is necessary to consult the provisions of article 15-A of the Federal Labor Law.”

The July 15, 2016 Judicial Interpretation intends to clarify the definition of “Provision of Independent Services” from the perspective of the Value Added Tax Act (VAT Law). The VAT Law explains that the term “Provision of Independent Professional Services”—in order to fall within the scope of application of the VAT Law and consequently to result in payment of the VAT, or in the alternative, to result in the relevant deduction thereof—must be understood through the concept of subordination within its definition (a concept that is commonly used in labor matters). In light of the foregoing, the Third Circuit Administrative Authority has concluded that the VAT, as it relates to the provision of independent professional services, is dependent upon the definition of a labor relationship as it is described in the Federal Labor Law (FLL) to determine where the provision of these services do or do not exist.

Consequently, and with reference to the provision of personnel outsourcing services, when the administrative authority elucidates that outsourcing does not fall within the scope of application of article 15-A of the FLL, such activity should not be understood as the “provision of services” within the meaning set forth in the VAT Law.

Consequently, the foregoing will result in an exemption from payment of the VAT (since it does not fall within the scope of the VAT Law, having in mind that tax law requires strict interpretation). Therefore, the supplier of the services or the client, as the case may be, would not be able to deduct the VAT paid or transferred, and as a result thereof, no tax refund could be requested because, from the point of view of the administrative authorities, such activity does not fall within the scope of application of the law and is not even assessed with the VAT but if the case with a different tax.

Key Takeaways

First of all, we need to take into consideration that the above-mentioned Judicial Interpretation was pronounced by a Third Circuit Court in plenary session based in Jalisco. Consequently it is—and will only be—mandatory for courts and courtrooms located within the jurisdiction of that circuit, because until a Judicial Interpretation is pronounced by the Mexico’s Supreme Court of Justice Superior Court of Justice acting in plenary session or in panel of judges, it will not be applicable nationwide to all circuits.

    1. It is also important to keep in mind that the resolutions issued by tax/administrative authorities are not binding for labor authorities. Consequently, any rulings on tax matters with respect to the “Provision of Services” set no precedent, have no consequence, and cause no vulnerability in labor matters (because that would constitute an invasion of legal spheres and of jurisdiction).


  1. Additionally, it is unclear what procedure the tax/administrative authorities would utilize to verify that the provision of services meets the requirements set forth by the FLL. This should be noted because such procedures may be beyond the jurisdiction of such authority, and because such procedures may be disputed through a motion for annulment.


In view of the foregoing, employers may wish to analyze and conduct thorough studies of their corporate labor structures and outsourcing schemes in order to verify whether or not the company and all of its subsidiaries and outsourcing suppliers meet the requirements for outsourcing referred to in article 15-A of the FLL, and consequently, whether or not they properly fall within the scope of application of the principles of the VAT law..


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