Many businesses use employee service companies in Mexico for business and legal reasons. These arrangements allow profit sharing obligations to be determined based on a percentage of wages rather than a percentage of overall operating profit. This further permits compensation to be modeled based on individual performance and other criteria important for motivating employees and improving the success of the business.
These types of employee service company arrangements have long been a common and accepted practice in Mexico. In recent years, however, certain taxpayers entered into what were perceived to be abusive outsourcing structures with a primary goal of avoiding social security taxes. Consequently, the Mexican tax authorities have begun to further scrutinize these arrangements.