When discussing non-payment of contributions, the first thing that comes to the taxpayer’s mind is the non-payment of Income Tax or Value-Added Tax and its consequences in the Federal Tax Code in Mexico. And how could it not be if such contributions have historically collected the most resources regarding revenue laws?

However, the taxpayer and, above all, our country’s employers forget that social security contributions are also contributions, as I pointed out in the entry Contributions contemplated in Mexico. Therefore, their non-compliance can also generate a significant tax liability because it is necessary to know what those consequences would be and what rights you have to challenge them.

In this post, I will focus on the sanctions for non-compliance with social security obligations. Still, first of all, I would like to remind you that we discussed these obligations in the entry Employers’ Social Security Contributions and Obligations in Mexico, so I invite you to read it before continuing to refresh your memory a bit. Having said that and without further delay, let’s begin:

List of Contents

• I.- Non-Compliance With the Mexican Social Security Law
• II.- Consequences For Non-Compliance
• A) Default Fine
• B) Infractions and Their Sanctions
• C) Spontaneous Compliance
• D) Revocation of the Sanction and Forgiveness
• III.- Crimes in the Mexican Social Security
• A) The Criminal Complaint as a Prerequisite
• B) Crime of Fraud Against Social Security Systems
• 1) Penalties
• 2) Qualified Fraud Against Social Security Regimes
• C) Crimes Equivalent to Fraud Against Social Security Regimes
• D) Innominated Crimes
• 1)  With a Penalty of 3 Months to 3 Years in Prison
• 2) With a Penalty of 1 to 6 Years of Prison
• E) Fraud
• F) Crimes committed by public servants
• 1) With a Prison Sentence of 1 to 6 Years
• 2) With a Prison Sentence of 1 to 5 Years
• 3) Aggravating Circumstance of 3 Months to 3 years in Prison
• G) Statutes of Limitations For Filing a Criminal Complaint

Translation

This is a translation of my entry Incumplimiento de las obligaciones en materia de seguridad social y sus consecuencias en México.

I.- Non-Compliance With the Mexican Social Security Law

The Mexican Social Security Law states that failure to pay the contributions established by law, failure to pay the constitutive capitals—an obligation generated on the one hand by the employer’s failure to register its workers with real salaries and on the other by the expenditures that the Mexican Social Security Institute has made on these workers in cash or in kind—where applicable, their updating, the surcharges, and fines imposed, shall have the character of a tax liability.

Consequently, the credit in favor of the Mexican Social Security Institute shall not only be a preferential payment over other credits—such as those for civil debts, etc.—but its execution shall be carried out in terms of the Administrative Execution Procedure, which in itself is more expeditious than any other procedure. In any case, the credits of the institute shall be collected only after the alimony credit, child support, wages, and salaries earned in the last year or workers’ compensations.

II.- Consequences For Non-Compliance

A) Default Fine

According to the law, employers and other obligated subjects who carry out acts or omissions that imply non-payment of tax concepts, such as contributions and constitutive capital, shall be sanctioned from the outset with a fine of 40% to 100% calculated on the omitted concept.

B) Infractions and Their Sanctions

Below, in the following table, you will find the violations and sanctions recognized in the Social Security Law, whether due to acts or omissions:

Infraction	Sanction
1.- Not registering with the Mexican Social Security Institute (henceforth IMSS) or doing so outside the period established by law.	With a fine equivalent to 20 to 350 times the value of the Measurement and Update Unit.
2.- Do not register your workers with the IMSS or do so late.	With a fine equivalent to 20 to 350 times the value of the Measurement and Update Unit.
3.- Failure to notify IMSS or doing so late in informing it of changes to the base salary of its workers.	With a fine equivalent to 20 to 125 times the general daily minimum wage in force in Mexico City.
4.- Failure to determine or to determine in an untimely manner the employer-employee contributions legally under their responsibility.	With a fine equivalent to 20 to 75 times the general daily minimum wage in force in Mexico City.
5.- Failure to inform the worker or the union of contributions made to the individual retirement, retirement at advanced age, and old age insurance account.	With a fine equivalent to 20 to 75 times the general daily minimum wage in force in Mexico City.
6.- Submitting to the IMSS the membership notices, forms, membership vouchers, work records, or certificates of determination of employer-employee contributions with false data.	With a fine equivalent to 20 to 210 times the general daily minimum wage in force in Mexico City.
7.- Failure to keep payroll records or lists, as indicated by the law and the Regulations for the Payment of Social Security Fees.	With a fine equivalent to 20 to 75 times the general daily minimum wage in force in Mexico City.
8.- Not providing employees with a weekly or biweekly record of the days worked, if required.	With a fine equivalent to 20 to 75 times the general daily minimum wage in force in Mexico City.
9.- Failure to provide, when requested by the IMSS, the necessary elements to determine the existence, nature, and amount of the obligations under his/her responsibility or doing so with altered or false documentation.	With a fine equivalent to 20 to 210 times the general daily minimum wage in force in Mexico City.
10.- Obstruct or prevent, by themselves or through an intermediary, home inspections or visits, as well as the administrative execution procedure ordered by the IMSS.	With a fine equivalent to 20 to 175 times the general daily minimum wage in force in Mexico City.
11.- Failure to cooperate with the IMSS in terms of article 83 of the law, in the relationship of studies and research to determine causal factors and preventive measures for occupational risks. Also, in providing data and reports that allow the elaboration of statistics on occurrences and in disseminating, within the scope of their companies, the regulations on prevention of occupational risks.	With a fine equivalent to 20 to 75 times the general daily minimum wage in force in Mexico City.
12.- Failure to notify the IMSS of occupational hazards, concealing their occurrence in the facilities or outside of them in the development of their activities, or failing to keep records of occupational hazards or keep them updated.	With a fine equivalent to 20 to 350 times the value of the Measurement and Update Unit.
13.- Failure to retain documents that are being reviewed during a home visit or personal property in which they are deposited due to their being secured.	With a fine equivalent to 20 to 125 times the general daily minimum wage in force in Mexico City.
14.- Alter, remove, or destroy, by themselves or through an intermediary, the documents, seals, or marks placed by IMSS inspectors in order to ensure the accounting in the systems, books, records, and other documents that comprise it, as well as in the equipment, furniture or offices in which said accounting is stored and that have been left in deposit as a result of the seizure derived from a home visit.	With a fine equivalent to 20 to 350 times the value of the Measurement and Update Unit.
15.- Failure to submit the mandatory annual review of their accidents and determination of the premium for the occupational risk insurance or to do so late or with false or incomplete data about the period and deadlines indicated in the corresponding regulations. Employers shall not be fined for failure to submit the forms to determine the premium for the aforementioned insurance when the premium is equal to that of the previous year.	With a fine equivalent to 20 to 210 times the general daily minimum wage in force in Mexico City.
16.- Failure to notify the IMSS or doing so late in the process of changing the domicile of a company or establishment when it falls into any of the situations indicated in the respective regulations.	With a fine equivalent to 20 to 75 times the general daily minimum wage in force in Mexico City.
17.- Not withholding contributions from employees when legally required, or having withheld them, not paying them to the IMSS.	With a fine equivalent to 20 to 350 times the general daily minimum wage in force in Mexico City.
18.- Failure to notify the IMSS in writing about the outbreak of a strike or its termination; suspension; change or termination of activities; closure; change of name or corporate name; merger or spin-off.	With a fine equivalent to 20 to 125 times the general daily minimum wage in force in Mexico City.
19.- Omitting or submitting the opinion by a certified public accountant late when said option has been exercised in terms of article 16 of the Social Security Law.	With a fine equivalent to 20 to 75 times the general daily minimum wage in force in Mexico City.
20.- Failure to comply or doing so late in the process with the obligation to have contributions to the IMSS certified by a certified public accountant.	With a fine equivalent to 20 to 350 times the value of the Measurement and Update Unit.
21.- Notifying in an untimely manner, doing so with false or incomplete data, or failing to notify the IMSS under the terms of the respective regulations, the address of each of the works or phases of work carried out by employers who sporadically or permanently dedicate themselves to the construction industry.	With a fine equivalent to 20 to 350 times the value of the Measurement and Update Unit.
22. Failure to submit or submission outside the established legal deadline for the information indicated in article 15 A of the Social Security Law.	With a fine equivalent to 500 to 2000 times the value of the Measurement and Update Unit.

C) Spontaneous Compliance

Fortunately, the lawmakers established that even when violations have been committed, they shall not be sanctioned if the omitted obligations are fulfilled spontaneously outside the periods established by law for their sanction or when the violation has occurred due to unforeseen circumstances or force majeure.

In any case, it shall be considered as non-spontaneous compliance in the case that:

1.- The Mexican Social Security Institute discovers the omission.

2.- The employer corrected the omission after the Mexican Social Security Institute notified a home visit order or a request or any other action tending to verify compliance with its obligations in social security matters.

3.- The employer corrected the omission after 15 days following the presentation of the certified public accountant’s report to the Mexican Social Security Institute regarding acts or omissions they have incurred and which are observed in the report.

As you can see when dealing with spontaneous compliance, hiring private social security audits becomes of primary importance since only experts in the subject who detect the infractions that you as an employer may commit before the Mexican Social Security Institute would save you from the imposition of the sanctions to which I have already referred.

D) Revocation of the Sanction and Forgiveness

The Mexican Social Security Institute has the discretionary power under the law to revoke the fines imposed for violations of the provisions of the Social Security Law and its regulations when, in its opinion, the mere presentation of documents by the interested parties proves that the violation was not committed.

Of course, this power does not prevent the interested party from appealing the determination of sanctions through the corresponding legal remedies. Therefore, it does not constitute an appeal, and the resolutions issued by the Mexican Social Security Institute regarding this power cannot be challenged.

In any case, the employer may request the Mexican Social Security Institute to revoke the sanctions imposed. However, if he wishes that his request give rise to suspending the administrative enforcement procedure, that is, the collection of the sanctions, he must guarantee the tax interest.

Finally, the Mexican Social Security Institute may also waive fines imposed for violations of the Social Security Law and its regulations, provided that the fines have become final and that a related administrative act is not subject to challenge.

III.- Crimes in the Mexican Social Security

If there can be a more severe sanction than the tax ones, it is undoubtedly the one that arises from criminal matters. The fact is that failure to comply with social security provisions, in addition to generating administrative and tax responsibility, can also lead to criminal responsibility. A consequence that you should not ignore as an employer in Mexico, because many times,  the Mexican Social Security Institute, in order to collect its tax liabilities, uses criminal law as a ‘deterrent’ means. Be careful.

A) The Criminal Complaint as a Prerequisite

First of all, for crimes committed in social security matters to proceed, it is necessary that the Mexican Social Security Institute formulate the respective criminal complaint, regardless of the state of the administrative procedure through which, for example, it seeks to collect the omitted obligations.

In cases of crimes under social security matters where the damage, harm, or benefit is quantifiable, the Mexican Social Security Institute shall quantify it in the complaint it files.

On the other hand, the law is very clear that social security crimes are not subject to monetary sanctions. Therefore, corporal punishment (jail) shall always be sought in court.

Finally, a criminal complaint will not be filed if the person who has omitted the total or partial payment of a worker-employer contribution or obtained an undue benefit spontaneously pays it with its surcharges and updates before the authority of the Mexican Social Security Institute discovers the omission, the damage or the undue benefit through a request, order or visit or any other action notified by it, tending to verify compliance with its obligations in matters of worker-employer contributions.

B) Crime of Fraud Against Social Security Systems

This crime is committed by employers or their representatives, as well as other subjects bound by the Social Security Law, who, by means of deceit or taking advantage of errors, totally or partially omit the payment of the employer-employee contributions or obtain an undue benefit to the detriment of the Mexican Social Security Institute or the workers.

The total or partial omission of the payment for employer-employee contributions referred to in the previous paragraph includes, indistinctly, the payments for employer-employee contributions or the constitutive capitals in the terms of the provisions of the matter.

1) Penalties

The sanction or penalty for this crime of fraud against social security systems shall be sanctioned as follows:

1.- Imprisonment from 3 months to two years when the amount defrauded does not exceed 13,000 daily minimum wages in force for Mexico City.

2.- With a prison sentence of 2 to 5 years when the amount defrauded exceeds 13,000 daily minimum wages in force in Mexico City but not more than 19,000.

3.- With a prison sentence of 5 to 9 years when the amount defrauded is greater than 19,000 daily minimum wages in force in Mexico City.

When the amount defrauded cannot be identified, the penalty shall always be from 3 months to 2 years in prison.

2) Qualified Fraud Against Social Security Regimes

When the crime of fraud against social security regimes is qualified, the penalties established in the previous section shall be increased by up to half.

This crime shall be qualified when employers, their representatives, and other obligated subjects knowingly fail to pay the workers’ contributions withheld from them under the terms and conditions established in the Social Security Law and its regulations.

C) Crimes Equivalent to Fraud Against Social Security Regimes

Likewise, those who knowingly:

1.- Alter the computer programs authorized by the Mexican Social Security Institute.

2.- Provide false data to obtain from the Mexican Social Security Institute the return of worker-employer contributions that do not correspond to them.

3.- Benefit from a subsidy or fiscal stimulus without right.

4.- Simulate one or more acts or contracts, obtaining an undue benefit to the detriment of the Mexican Social Security Institute.

D) Innominated Crimes

On the other hand, the Social Security Law also regulates a series of crimes called ‘innominated’ because they do not have a specific name. However, they should not be ignored because of the penalties they carry. These crimes are the following:

1)  With a Penalty of 3 Months to 3 Years in Prison

1.- To those who do not make the registration notices or provide the Mexican Social Security Institute with false data, evading payment or reducing the amount of the employer-employee contributions, to the detriment of the institute or the workers, by 25% or more of the tax obligation.

2.- To those who obtain an undue benefit and do not inform the Mexican Social Security Institute of the suspension or termination of activities; closure; change of corporate name; modification of salary; activity; address; employer substitution; merger or any other circumstance that affects their registration with the institute.

3.- To those who register their accounting and tax operations in two or more books, two or more accounting systems, or two or more media other than the above with different contents.

4.- To those who conceal, alter, or destroy, partially or, the accounting systems and records or any other means, as well as the documentation related to the respective entries that they must keep according to the Social Security Law.

2) With a Penalty of 1 to 6 Years of Prison

1.- To the depositary or inspector appointed by the Mexican Social Security Institute who disposes for himself or another, of the deposited property, its products, or the guarantees that have been established for any tax liability if the value of the disposed of does not exceed 900 daily minimum wages in force for Mexico City; when it exceeds such amount, the penalty shall be 4 to 9 years of prison.

E) Fraud

The Social Security Law places special emphasis on those who, without having the status of beneficiary and through deception or taking advantage of an error, whether by simulation, substitution of persons, or any other act, obtain or facilitate their obtaining of the insurance, benefits, and services that the law recognizes.

This crime is very common in our country. It occurs when, in order to ‘pay,’ an employment relationship is simulated with the sole purpose of increasing the burden on the social security system.

Well, this conduct is punished with the same penalties for the crime of fraud, which the Federal Penal Code regulates in its article 386, which is as follows:

Article 386.- The crime of fraud is committed by anyone who, by deceiving someone or taking advantage of the error in which others are found, illegally obtains something or obtains an undue profit.

The crime of fraud shall be punished with the following penalties:

1.- With imprisonment from 3 days to 6 months or 30 to 180 days fine when the value of the defrauded does not exceed ten times the salary.

2.- With imprisonment from 6 months to 3 years and a fine of 10 to 100 times the salary when the value of the defrauded exceeds 10, but not 500 times the salary;

3.- With imprisonment from three to twelve years and a fine of up to one hundred and twenty times the salary if the defrauded value exceeds five hundred times the salary.

F) Crimes committed by public servants

Not only employers are punished for failing to comply with the Social Security Law, but also public servants themselves. This is done in order to discourage compliance with the law. Among the crimes contained in the law are the following:

1) With a Prison Sentence of 1 to 6 Years

Public servants who order or carry out home visits or seizures without a written order from the competent fiscal authority.

2) With a Prison Sentence of 1 to 5 Years

Public servants who threaten in any way an employer or any other obligated subject with filing a complaint with the Public Prosecutor’s Office, either by themselves or through the department under their affiliation, so that criminal action may be taken for the possible commission of crimes contemplated in the Social Security Law.

3) Aggravating Circumstance of 3 Months to 3 years in Prison

As a general rule, if public servants, in the exercise of their functions, commit or in any way participate in the commission of a crime provided for in the Social Security Law, the applicable penalty for the resulting crime shall be increased from 3 months to 3 years in prison.

G) Statutes of Limitations For Filing a Criminal Complaint

The criminal action for crimes provided for in the Social Security Law shall be stale in 3 years from the day on which the Mexican Social Security Institute knows about the crime and of the probable responsible party; if it does not know, in 5 years, which shall be computed from the date of the commission of the crime.

By Omar Gómez

Mexican Tax, Administrative and Constitutional Attorney

Partner

Visit my website at ogomezabogado.com

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