This article covers two subjects. Firstly, it addresses the complex tax issues that can arise on an outsourcing project. And, secondly but no less importantly, it explains the connection between tax, outsourcing and Attila the Hun. Given the amounts at stake, readers involved in outsourcing projects should have a clear grasp of the first subject – as well as a curiosity to discover why specialists in tax and/or outsourcing are such wild and crazy guys.
Tax issues are clearly a significant driver of business behaviour. Companies go to considerable lengths to structure their arrangements in the most tax advantageous way within what the law allows. Tax issues become proportionately more difficult as transactions cross borders and potentially involve more than one possible tax regime.
But whereas companies routinely use tax planning as part of M&A or corporate reorganisation programmes, perhaps surprisingly tax issues are often an afterthought in many outsourcing transactions. This may be because outsourcing originated as a simple concept of an in-country arms’ length services transaction with few tax complexities or opportunities for legitimate tax planning. But that has now changed and tax issues loom large in many outsourcing deals – especially those with a heavy financial services component or cross-border element.
