Tax on outsourcing arrangements

Any tax costs associated with an outsourcing arrangement will directly reduce the overall cost savings achieved. Common tax issues associated with outsourcing include VAT charges (which, for VAT exempt businesses, may be wholly or partially irrecoverable), issues connected with multi-jurisdictional arrangements (permanent establishment concerns, withholding tax and transfer pricing), and tax charges that arise on asset transfers made in connection with the arrangements. It may be possible to mitigate the tax costs that arise. Otherwise, the parties must commercially and contractually agree who bears those costs, and apportion the risk of any future tax costs.