Outsourcing

Outsourcing is generally an arrangement whereby one company provides services to another company that could be, or usually have been, provided in-house. Outsourcing arrangements are often implemented with the aim of reducing operating costs for the recipient company, but there are other reasons for outsourcing which will be specific to the business in question. By way of example, it is common for banks and insurance companies to outsource back-office functions which can be provided by companies specialising in these services and thus benefit from economies of scale.

There are no specific laws, including tax laws, applicable to outsourcing arrangements and no technical legal meaning of the term. Consequently, each outsourcing arrangement will be specific to its own particular facts and will raise a different mix of legal, commercial and, in some cases, regulatory issues.

Tax issues on both setting up and operating the outsourcing arrangement need to be considered to ensure that:

1. •

   the arrangements do in fact realise the desired cost savings once any tax costs are factored into the arrangements

2. •

   taxes are administered and paid as necessary, and

3. •

   the structure is as tax efficient as possible

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