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Taxation
When external service providers and their customers share facilities,
equipment and other enterprise assets, the parties need to structure the tax
rules. To some extent, tax liability is shifted and contractually allocated by
agreement. But some taxes cannot be allocated in advance because governments
impose the taxes on one or the other of the two parties, or impose joint and
several tax liability. Prudent tax planners therefore negotiate for:
- Allocation of tax liability.
- Identification of the roles that the parties will play when a tax audit
occurs, and when taxing authorities act adversely to one or the other of the
parties.
Tax planning strategies at all stages of the relationship.
Articles
Homesourcing: Telecommuting Globally - A Brief Travel through Taxation and
Jurisdiction. Outsourcing and offshoring owe their existence to the
telecommunications revolution: low rates, abundant supply, high bandwidth
capacity, high quality and deregulation. "Homesourcing" can be
defined as the long-distant employment relationships with individuals who are
treated as direct employees for contract, regulatory or tax reasons. The loss of
employment tax revenues from telecommuters has inspired states to tax and
employee advocates to introduce anti-taxation legislation in the U.S. Congress.
For a discussion, see www.outsourcing-law.com/homesourcing.tax.2005.01.03
Jumpstarting American Jobs: Mixed Impact on
Outsourcing and Offshoring. Tax laws are a powerful tool for public policy.
Tax laws can promote or impede virtually any type of investment or commercial
opportunity. Tax deductions and credits can provide powerful incentives
for research and development, particular sectors, products and services.
Denial of tax benefits can dissuade investors and enterprise customers from
pursuing particular business activity. A complex and multifarious pending U.S.
federal tax law will promote outsourcing but will restrict offshore outsourcing
and foreign captives services subsidiaries. Intended to promote domestic
employment and foreign investment in the United States, this law will have
several impacts, some positive, some burdensome, upon offshore outsourcing and
foreign captive services subsidiaries. For extensive analysis, see: www.outsourcing-law.com/articles/jobs_act_2004.10.04.asp
(Registration Required)
Transfer Pricing between International
Affiliates. The taxation of offshore service delivery providers and their
onshore marketing affiliates can have an impact on shared service centers,
offshore captives and financial planning for foreign acquisitions of specialty
service companies in the U.S. and other OECD countries.
The publication, on November 15, 2006, of the latest U.S. Model Income
Tax Treaty highlights the evolution of transfer pricing issues that now need to
be addressed as part of due diligence in planning and structuring international
service companies. Indirectly,
transfer pricing can have an impact on outsourcing as well.
See http://www.outsourcing-law.com/1065transfer_pricingUS_OECDModel.htm.
Intercompany Pricing of Services Provided by
Captives and Shared Services: IRS Modifications to “Service Cost Method”-
On
January 16, 2007, the Internal Revenue Service issued a guidance note that
extends the date for implementation of temporary regulations on intercompany
transfer pricing for services provided by a foreign captive service provider.
(This does not apply to domestic captives that are consolidated for tax
reporting purposes.)
The guidance note highlights the impact of the August 2006 temporary tax
regulations on the “service cost method” of intercompany transfer pricing.
For more, see www.outsourcing-law.com/1068-Intercompany_Pricing_Services_Captive_and_Shared_IRSModifications.htm. |