Introduction

Tax planning plays a major role in structuring an outsourcing relationship or shared services initiative, especially those that involve a global delivery model. Taking corrective actions after structuring the deal is both expensive and time consuming, if not impossible; hence, understanding basics of the tax planning is becoming increasingly important for outsourcing executives on both sides of the negotiation table.

Buyers will appreciate that failure to engage in thorough tax planning can reduce the savings for them. Similarly, the supplier will see an adverse impact in terms of reduced profits.  Both buyers and suppliers will also have to contend with additional compliance risk.

Scope

• Overview of key sources of problems in taxation planning
• Practical questions to consider in preparing for tax planning
• Tax-planning factors and levers

Contents

This report helps to understand basics of tax planning as applied to outsourcing contract structure, a topic which is becoming increasingly important for outsourcing executives on both sides of the negotiation table. It identifies potential impacts in terms of lost tax deductions or credits and factors that need to be analyzed in calling out the tax considerations in an outsourcing agreement. Tax considerations for the Indian market are examined in detail in a special section. The report also identifies the implications of the research findings for key stakeholders.

Each section of the report describes the implications of 4-6 key trends, which are discussed in detail (and illustrated with supporting data and analysis) to provide the reader information in easy-to-apply, bite-size pieces. For example, the ‘Tax considerations in an outsourcing deal’ section elaborates on the following key insights:

• Several factors assume importance when identifying the tax considerations in an outsourcing agreement. These factors include Tax treaties and holidays, Deal structure, Tax jurisdiction, etc.
• Each factor can potentially have significant impact on both the cost of the transaction from the buyer’s perspective and the profitability of the relationship from the supplier’s perspective
• A variety of mitigation approaches are available in most cases, including the ability to leverage available tax treaties, adjust scope and structure of the relationship, along with changes in the location of the service delivery facilities to account for differences in various jurisdictions