• United States



New Outsourcing Taxes on the Way?

Jun 03, 20102 mins
Core Java

The threat of potential new taxes on outsourcing services has been looming for many years.  It used to be the threat was primarily from offshore governments looking to derive revenue from the popularity of sourcing in their jurisdictions.  India is a prime example.  The prospect of potential new taxes on outsourcing services is threatened almost every year.  Most recently, however, with the down-turn in our economy and the rising tide of voter concern about offshoring US jobs, legislators have been looking at the possibility of imposing our own taxes on sourcing transactions.  Senator Charles Schumer has proposed a $0.25 tax on each call forwarded to an offshore call center.  The Senator also wants customers advised when their calls are sent offshore.In light of the foregoing, if they are not already doing so, businesses should look to include protections against these eventualities in their sourcing engagements.   These protections may include provisions permitting the option to terminate the agreement if new taxes are imposed, the ability to conduct benchmarking to ensure pricing remains in-line with other providers, shifting responsibility for the new taxes to the vendor (a common approach in offshore engagements), or some shared approach to responsibility for new taxes (e.g., the vendor assumes responsibility up to a certain level of new taxes after which the responsibility shifts back to the customer).While no new taxes are on the immediate horizon, the climate is potentially ripe for change.  Since sourcing engagements frequently have multi-year terms, now is the time to consider including these protections in new contracts and seeking to amend existing agreements.  


Michael R. Overly is a partner and intellectual property lawyer with Foley & Lardner LLP where he focuses on drafting and negotiating technology related agreements, software licenses, hardware acquisition, development, disaster recovery, outsourcing agreements, information security agreements, e-commerce agreements, and technology use policies. He counsels clients in the areas of technology acquisition, information security, electronic commerce, and on-line law.

Mr. Overly is a member of the Technology Transactions & Outsourcing and Privacy, Security & Information Management Practices. Mr. Overly is one of the few practicing lawyers who has satisfied the rigorous requirements necessary to obtain the Certified Information System Auditor (CISA), Certified Information Privacy Professional (CIPP), Certified Information Systems Security Professional (CISSP), Information Systems Security Management Professional (ISSMP), Certified Risk and Information System Controls (CRISC) and Certified Outsourcing Professional (COP) certifications.

The opinions expressed in this blog are those of Michael R. Overly and do not necessarily represent those of IDG Communications, Inc., its parent, subsidiary or affiliated companies.

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