New Outsourcing Taxes on the Way?

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.