Technology: Outsourcing Transactions - Strategies, Tactics and Gotchas - Part 2

Employee, tax and exchange rate issues can be significant, and should be addressed early.

Outsourcing transactions are different than the other complex transactions, such as acquisitions or divestitures, faced by in-house counsel. They are not zero-sum, win-lose negotiations, but are instead the beginning of a long-term relationship. The playing field may not be level since the vendor is an expert and the customer frequently is not. Also, unlike other negotiations handled by in-house counsel, the key business terms, such as price and scope, often fluctuate during the negotiation of the contract. For these reasons (and more), an attorney knowledgeable about outsourcing transactions has the opportunity to add significant value, both as a project manager and as a substantive expert. This article will address some of the areas that need to be "managed" by counsel to avoid what can be significant problems.

Employee Issues

Tax Issues

Ideally, both the customer and the vendor will knowingly take into account the tax benefits and tax detriments in structuring the outsourcing transaction, pricing the services and negotiating the terms of an outsourcing agreement. In addition, the structure of a cross-border outsourcing transaction can have a significant effect on the total taxes payable, and the failure to be tax-efficient is therefore a painful (and avoidable) mistake. In particular, the structure of the transaction and geographical locations of the applicable customer and vendor entities can have a significant effect on the recovery of value-added taxes, the applicability of certain sales taxes and the tax withholding requirements that may apply.


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Mark Malven

Mark Malven is the leader of the technology transactions practice at Dykema Gossett PLLC and immediate past chair of the IT Law Section of the...

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