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ESG Diligence: The Key To Sustainable M&A Transactions
AAB / Blog / Ensure your overseas contract ‘Does-what-it-says-on-the-tin’
BLOG31st May 2017
The UK oil and gas market continues to be stagnant and UK companies are increasingly looking overseas for work opportunities and tendering for potentially lucrative contracts.
Successfully winning overseas contracts undoubtedly generates higher revenues for UK companies, however in our experience, inaccurate contract language, which doesn’t describe the actual supply being undertaken by the company, can be costly in the event of a challenge, from an overseas tax authority, that the company is liable to Corporation Tax (CT) there.
To explain, contracts typically, but not always, fall into two distinct categories, being “Hire of Labour” or “Provision of Services”. The distinction between the two is critical when analysing the company’s CT position:
The overseas tax consequences, both for the company and the personnel, are potentially very different under each type of contract:
Clear, unambiguous contract language is therefore necessary to be able to distinguish between contract types. When reviewing draft contracts, companies should study the wording carefully, ensuring the contract accurately describes what is being supplied.
The contract is the company’s first line of defence in the event of a challenge by the overseas tax authorities. However, increasingly we observe contract language describing a “Provision of Services” when, in fact, our client is simply providing personnel to their customer under a “Hire of Labour” arrangement. The contract cannot, therefore, be submitted as evidence to the overseas tax authority in defence of a CT challenge. In absence of other evidence, the company is exposed to overseas CT liabilities, when none should be due.
Defending such a position becomes difficult, time consuming and expensive, with no guarantee of success. Often, overseas tax authorities issue estimated CT assessments (including interest and penalties), demanding full payment before allowing any defensive appeal, and further eroding profits. Had the contract been drafted properly, simply submitting it to the tax authorities should have been sufficient to end their challenge.
Diligent contract reviews are obviously important, but critically so in overseas situations. Our International Tax team is highly experienced in reviewing draft overseas contracts, ensuring they are robust enough to withstand any challenges from overseas tax authorities.
TALK TO US ABOUT CONTRACTS
How AAB can help you with
If you’re facing multi-jurisdictional challenges around global mobility, tax, employer responsibilities, accounting or other issues, we’ll save you the hassle of searching for international advice – the right people are already available in our expert teams and across our Reach Network. AAB works with multinational clients across the globe, so it’s only logical that we have a comprehensive and highly effective support network that work alongside our International teams to serve them, wherever in the world they operate.
Many businesses encounter challenges in implementing their strategies and generating traction. Our business advisory team provides effective tools for business owners at every stage of the lifecycle and approaches to overcome these obstacles. We offer guidance to help you achieve and maintain traction, while also ensuring accountability for you and your team. We can help you to understand your business performance and identify what you can do to improve profit and create time.
Corporate Tax covers a broad and complex area of tax legislation, so we provide a suitably broad and comprehensively experienced team to support your business with pragmatic, commercial advice. Businesses of all sizes and types, and across a wide range of sectors, benefit from our comprehensive corporate tax compliance and advisory service. We have exceptionally knowledgeable tax teams distributed across our offices, ready to support you with their wealth of experience and expertise. We can manage your global tax exposure with a coordinated response that saves you having to seek advice from separate advisors.
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