Our second blog summarised the importance to us of “Understanding the Project” when any clients work internationally. Once we understand what the work involves, we then normally require sight of the draft Contract. This is crucial for two reasons:
- The Contract itself is often the key piece of evidence, used to defend the company against any challenges made, against the company, by an overseas tax authority. Our review therefore ensures that the contract language appropriately describes, as far as possible, exactly what is being supplied by our client. In our experience, this review can be critical to the tax outcome. For example, we have encountered numerous clients who are not actually being engaged to perform any work whatsoever in the overseas country, but rather, they are simply providing personnel to work directly for their customers in those overseas countries. However, the Contract language often, erroneously, indicates that our client is performing services in the overseas country. Our review would always ensure such Contracts are amended, so that a clear distinction can be made to differentiate between a ‘Contract for Services’ versus a ‘Hire of labour Agreement’. The resultant tax consequences, between either type of Contract, vary significantly.
- Most Contracts normally contain tax clauses, which are often glossed over briefly, without fully understanding their impact on our client or, in some cases, ignored completely. However, it is vital these tax clauses are understood and, if appropriate, amended or deleted if any are onerous to our client. Our review ensures this is indeed the case.
Once we have undertaken these first two stages in our process, i.e. ‘Understanding the Project’ and ‘Reviewing the Draft Contract’, then we can start researching , understanding, and potentially mitigating, the various tax consequences that could arise, covering Corporation Tax, Withholding Tax, VAT & Customs Duties, Income Tax & National Insurance, and any other taxes applicable.
Our next blog will explain a little more about what we do at this third stage, the tools at our disposal, and how we interpret our findings so that clients can understand their potential overseas tax obligations.
For more information contact Ruth MacNamee (email@example.com) or your usual AAB Advisor.