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Outsourcing Law & Business Journal™: Feb/March 2010

March 20, 2010 by Bierce & Kenerson, P.C.

OUTSOURCING LAW & BUSINESS JOURNAL (™) : Strategies and rules for adding value and improving legal and regulation compliance through business process management techniques in strategic alliances, joint ventures, shared services and cost-effective, durable and flexible sourcing of services.  www.outsourcing-law.com. Visit our blog at http://blog.outsourcing-law.com for commentary on current events.

Insights by Bierce & Kenerson, P.C., Editors.  www.biercekenerson.com

Editor’s Note: Back by popular demand, we are repeating  our Webinar on Sourcing of Global Talent on Tuesday, March 23, 2010.  If you missed this event last November, you can register for it now by clicking here.   This webinar will discuss the human capital management for the contingent workforce in our current economic climate. The speakers will address issues in designing a contingent workforce strategy, managing this contingent workforce, effective governance and the managing risks and legal issues that arise with the implementation of such a workforce using internal and external resources.

Managing Knowledge, Compliance and Legal Risks in Sourcing of Global Talent
A webinar, Tuesday, March 23, 2010, 11 AM Eastern Daylight Time U.S. (45 minutes)
Speakers:
· William B. Bierce, Esq., Bierce & Kenerson, P.C. – outsourcing lawyer
· Chris Nuttall, PA Consulting, Member of PA’s Management Group
· Larry Scinto, PA Consulting, Managing Consultant

Vol. 10, No. 2 (Feb/March 2010)
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1.  How to Achieve Innovation Through Outsourcing: Shifting the Paradigm.

2. U.S.-India Bilateral Cooperation on Trade and Investment:  Impact of Joint “Framework” upon Global Services Industries.

3. Humor.

4. Conferences
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1.    How to Achieve Innovation Through Outsourcing: Shifting the Paradigm. Can an enterprise customer get real innovation through outsourcing?    It depends.  After looking at a case study in contract manufacturing and finance and accounting outsourcing, we can draw some lessons on the squeaky wheel that will need lubrication beyond effective governance.

New Product Development.  Recently, Bierce & Kenerson, P.C. was engaged by a global enterprise to assist in a two-phase deal with a supplier.   In phase one, the parties entered into an agreement for the joint development of a new type of product to retrofit an old product using new energy-efficient technology.  In phase two, the enterprise customer agreed to either buy the new product from the supplier or to pay a royalty for the value of the supplier’s intellectual property and development efforts.  The risk of failure was essentially nil, since the enterprise customer could have developed the product alone.   Yet it chose to work in tandem with the supplier to achieve a speedier path to market  for a hot product with a big potential demand in order to avoid loss of market share to well-financed agile competitors.

The contract development process took much longer than the product development process….For the complete article, please click here.

2. U.S.-India Bilateral Cooperation on Trade and Investment:  Impact of Joint “Framework” upon Global Services Industries. On March 17, 2010, the U.S. and India signed a “Framework for Cooperation on Trade and Investment” to strengthen bilateral economic cooperation.  The three-page agreement is short on details and relies upon inter-ministerial meetings and “Focus Groups” to identify and overcome impediments to bilateral l trade and investment.   Five Focus Groups cover agriculture, innovation and creativity, investment, service industries and tariff and non-tariff barriers to bilateral trade in goods.   The Framework agreement responds to a number of complaints by American businesses about the Indian legal framework governing intellectual property protections.  For the complete article, click here.

3.  Humor.

Innovation, n. (1) an improvement that is clearly better than mere continuous improvement; (2) any cost saving that merits a special reward; (3) a joint venture in “process management” clothing.

Framework agreement, n.  (1) a house with wall-size windows and no roof; (2) statement of work for unspecified deliverables; (3) a milestone with no end in sight.

Investor, n. (1) someone willing to give up a sure thing in the hope for a better sure thing; (2) hostage to hope; (3) optimist.

Investor protection, n. (1) shield for avoiding an instant capital loss; (2) a one-handed wind-shifter.

Publicity, n.  (1) good news, even if it’s bad news; (2) bad news when it’s not good news; (3) what a public figure craves but a private individual avoids.

4.  Conferences.

March 22-26, 2010, SSON presents the 14th Annual North American Shared Services & Outsourcing Week, Orlando, FL.  This event goes above and beyond the typical conference, with 8 tracks, 13 workshops/site tour, 1 Master Class, the Shared Services Excellence Awards and 7+ hours of networking!  This year, the platform has been completely revitalized and revamped, featuring raw and honest onstage interviews to the “no personal agendas” G8 Panel discussions.  The expert speaker faculty comes from leading companies including Coca-Cola, NASA, General Motors, Unilever, AstraZeneca, Schering-Plough, CA, Microsoft, Orbitz Worldwide and more!  View the complete agenda on http://www.sharedservicesweek.com/brochure.php.

Receive an exclusive 20% discount with special code SSW-MP10.  Contact Kim Vigilia at kim.vigilia@iqpc.com.

March 25-26, 2010, American Conference Institute’s 4th National Forum on Reducing Legal Costs, Dallas, Texas.  This essential cross-industry benchmarking forum gathers together more than 30 senior corporate counsel and legal sourcing managers responsible for cost-reduction success stories, as well as leaders from law firms who are pioneers in the alternative fee world, to guide those in attendance on the complexities of keeping legal department costs in check. Now in its fourth installment, this event also offers unique networking opportunities with senior practitioners in the field, includingin-house counsel across a wide spectrum of companies and industries. For more information, visit their website.

April 26-28, 2010, Legal IQ and IQPC present its 9th Annual eDiscovery Conference, San Francisco, California, bringing industry leaders together to explore eDiscovery project management, best practices for preserving and producing ESI, defending keyword searches, and protecting privileged ESI.  Topics include:

• Cloud Computing and eDiscovery – What’s in it for you?
• Emerging Technologies and Social Networking: Ethics and New Challenges
• New Models and Structures for Managing eDiscovery
• Statistical Validation and Data Analytics in eDiscovery
• Protecting Privileged Communications and Rule 502
• Vendor Partnership and What Happens After the End of Litigation
• ESI Preservation and Collections

Outsourcing-law.com subscribers receive a 20% discount off All-Access conference pricing using code IUS_OSL_#5.  Click here to get more information.

May 10-12, IQPC’s 7th Annual HR Shared Services and Outsourcing Summit, Chicago, Illinois. This event will be a gathering for corporate HR & shared services executives from companies across North America to exchange ideas, develop new partnerships and discuss the latest tools, technologies and strategies being employed in the profession to enhance departmental efficiencies and propel corporate growth.  The event will focus on the most current topics in the HR shared services industry including metrics, automation, outsourcing, globalization, compensation & rewards, benefits and an overall focus on the new strategic role of HR shared services.how to tackle change management, analyze current and future projects and further develop the instrumental key areas within HR shared services.  Visit their website to register and get more information.

May 17-19, IQPC presents its Information Retention & E-Disclosure Management Summit, London, UK. This is Europe’s premier event in this field, designed to help you steer your organisation successfully through lawsuits and regulatory inquiries.  Topics include:

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FEEDBACK: This newsletter addresses legal issues in sourcing of IT, HR, finance and accounting, procurement, logistics, manufacturing, customer relationship management including outsourcing, shared services, BOT and strategic acquisitions for sourcing. Send us your suggestions for article topics, or report a broken link at: webmaster@outsourcing-law.comThe information provided herein does not necessarily constitute the opinion of Bierce & Kenerson, P.C. or any author or its clients. This newsletter is not legal advice and does not create an attorney-client relationship. Reproductions must include our copyright notice. For reprint permission, please contact: publisher@outsourcing-law.com. Edited by Bierce & Kenerson, P.C. Copyright (c) 2010, Outsourcing Law Global LLC. All rights reserved. Editor in Chief: William Bierce of Bierce & Kenerson, P.C. located at 420 Lexington Avenue, Suite 2920, New York, NY 10170, 212-840-0080.

U.S.-India Bilateral Cooperation on Trade and Investment: Impact of Joint “Framework” upon Global Services Industries

March 19, 2010 by Bierce & Kenerson, P.C.

On March 17, 2010, the U.S. and India signed a “Framework for Cooperation on Trade and Investment” to strengthen bilateral economic cooperation.  The three-page agreement is short on details and relies upon inter-ministerial meetings and “Focus Groups” to identify and overcome impediments to bilateral l trade and investment.   Five Focus Groups cover agriculture, innovation and creativity, investment, service industries and tariff and non-tariff barriers to bilateral trade in goods.   The Framework agreement responds to a number of complaints by American businesses about the Indian legal framework governing intellectual property protections.

Overview. As a framework, the agreement establishes a relationship governance model with senior-level sponsorship with annual meetings of a “Trade Policy Forum” of the U.S. Trade Representative and the Indian Minster of Commerce and Industry.  The U.S. Deputy Trade Representative and the Indian Secretary of Commerce will chair semi-annual meetings of five working “Focus Groups.”  The “work plan” is intended to “strive to overcome” impediments to bilateral trade and investment.

Not a Trade Agreement.   This Framework agreement does not establish any new rights or obligations between the countries.  This is in stark contrast to the bilateral and regional “free trade agreement” approach adopted by the administrations of George W. Bush and Bill Clinton.  Instead, the Framework is only a forum for dialogue on identifying and resolving specific conflicts and impediments to trade and investment.

Other Cooperation.   This Framework agreement represents the culmination of work by the Obama administration to connect the world’s largest economy to one of the world’s fastest growing economies.

o    In November 2009, India and the U.S. held a US-India CEO Forum to enable industry leaders and governments to explore opportunities for public-private partnerships (PPP’s) to stimulate innovation, job creation and “sustainable inclusive growth.”

o    In August 2009, the two countries launched negotiations for a Bilateral Investment Treaty for investor protection.  The US already has over 20 such BIT’s with other countries.

o    In late 2009, the US and India signed a bilateral Memorandum of Understanding renewing bilateral cooperation in the field of intellectual property rights (IPR) to promote public awareness of IPR and focus on human resource development.  The parties also signed a Traditional Knowledge Digital Knowledge Library Access Agreement to enable U.S. patent searches to identify Indian traditional knowledge in order to avoid improper patenting.

Impact on Global Services. The agreement sets forth a working arrangement for addressing specific issues affecting bilateral trade in services, including:

o    Improved intellectual property rights and enforcement;
o    Fostering innovation and creativity through intellectual property and other rights;
o    Increasing collaboration between U.S. and Indian “innovators”:
o    Promoting cooperation in areas that enable services trade in key sectors such as information and communications technology (ICT), education, environment and energy services and healthcare;
o    Providing a climate of transparency and predictability in bilateral investment, including projects to support India’s infrastructure goals.

A significant element is the growth of bilateral trade and investment for small businesses in the global supply chain.  The U.S. will be sending trade missions to India to promote the sale of goods and services in solar energy, medical and healthcare.

Today, entrepreneurial ventures from India have learned how to target American enterprises in all sectors of outsourcing.  The Framework targets promotion of American service exports to India by U.S. small and mid-sized businesses, which can be effective in obtaining access to Indian labor and – to be seen—Indian customers.

Ultimately, the Framework agreement will provide a venue for dialogue to mitigate protectionism and mutual understandings on “sustainable inclusive growth,” the new socially-responsible banner for globalization under the Obama administration.  Further, this Framework and other dialogues could serve as a new model for bilateral relations supporting global services, investment and trade for other countries providing outsourced services to U.S. customers.

Social Security Tax Agreements: The Cost of Expatriate Workers

January 21, 2010 by Bierce & Kenerson, P.C.

Whenever citizens of one country set up operations or perform services in another country, they face the challenge of dual taxation. Dual taxation can be particularly oppressive where two countries tax the same income, or require payments of some form of tax on the same business activities. To avoid such burdens, model income tax treaties and estate tax treaties have evolved under the aegis of the OECD. Other treaties may apply to allow workers from one country to avoid paying social security to the government of another country.

This article addresses the question whether bilateral social security tax agreements have a material impact on mobility of technical service workers moving between a service delivery center (such as India) and a service recipient’s facilities (such as in the United States).

Double tax treaties allocate the rights of the two countries to tax the same income or activities. In the case of income tax treaties, the key determinant is whether the activities form a “permanent establishment” that serves as a sufficient nexus for the host country to tax the income and the activities. In the case of workers visiting on work visas, social security treaties allocate both the social security charges deducted from local wages and the liability of each state for payment of the social benefits (such as medical care and retirement income) from the workers’ activities.

The Times of India reported on January 18, 2010, that India and the United States are negotiating a Bilateral Investment Promotion Agreement and a Social Security Treaty. Http://timesofindia.com/articleshow/5462979.cms. U.S.-visiting personnel of Indian outsourcers (and Indian service captives of U.S. companies) have been paying U.S. Social Security taxes from the first day of their secondment to the U.S. locations. Payments are due from both the employer and the employee at the rate of 7.65% for various combined federal social taxes. Their visas (typically H1-B) may permit work in the U.S. only for 6 years. However, under U.S. Social Security rules (applicable in the absence of a treaty), such personnel are not entitled to receive any U.S. social security benefits unless they remain in the U.S. for at least 10 years (40 quarters).

The U.S. Social Security Administration (“SSA”) has its own explanation of the various social security treaties:

Since the late 1970’s, the United States has established a network of bilateral Social Security agreements that coordinate the U.S. Social Security program with the comparable programs of other countries. This article gives a brief overview of the agreements and should be of particular interest to multinational companies and to people who work abroad during their careers.

International Social Security agreements, often called “Totalization agreements,” have two main purposes. First, they eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Second, the agreements help fill gaps in benefit protection for workers who have divided their careers between the United States and another country.

Agreements to coordinate Social Security protection across national boundaries have been common in Western Europe for decades. Following is a list of the agreements the United States has concluded and the date of the entry into force of each. Some of these agreements were subsequently revised; the date shown is the date the original agreement entered into force.

Source:  http://www.ssa.gov/international/agreements_overview.html

The list of such countries shows that the U.S. typically has a significant incentive to avoid the imposition of double social security taxes on U.S. citizens and residents who are expatriates abroad than for incoming foreign workers who come to the United States. U.S. expatriates are entitled to U.S. social security coverage, and must contribute, if they work for a foreign subsidiary of the U.S. employer that elects, by agreement with the Internal Revenue Service under section 3121(l) of the Internal Revenue Code, to pay Social Security taxes for U.S. citizens and residents employed by the affiliate.

U.S. Social Security Treaties. Aside from South Korea, Chile, Australia and Japan, virtually all such treaties are with European Union countries. A brief review of the most recent treaties (Czech Republic and Poland) shows that the dual social security taxes are waived based on residency for under 5 years, not the 10 years that applies to individuals from other countries (such as India) without a social security agreement. The requirement of some minimum residency before entitlement to local social security program participation serves public policy by not entitling foreign workers in the U.S., for example, to enjoyment of such programs without making substantial contributions. On the other hand, such minimum residency requirements conflict with the H1-B visa limitation of a six-year maximum stay. As a practical matter, H1-B visitors can convert their visa status to immigrants (after a long wait), so the minimum residency requirement promotes immigration of highly qualified managerial or skilled workers.

Indian Social Security Treaties. According to the Times of India, India has signed social security totalization agreements with Belgium, France and Germany, which are significant markets for Indian-based ITO and BPO service providers. The article did not specify any minimum residency period under such agreements.

Impact on Outsourcing and Foreign Captives. Social security totalization agreements serve to allocate between two national governments two separate cash flows: (i) income (contributions by local employer and the locally present expatriate employee) and (ii) expense (a future stream of social security benefits after satisfaction of the minimum residency requirements). Where the host country such as the U.S. charges social security deductions to the wages of foreign workers (e.g., Indians seconded to a U.S. customer or affiliate), the U.S. reaps a windfall if the minimum residency is never satisfied. The Times of India article claims that this windfall amounts to $1 billion per year. Where the minimum residency is satisfied, there is no windfall, and indeed the host country could suffer a loss if the expatriate acquires residency.

The Times of India article suggests that there is an additional burden on Indian workers who work in the USA under H1-B visas. This is questionable, since American employers (whether as affiliates of Indian captives or as enterprise customers of Indian service providers) will still pay their employer’s share of U.S. social security, regardless of the nationality or tax residency of the worker. The only impact is that the Indian workers do not get a discount, exemption or benefit unless they come to the U.S. for the minimum residency period. In short, it appears that the only party disadvantaged is the Indian Treasury, and the absence of a social security totalization agreement between the U.S. and India does not serve as an impediment for hiring of local workers in the U.S. It does, however, play a role in balance of payments in the long term.

In the scenario at hand, the lack of a social security agreement will also delay liberalization of American investment in India under a separate agreement on protection of investors. Thus, there could be some adverse impact on American companies seeking to invest in India if both agreements are not signed together, or unless one country blinks.

For related topics:

See Employment Law.

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