Legal Challenges in Outsourcing of IT Services & Work
Outsourcing refers to the practice in business where a party is hired from outside the company to perform certain services and creation of goods which were performed in-house by the corporate’s employees and local staffs. It is a basically a measure undertaken by the corporate to cut the cost. Now, in the case of IT-services, we have witnessed an upsurge in the outsourcing process. However, there are some legal limitations and issues acting as an obstacle in outsourcing.
It is very important to note that in case an organization or corporate is outsourcing to India, the same needs to be aware of the local laws, legal rights and further the dispute resolution process.
Taxation as a legal issue in Offshore Business Outsourcing
In the coming paragraphs, we shall discuss the main issues creating obstacle in the path of outsourcing of IT-services in India. Taxation, Heterogeneity of law, Local Laws and Dispute resolution are some of those issues. Now, it goes without saying that taxation is one of the significant issues which affect the overall outsourcing of IT-services or any business in India or any other country. It is important for the corporates to understand the tax structure of the country to deal with the same. In order to avoid the legal issue, the corporate should hold a meeting with the outsourcing provider in India to decide and mutually agree about the tax related provisions.
Heterogeneity of Legal System & Local Laws
Since, there is no one legal system for the entire globe, it is important for the corporate decided to outsource in some other country, comprehend the rules and regulations of governance there. The heterogeneity of legal system is one of the major legal issue faced by such corporates. Different countries have different laws related to intellectual property and in order to avoid any difficulty in outsourcing, it is better that the corporate adheres to both the legal systems. Coming to the issues relating to local laws, it might be important to understand that some countries have strict regulations on data protection and overall privacy. In such matter, both the provider of outsource and the customer would equally be lawfully bound and have equal responsibilities. It may be noted that the outsource providing corporate needs to secure their services from civil penalties. For this, it is not feasible to ignore the local laws.
Lastly, we have Dispute settlement which creates an obstacle in the path of outsourcing in any country. Now, for instance, if a customer from India decides to sue an outsource providing company from Germany, there would be enormous disputes. in such cases, the customer from India would never go to Germany, nor they would the corporate based in Germany would ever turn to India. Therefore, it is important that both service provider and the customer decide the system of dispute resolution and mention the same in the legally enforced agreement.
There are several issues in outsourcing to India, however dealing with them efficiently can surely help the customer corporate and the service provider in carrying a smooth business. Being aware of the legal implications of the customer’s country that may impact the partnership between the two is severely significant.
Authored By: Adv. Anant Sharma & Aniket Pandey