Legal process outsourcing has been one of the recent developments in the law field. Legal outsourcing has been an attractive subject for most of the legal service providers keeping in mind the real cost benefits brought about by it. Some of the service forming a major part of legal outsourcing to India include trade mark services, patent support services, litigation support, legal research, due diligence support and document review.

It should be noted that the list is not an exhaustive one and depends upon the expertise of the LPO units. Some of the major issues going against legal process outsourcing to India include the breach of confidentiality of the clients. The experts different upon their views on legal outsourcing services, some believe it to be very beneficial for the long term benefit of the firm while some are of the opinion that it would heavily come down upon the employment generation of the home country.

Competition and cost effectiveness are the two major factors why Indian law firms have gained a lot of popularity in countries like United States and United Kingdom.

Legal firms can benefit from the legal outsourcing process in two models. According to the first model the firm will be acting as a middleman with the simple task of introducing clients to LPO India. Thus, doing this it will not only create a co ordeal relationship but would also have potential profitable ventures in future from the clients. It should be noted that in the first model the firm’s role would strictly be restricted to a middleman and it would not be receiving any direct payments from either of the parties. In the second model the firm would be actively involved in managing the relationship and workflow between respective clients and LPO India while receiving fee in return of such services.

Source:http://www.financemoz.com/legal-process-outsourcing-the-benefits.html

A major percentage of the companies using legal process outsourcing services prefer to outsource legal research and writing services to LPO companies. Broadly, legal research and writing involves the following functions-

The legal process outsourcing industry has been in the news for some years. Recently it has come to play a frequent international role as a consequence of the 2008 global financial crisis which burdened many international firms with loads of cases involving litigation and bankruptcies. Now these law firms and their clients were themselves hit by the recession and hence not in the position to pay the standard charges demanded by their local legal services providers. In any case, most companies would any day prefer to cut down cost if they got an opportunity.

LPO companies based in developing countries give them this opportunity. Law firms are now able to get a variety of time consuming and expensive legal work done for a fraction of their local cost through offshore legal services providers based in distant countries.

Locating the primary sources of law for the given cases, regulations, statutes, etc. Looking through secondary authority sources for background information on a legal subject. Such sources include law reviews, legal treatises, legal dictionaries and legal encyclopedias like Corpus Juris Secundum and American Jurisprudence. Conducting research on non-legal sources to find supporting information.

The above tasks can be time consuming and hence quite expensive if done by a qualified legal services provider in a country like the United States who charges tens or even hundreds of dollars by the hour. But the same work can be done very efficiently in countries like India for rates as low as one-fifth of what it costs in the US.

Law firms that outsource legal research work benefit from the highly qualified talent pool that LPO hubs like India can offer. The country has a vast educated work force that is capable of producing high quality legal research writing. Moreover, in recent years India has seen considerable infrastructural development which has created facilities like 24/7 legal process outsourcing services, timely deliveries and full proof security measures. Reputed LPO companies maintain a substantial work force which enables them to complete high volume legal research writing projects in record time.

Apart from saving on cost while getting high quality work delivered on time, law firms that outsource legal research services require a high level of confidentiality to protect sensitive information contained in their legal documents. This facet is taken care of by reputed LPOs that make use of high quality security software to ensure that all sensitive information remains protected under every circumstance.

The age of information technology has bought along with it many marvelous developments; the ability to outsource legal research services is just one of them. This whole process where the legal research writing of a law firm based, for example in in Los Angeles, is seamlessly carried out by a legal services provider working somewhere in a country like India or Philippines is nothing short of amazing if you give it a thought.

Source:http://legalprocessoutsourcingservices.wordpress.com/2010/07/23/legal-writing-and-legal-research/

Market hype and law firm conservatism have hindered the growth of the legal process outsourcing (LPO) market, according to a report by data analyst Ovum seen exclusively by the Gazette.

While the LPO industry is ‘set for significant growth over the next few years’, it is ‘still a nascent market’ some ‘seven or eight years’ behind the business process outsourcing industry, the report concluded.

The report noted that law firms have been slow to embrace IT outsourcing over the last decade, and suggested that this could explain their cautious approach to LPO. Law firms have publicly announced just 49 ‘small-scale’ IT outsourcing deals of more than $1m (£0.66m) in the last 10 years, with an average value of less than $15m (£9.89m), the report found.

Ovum also suggested that the need for consensus with all partners on major decisions was a barrier to LPO deals.

Ed Thomas, analyst in IT services at Ovum, said: ‘There’s a streak of conservatism that runs through the legal industry. A lot of these firms have been around for a long time and have done business in the same way for years. But this all has an impact on the cost of legal services.’

The report said that the recent deal between City firm CMS Cameron McKenna and outsourcer Integreon ‘suggests that law firms, having previously believed that they had different needs than companies in other industries, are beginning to appreciate that there are certain services…that all large companies require and that can be provided cheaply and efficiently by third parties.’

Under the deal, valued by Integreon at £583m over 10 years, CMS will outsource a substantial part of its non-legal office functions.

‘As the [chief executive] of one pure-play LPO vendor told us, it is not the case that law firms did not understand the benefits of the LPO model prior to the recession,’ the report said. ‘Rather, they understood its benefits right away, but there was no incentive for them to do anything about it. Now, with in-house counsel reducing the number of outside law firms they work with, the incentive is there for companies to begin to embrace LPO.’

The report suggested that hype around LPO caused numerous opportunistic start-up companies to flood the market before the sector could establish itself.

Source:http://www.lawgazette.co.uk/news/law-firm-039conservatism-slowing-lpo-market-growth

The BPO (business process outsourcing) of Wipro technologies has partnered with Microsoft corp. to offer LPO(legal process outsourcing) solutions for its intellectual property portfolio. Earlier in July 2008, Wipro started providing services such as trademark filling and U.S patent and docketing to Microsoft’s IP portfolio.

WiproPreviously Microsoft had a mix of outside law firms offshore vendors and house resources to perform IP services. With its extensive BPO experience, Wipro not only ensured efficiency but also consistency in the way Microsoft carries out its business.

In past two years, Wipro has created an impressive IP portfolio and has the capability for working in Microsoft’s vast IP portfolio. Microsoft and Wipro have developed improved domain expertise, case management and processes to further complete IP processes.

Wipro is trying to integrate the legal expertise with technology and process to reduce the cost for its clients. “In order to manage world’s largest and valuable portfolio the teams work with the in house teams,” said Shively the general manager at Microsoft.

“We have developed the LPO framework, tools, controls and metrics to drive productivity and reduce costs for Microsoft,” Joseph said.

Wipro will integrate its BPO’s legal expertise with process and technology to reduce overall legal costs of Microsoft’s clients.

“With our extensive BPO experience, international reach and global delivery capability, we will be able to ensure efficiency and consistency in the way Microsoft does business,” Jospeh added.

“Wipro will also continue to integrate legal expertise with process and technology to reduce overall legal cost for Microsoft clients,” the statement said.

“Our dedicated team at Wipro has become a fundamental component of our global patent operations function,” Microsoft’s general manager Martin Shively said.

According to the general manager of Patent Operations at Microsoft, Martin Shively, the committed Microsoft team at Wipro Technologies has turned out to be an essential part of the US computer technology conglomerate’s international patent operations.

Joseph said that the accomplishment of the collaboration is evidence of the innovation and commitment shown by the IP team of Microsoft and the LPO solutions experts at Wipro. He further said that in general his firm would carry on incorporating legal proficiency with process and technology with a view to diminish legal spends for its clients. In the meantime, both the tech giants continue to use the partnership to foster efficiency, innovation and cost control in the domain of LPO globally.

Source:http://techgenie.com/latest/wipro-to-offer-lpo-solutions-to-microsoft/

As per the Businesswire ( A Birkshire Hathaway Company ), WIPRO Technologies, the global IT services business of Wipro Limited , yesterday announced that its Business Process Outsourcing division has partnered with Microsoft Corporation to provide global Legal Process Outsourcing (LPO) for Microsoft’s Intellectual Property (IP) portfolio.

In July 2008, Wipro began providing U.S. Patent and Trademark filing and docketing services to Microsoft’s Intellectual Property & Licensing group. Microsoft previously had used a mix of in house resources, outside law firms and offshore vendors to perform these IP services. Moving to Wipro, with its extensive BPO experience, international reach and global delivery capabilities, ensured not only efficiency but also consistency in the way Microsoft does business.

Microsoft facilitated the transition of processes to Wipro by leading domain training for Wipro’s team. Wipro correspondingly developed the LPO framework, tools, trainings, controls and metrics required to drive high productivity and reduced costs for Microsoft. Wipro’s operational rigor, application of tools and various quality improvement methodologies has led to significant gains in both quality and efficiency of the transferred processes. These results have led Microsoft to add international docketing and filing processes to the original US-only processes at Wipro.

Over the past two years, Wipro has developed an impressive IP domain expertise and ability to work on a scale required for Microsoft’s vast IP portfolio. Wipro and Microsoft continue to jointly develop improved domain expertise, processes and case management and work allocation tools to further streamline IP processes.

“The dedicated Microsoft team at Wipro has become a fundamental component of our global Patent operations function,” said Martin Shively, GM of Patent Operations at Microsoft. “The Wipro team works closely with our in-house team to manage one of the world’s largest and most valuable patent portfolios.”

“The success of this partnership is testament to the innovation and dedication demonstrated by Microsoft’s IP team and Wipro’s LPO solutions professionals,” said Saju A. Joseph, General Manager KPO & LPO solutions, Wipro Technologies. “Wipro will continue to integrate legal expertise with process and technology to reduce overall legal cost for its clients,” he added.

Today Wipro and Microsoft continue to work together to expand their global delivery partnership.
This is a good news for young law professionals who want to make their career in Legal Process Outsourcing.They can specialise in IPR and Technology law and target the WIPRO LPO for a handsome starting salary.

Source:http://tabrezahmad.typepad.com/blog/2010/06/wipro-and-microsoft-join-hands-to-deliver-global-legal-process-outsourcing-efficiencies.html

Wipro Technologies today said it will provide global legal process outsourcing services to software giant Microsoft’s intellectual property portfolio.

Under the agreement, the BPO division of Wipro Technologies will provide global LPO services to Microsoft’s IP portfolio, Wipro said in a statement.

The satement, however, is silent on financial details. Wipro has developed the LPO framework, tools, trainings, controls and metrics required to drive high productivity and reduced costs for Microsoft, it added.

Wipro and Microsoft will continue to jointly develop improved domain expertise and processes to further streamline IP processes, it added.

Source:http://economictimes.indiatimes.com/Wipro-to-offer-LPO-services-to-Microsoft/articleshow/6047939.cms

Telecoms major BT has entered into an agreement to outsource part of its global in-house legal work to legal process outsourcing (LPO) provider UnitedLex, beginning with a team of 15 lawyers based mostly in India.

BT announced yesterday that by “moving the existing in house team offering legal support services to UnitedLex, the BT Legal team will be free to focus on more complex and value-added activity”.

BT Global Services general counsel David Eveleigh said in a statement: “We are keen to develop cost effective ways of sourcing legal and commercial services whilst retaining quality… Our existing Gurgaon based in-house team delivering legal support services has performed extremely well, but the time is right for us to transition the work and our people to an established legal process outsourcer, who can offer industry best practices and provide global scalability.”

“We believe that the services offered by UnitedLex will complement our global panel of law firms.”

UnitedLex CEO Dan Reed told Legally India: “One of the reasons that we’ve been selected by BT is that we competed very strongly against Infosys and CPA [Global] and we were chosen over those companies because of the technology we provide.

He explained that UnitedLex was highly technology and process driven, having taken inspiration from the way Accenture had structured its consulting operations. “We are not just a bodies shop – we are driving higher and higher up that curve.”

The UnitedLex legal team exclusively working with BT would start with a headcount of 15 but that it would likely grow a “fair amount”, said Reed.

UnitedLex was founded only four years ago in the US but has grown to around 550 lawyers globally, according to Reed, with a majority of 425 based in India and the rest sitting in the US, followed by Israel.

He predicted that the company would hit a turnover of $35m to $40m in the next financial year and that the LPO industryas a whole would evolve rapidly with changes already taking place.

“Some of the earlier movers that first hit the market place are struggling,” he said, “and if you don’t have a truly optimal model you’ll find it difficult to meet the challenges.”

“There are maybe four or five [LPO] firms that are even relevant, and of those maybe only a couple that are going to make it. There will be a lot of them that go out of business in the next year, or consolidate or are acquired for manpower.”

Referring to last year’s court ruling against foreign firms practising law in India, he argued that the Indian regulations governing LPOs should be clarified in the coming years.

Reed said that India would be unlikely to prevent LPOs from operating in the country, expecting that if LPOs were banned from India by regulation they would simply move their operations to competing jurisdictions such as Malaysia or South Africa.

Reed noted that UnitedLex was not a law firm, even though its target area of work was higher-end work than what was traditionally associated with LPOs.

“The first generation of LPOs was all about redlining documents and very low-end types of legal work,” he said. “Law firms are doing much higher end legal work, very judgement based legal work. But they don’t use technology like we use it: we stay very much in the mid-complexity sort of zone.”

Unlike law firms UnitedLex lawyers did not opine on law and did not practise law, he added. “We don’t compete with Indian law firms and we sure as hell don’t practice Indian law.”

Source:http://www.legallyindia.com/20100330624/Legal-Process-Outsourcing-LPO/four-year-old-lpo-unitedlex-targets-35-40m-revenue-bags-bt-legal-outsourcing-contract

Facing the heat of recessionary pressure, India’s legal process outsourcing (LPO) industry is likely to see a decline in revenue and is expected to reach $440 million dollars (around Rs 2,000 crore) by 2010 end, a report said.

According to a report by business intelligence & research firm ValueNotes, global economic downturn has slowed down LPO industry and is changing the service provider’s landscape.

“Revenues from the offshore legal services industry were USD 320 million for 2008 and are expected to reach USD 440 million by 2010 end,” it said.

The offshore legal services industry grew at a rapid pace until 2007. However, the slow down in buyer market impacted the offshore industry resulting in falling growth rate.

The industry that was growing at a compound annual growth rate (CAGR) of over 40 per cent over the last four years until 2007, dropped to 28 per cent in 2007-08, and further reduced to 16 per cent for 2008-09.

The fall is primarily due to recessionary cost pressures impacting the global legal services market and the subsequent affect on the number and value of offshoring contracts, the report said.

However, industry experts are hopeful about the future of Indian LPO sector.

Source: http://economictimes.indiatimes.com/infSotech/ites/LPO-industry-to-suffer-from-economic-downturn-for-short-termReport/articleshow/5281754.cms

More than one-half of London’s top 30 legal firms are involved in or considering legal process outsourcing. Eight of them including Linklaters, SJ Berwin, and Freshfields Bruckhaus Deringer are weighing their options, while eight more, including Allen & Overy, Eversheds, Lovells, Pinsent Masons, Wragge & Co, and Simmons and Simmons are already engaged in the process. Areas being considered are document review, due diligence, contract development and legal research.

Eleven of the top 30 firms told Legal Week that they had no plans to outsource, but not all of them had discounted it as an option.

Source: http://network.nationalpost.com/np/blogs/legalpost/archive/2009/11/23/top-london-firms-embrace-outsourcing.aspx

It appears that Magic Circle firms have fallen in love with outsourcing. Most American associates will hope that like Mad Cow disease, the outsourcing craze stays on English side of the ocean. The Lawyer reports:

Allen & Overy (A&O) has become the first magic circle firm to outsource legal work as an increasing number of UK firms embrace legal process outsourcing (LPO) in a bid to reduce their overheads.
The firm has partnered with LPO provider Integreon to outsource basic litigation document review to teams in New York and Mumbai, in what could generate a 30-50 per cent cost saving.

Anybody think we’ll see some geographic hypocrisy in the comment thread? Outsourcing to New York = good, outsourcing to Mumbai = bad? Or will everybody simply agree that outsourcing = apocalyptic?

After the jump, The Lawyer has an excellent chart that shows us where British firms stand with regards to outsourcing.

Outsourcing could be a disaster for Biglaw associates. And it hasn’t even started in earnest yet:

This is the first time that a magic circle firm has outsourced legal work. Rivals Clifford Chance and Linklaters have both outsourced support functions, while Clifford Chance has a wholly-owned Indian subsidiary that carries out document review work and other legal support tasks previously undertaken by onshore paralegals and trainees.

The Lawyer posts an overview about outsourcing at major British firms:

Are the English giving us a preview of our American legal future? I don’t know, but I’m starting to put two of every kind of junior associate on a big ass boat, just in case.

Source: http://abovethelaw.com/2009/11/british_firms_catch_outsourcin.php

Some of the City’s leading law firms are considering outsourcing legal work as increasing numbers of firms look to cut costs by using external providers for both legal and business support.Linklaters, SJ Berwin, Freshfields Bruckhaus Deringer and CMS Cameron McKenna are among eight firms within the top 30 currently looking at introducing some aspects of legal process outsourcing (LPO).

Camerons and SJ Berwin have yet to identify which areas they would like to outsource, while Linklaters is considering sending some document review, due diligence, contract development and legal research functions to an outside provider.
Research by Legal Week shows that a further eight firms within the top 30 already carry out some form of LPO, including the likes of Allen & Overy (A&O), Eversheds, Lovells, Pinsent Masons, Wragge & Co and Simmons & Simmons.

A&O, for example, uses a network of alumni for work such as first drafts of banking documents, as well as outsourcing some litigation document review to India through outsourcing company Integreon. The Integreon deal followed a pilot in March this year and comes as A&O has also outsourced some document review work to companies Pangea3 and QuisLex in response to client demand.

Eleven top 30 firms said they had no plans to carry out any legal process outsourcing. However, some of these had looked at it and discounted it as an option.

Linklaters chief operating officer Simon Thompson (pictured) said: “Our clients are under increasing financial pressure and clearly want to achieve the best value they can for their legal spend. This has led them to seek new and alternative ways to source their legal services. This includes LPO. As such, we are keen to develop effective ways in which we can work in tandem with LPOs in support of our clients’ requirements.”

The trend comes as firms also look at increasing the amount of business process outsourcing (BPO) they carry out.
More than half of the firms in the top 30 already outsource some back office functions, with the number of firms interested in outsourcing and the range of functions being outsourced both set to increase.

SJ Berwin chief executive Keith Wood said: “Although we have nothing in place, we are looking at legal and business process outsourcing as possible opportunities to improve further our efficiency levels. Law firms are going to feel a squeeze by clients seeking more for less and if partners don’t want to take a hit, they’ll have to reduce overhead costs.”

Source:http://www.legalweek.com/legal-week/news/1562452/eight-uk-firms-size-legal-outsourcing-moves

Allen & Overy (A&O) has agreed to outsource its legal work to Mumbai and New York with legal process outsourcing (LPO) company Integreon, becoming the first magic circle firm to embrace the LPO model, according to The Lawyer magazine.
The Lawyer reported that the firm has partnered with LPO provider Integreon to outsource basic litigation document review to teams in New York and Mumbai, in what could generate a 30-50 per cent cost saving.

A&O litigation support specialist Vince Neicho said: “We put together a suite of options [for clients] including offshore outsourcing, a reduced paralegal rate in our London office and the [improved] use of technology.”

A&O has chosen to work with Integreon on a case-by-case basis, rather than signing a deal for a dedicated team.

Neicho explained to The Lawyer: “The main reason is the fluctuation in the workload, we might go a few weeks with nothing at all, or a client might opt for another of our suite of options. Outsourcing offshore is new in this country, we’ve some clients that may feel uncomfortable with it. If we put our own captive team together and push outsourcing it’s not good for them or for us.”

This is the first time that a magic circle firm has outsourced legal work. Rivals Clifford Chance and Linklaters have both outsourced support functions, while Clifford Chance has a wholly-owned Indian subsidiary that carries out document review work and other legal support tasks previously undertaken by onshore paralegals and trainees.

A&O has a formal best friends relationship with Trilegal.

Neicho’s comments were made at The Lawyer’s inaugural conference on Legal Process Outsourcing and Offshoring and come as more law firms chose to outsource lower-value work in a response to requests from clients to bring down costs.

UK firm Simmons & Simmons also signed up with Integreon last month to outsource legal work to Mumbai.

Managing attorney at mining giant Rio Tinto Leah Cooper took the radical move earlier this year of outsourcing legal work to a team of 15 Indian-based lawyers sourced by LPO CPA Global. No in-house jobs have been lost as a result but, with less work going out to panel firms, it is estimated to have saved the company around $8m (£4.8m).

Earlier this year The Lawyer revealed that Pinsent Masons had become the first firm to outsource work normally done by UK-based lawyers to a dedicated offshore team through a deal with LPO company Exigent (22 June 2009). The firm now plans to expand this further (28 September 2009).

Last month Clarke Willmott laumched an LPO pilot in its Birmingham office with the aim of rolling it out across its UK network (12 October 2009).

The trend towards LPO and offshoring has gathered such momentum that even one of the City’s more traditional names – Slaughter and May – has been in talks over outsourcing legal work. This is believed to have been triggered by a request from a particular client (5 October 2009).

This is an edited version of an article that first appeared on TheLawyer.com

Source: http://www.legallyindia.com/index.php/20091118292/Legal-Process-Outsourcing-LPO/Allen-Overy-embraces-India-legal-process-outsourcing-LPO

Revenues from the legal process outsourcing industry were US$320 million for 2008; expected to reach $440 million by end 2010

In 2005, there were around 40 service providers in the Indian legal services offshoring segment; the number grew to 100 in 2007; and currently there are more than 140 service providers in India

Over the last two years, > 20% of the total number of service providers discontinued their operations

With the legal services industry going through recessionary conditions, the legal process outsourcing (LPO) industry has not escaped the impact of the crisis. The economic downturn has no doubt slowed down the industry and is changing the service provider landscape.

The offshore legal services industry grew at a rapid pace until 2007. However, the slow down in the buyer market impacted the offshore industry resulting in a drop in the growth rate. The industry that was growing at a CAGR of 40+% over the last four years until 2007, dropped to 28% in 2007-08, and further reduced to 16% for 2008-09. Revenues from the offshore legal services industry were US$320 million for 2008 and are expected to reach $440 million by end 2010.

This drop is primarily due to recessionary cost pressures impacting the global legal services market and the subsequent affect on the number and value of offshoring contracts. Many existing contracts were exploratory projects (in the form of pilots), which were not extended / expanded into large engagements. A slowdown in terms of decision making to offshore from the buyer end also affected the number of contracts.

According to Neeraja Kandala, lead analyst – Legal Services, “In the current scenario almost all offshore legal service providers are battling – while in some cases billing rates have come under pressure, in others the volume of work has shrunk. As the global legal industry suffers, the offshore industry has also felt the impact of the crisis. While revenue estimates till 2010 are not very encouraging, we believe that the slowdown is short term. Post 2010, we expect the industry to pick up pace as the global economy recovers.”

The service provider landscape of the legal process outsourcing industry has changed remarkably in the last 4 years. In 2005, there were around 40 players in the industry. The number grew to 100 in 2007. Currently there are more than 140 service providers in India in the legal services offshoring segment offering services ranging from legal transcription to complex contractual analysis and patent related services.

Ease of entry and over hyped prospects led to a rapid increase in the number of players in the industry. The huge ‘potential’ opportunity led entrants to believe that getting business would be easy. Few bothered about the potential risks or the competitive dynamics of the industry. This, coupled with the uncertain economic conditions, resulted in many weaker players fading away from the competitive landscape. Over the last two years, more than 20% of the total number of service providers in the industry discontinued their operations. Says Suheil Patel, analyst and co-author of the report, “While there are various reasons for these shut downs, the economic slowdown added to the troubles of some of the service providers. Fewer contracts over the last one year, made it difficult for them to survive during the downturn. Moreover, some of the players failed to pay attention to learning processes and acquiring the required knowledge.”

Post 2010, we will see consolidation in the industry with larger players acquiring capacity and capability, as well as international law firms looking for control over India capacity. However, in the medium term numerous smaller businesses will continue to mushroom, which will, in turn, create a large pool of acquisition targets as well as potential joint venture partners.

The ValueNotes report, Legal Services Outsourcing: Crisis Creates New Opportunities for LPOs, analyses the offshore legal services industry in India and the changing service provider landscape.

Source: http://www.indiaprwire.com/pressrelease/other/2009111737681.htm

Banks, insurance companies and other financial services providers who outsource administrative functions abroad could be hit by changes to the VAT rules coming into force on 1st January 2010.

Under current rules, where services are provided by one business to another, the place of supply for VAT purposes is generally deemed to be the country where the supplier is based. If the services are supplied from outside the EU, no VAT will be payable, reducing the overall cost of the supply considerably.

The provision of finance-related services, such as banking and insurance, is largely VAT exempt. The default “place of supply” rule, however, applies to many outsourcing situations where back-office administration is provided outside the UK.

But the rule has been reversed by the Finance Act 2009. As from 1st January 2010, the place of supply in a business-to-business context will be deemed to be the country where the recipient is based.

This means that a UK company outsourcing functions abroad will usually be responsible for paying the VAT under the “reverse charge mechanism”. Under this mechanism, the recipient company effectively acts as both supplier and customer, accounting for the VAT as if it were the supplier and then recovering the VAT (to the extent that it can) as the customer.

The rule change is likely to have little practical impact on insurers and financial service providers in relation to their own services, which remain VAT exempt. But they may find themselves having to account for VAT for the first time on the costs of administrative work outsourced outside the EU.

Eloise Walker, a tax specialist in Pinsent Masons, the law firm behind OUT-LAW.COM, warned companies to prepare for the change now.

“Financial services companies who outsource work abroad need to carry out a review of their supply agreements in light of the new place of supply rule and consider restructuring arrangements where possible,” she said.

“This change is looming large and companies should be seriously considering how to minimise their potential irrecoverable VAT bill going forward,” said Walker.

Want more content like this? This story was written by the insurance and reinsurance legal experts at Pinsent Masons, the law firm behind OUT-LAW.COM. See our legal info for Insurance and Reinsurance.