Swedish national law does not specifically regulate outsourcing transactions, except for financial services (see Question 2, Financial services). However, laws on the protection of employees and on data protection must often be addressed in relation to outsourcing transactions (see Questions 7 to 14).
A financial services outsourcing?
A business process outsourcing?
An IT outsourcing?
A telecommunications outsourcing?
A public sector outsourcing?
Other outsourcings?
The Banking and Financing Act (BFA) is the main financial regulatory law in Sweden and contains provisions concerning outsourcing. In addition, the Swedish Financial Supervisory Authority (Finansinspektionen) (SFSA) has issued general guidelines for governing and controlling financial undertakings, including guidelines for outsourcing (Guidelines).
The BFA and the Guidelines generally apply to Regulated Companies, that is, Swedish and foreign entities which both:
Conduct banking or financing activities.
Are supervised by the SFSA.
A Regulated Company can, under the terms and conditions set out in the BFA and the Guidelines, outsource parts of its operations to an external supplier, within or outside the Regulated Company's group.
Where a Regulated Company intends to outsource part of its licensed operations, or activities that have a natural connection with financial operations or their support functions, it must notify the SFSA in advance and provide it with a copy of the outsourcing agreement. A Regulated Company can only outsource part of its licensed operations if:
It is, at all times, responsible to the customers for the outsourced activities.
The external supplier provides the outsourced services with sufficient control and an adequate level of security.
The assignment does not mean that the Regulated Company cannot fulfil its obligations under the BFA or any other laws governing the Regulated Company's business.
The board of directors or managing director of a Regulated Company must draw up internal regulations as to which licensed operations, or activities that have a natural connection with financial operations or their support functions, can be outsourced and the manner in which the outsourcing will take place.
The internal regulations must state at least the following:
The demands imposed on the Regulated Company's order placement expertise.
The procedure for risk management.
How the Regulated Company will govern, monitor the performance of, and review the outsourced activities.
The demands imposed in relation to the supplier's expertise, internal controls and quality, as well as how the supplier will perform outsourced activity in the long term.
That the Regulated Company and supplier will prepare and maintain contingency plans for unforeseen events, including crisis and catastrophe planning, which will be tested regularly. These contingency plans and strategies must be prepared so that the Regulated Company can discontinue the outsourcing and resume the activities without significant disruption of important activities.
That the SFSA can exercise effective supervision over the Regulated Company and that the Regulated Company's obligations towards the SFSA or the Regulated Company's customers are not breached.
That a written agreement be prepared which regulates service levels, the parties' rights and obligations, and other issues under the Guidelines.
In addition, the Regulated Company must ensure that the supplier protects confidential information (taking into consideration bank confidentiality issues) in relation to both the undertaking and its customers.
The board of directors must ensure that issues of bias and conflicts of interest are identified (when outsourcing within a group) and that the Regulated Company has internal regulations in place that address them.
If an outsourcing arrangement made by a Regulated Company does not comply with the BFA or restrains efficient supervision of the supplier, the SFSA can impose sanctions. These include issuing:
Written complaints. These can be combined with fines from SEK5,000 (about US$640) to SEK50 million (about US$6.4 million).
Injunctions (for example, to make amendments to the outsourcing agreement). These can be combined with conditional fines.
Finally, if a Regulated Company or a third party suffers damages through failure by the Regulated Company's board of directors' failure to comply with the Guidelines, this can be regarded as negligence and constitute liability for damages.
Business process outsourcing (BPO) involves outsourcing back-office functions, for example, payroll or accounting. Personal data protection regulations (see Question 14) and accounting regulations are commonly relevant to BPOs.
Any media used for preserving accounting information and equipment and systems required for presenting accounting information must be stored and kept in Sweden for ten years (Accounting Act). The local tax office can, as an exception, allow storage abroad in special circumstances.
However, the undertaking to which the information relates must be able to immediately produce printouts of accounting information in Sweden. The tax authorities restrict permits and grant them only if the undertaking has an organisational connection abroad, that is, the outsourced undertaking is part of a cross-border group or is a branch of such a group.
The outsourcing of any IT-related operation may involve transferring or sublicensing software licences (see Questions 5 and 6). Copyright and patents in Sweden can protect ownership to software. Therefore, it is important that no transfer or sublicensing of software breaches the owner's IP rights. In addition, there are specific rules on exporting encryption technology from Sweden.
The Act on Electronic Communications (ACE) regulates telecommunications operators in Sweden. Depending on the nature of the outsourcing and the extent to which it involves typical telecommunications operator functions, the operators may need to refer to the ACE (for example, if a telecommunications operator outsources the operation of its network). However, the ACE is not relevant for outsourcing customer support services to a call centre, for example.
The public sector is regulated by public procurement rules, under the Act on Public Procurement (APP). The APP is based on:
Directive 2004/17/EC co-ordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors.
Directive 2004/18/EC on the co-ordination of the procedures for awarding public works, supply and service contracts.
The APP regulates the procurement of both services and goods above certain financial thresholds. Under the APP, a public body must not discriminate when procuring and must base its choice of supplier on objective and verifiable economic criteria. It does this through an open tender procedure.
There are no other relevant additional regulations.
The most common set-up of a Swedish outsourcing transaction is that the operation to be outsourced is either:
Sold directly to the supplier through an asset transfer.
First transferred to a special purpose vehicle (usually a limited liability company) that is sold to the supplier.
In either method, the supplier then provides the outsourced services under a contract either:
Directly with the legal entity within which the outsourced operation exists.
With a parent company to that legal entity.
The transfer of business and the provision of services are often dealt with in separate agreements for clarity, but can be dealt with in one common outsourcing agreement. If there is a major transfer of business, it is more practical if the provision of services is dealt with in a separate agreement.
The parties enter into partnership and services agreements and there is generally no transfer of a business. This structure is common. It is frequently used in BPOs, because generally no assets other than employees are transferred in a BPO, and sometimes not even employees are outsourced. It is debatable whether this structure is in fact an outsourcing and not just a purchase of services.
If available, this structure may simplify the negotiations of the outsourcing agreement. However, if a transfer of a business does take place, the business' employees have a right to become employed by the supplier (see Question 7, Initial outsourcing). Therefore, the supplier should ensure that this risk is assessed, and if necessary dealt with in the agreement.
Another structure that has been used in outsourcing transactions is a JVC that the customer and the supplier establish to provide the services. The customer then transfers the outsourced operation to the JVC, which provides the services. The supplier contributes its know-how and is responsible for providing the services.
The advantages of this set-up for the customer are that:
The customer maintains control of the operations.
It is easy to arrange taking operations back in-house, or changing the supplier.
The main disadvantage to the structure is that the supplier's ability to change the operations and integrate the operations in its business is limited. This makes it difficult to realise:
The full potential of cost savings.
A more efficient provision of the services.
If the main objective of an outsourcing is that the outsourced services be provided as efficiently as possible and at the lowest possible cost, a structure to allow the supplier to integrate the outsourced operation is recommended.
A company in the private sector planning an outsourcing can either:
Approach one or more possible suppliers for negotiations.
Start an open tender process by issuing a request for quotation (RFQ).
The parties scoring highest in the RFQ are selected for negotiations. The customer generally holds parallel negotiations, at least until a letter of intent has been signed with one of the potential suppliers. This process is efficient at creating competition between the possible suppliers, but can be time-consuming and expensive. Therefore, the decision to use an open tender process or to elect one or a few parties with which to negotiate depends on the:
Nature of the outsourcing.
Amount of money involved.
Market situation.
The customer sometimes conducts due diligence of the supplier, If so this is often performed after the parties have reached an initial understanding, such as a letter of intent. More commonly, the supplier conducts due diligence of an operation that it acquires to provide the services. This can occur either before the final contract is signed or after, in which case there will often be a true-up mechanism in the contract, allowing for the supplier to adjust its business case to the actual conditions revealed during the due diligence process. This is a risky approach for the customer since the customer does not know the final price of the services and/or service levels that can be delivered by the supplier when the contract is signed.
Immovable property?
IP rights and licences?
Movable property?
Key contracts?
Transferring real property requires a formal written sale and purchase agreement signed by both parties, setting out:
The names of the seller and the buyer.
The property designation under the Swedish Land Registry.
A declaration of conveyance of the property.
The purchase price.
Transferring real property must not be subject to conditions (other than the payment of the purchase price) for more than two years after execution of the sale and purchase agreement. To register the buyer's title, two persons should witness the seller's signature on the agreement.
A part of a property unit cannot be validly transferred unless an application for land parcelling is filed with the Cadastral Survey Authority (CSA) within six months after the execution of the sale. If the application is successful, the CSA parcels out the transferred part to become a property unit of its own. Fixtures to real property can also be transferred under the rules applicable to movable property if they are physically detached from the property and handed over to the buyer (see below, Movable property).
Generally, the Swedish municipalities (local authorities) hold a pre-emption right to real property. Transferring rental and agricultural properties may also require an acquisition permit. Notification of pre-emption rights and acquisition permits must be made to the relevant authorities.
The buyer of real property must register its title in the Land Registry and must pay a stamp duty of 3% of the purchase price or the tax assessment value, whichever is higher.
The transfer of registered IP rights, such as patents or trade marks, must be registered with the Patent and Registration Office to be finalised. However, copyrights are not registered and can be transferred without filing any registration.
No formalities are required to transfer IP licences. The licensor of any IP right must, however, consent to transferring a licence. A transfer without appropriate consent is void, and any use of the licence by the assignee is an infringement of the licensor's IP rights, which can attract criminal penalties.
No formalities are generally required to transfer movable property. However, to be protected against claimants of the transferor's property, the transferee should take possession of the property and not leave it in the transferor's possession. The transferee can also publish the transfer in a daily newspaper in the transferor's locality and register the transfer with the Enforcement Authority.
The transfer of key contracts depends on whether the contract allows for its transfer to a third party. The seller may need to obtain the consent of the other party to the contract beforehand.
Immovable property?
IP rights and licences?
Movable property?
Key contracts?
Formalities for leasing immovable property depend on the type of lease. The rules for leasing land differ according to the purpose and legal classification of the lease. Since commercial leases of premises in buildings are most common in relation to outsourcing deals, these are mainly dealt with in this chapter.
The concept of licensing immovable property does not exist under Swedish law.
Leases. There are no absolute formal requirements for leasing real property. However, the lease should be in writing if the tenant requests this. Legislation significantly favours the tenant, and the landlord's freedom of contract is limited.
Subleases. A tenant is always entitled to sublet part of its premises as long as the:
Tenant continues to occupy a part of the premises for its own business.
Sublease does not cause any detriment to the landlord.
Subletting the whole premises requires the approval of the landlord or the Rent Tribunal.
The tenant under a land lease agreement can sublet premises in its own building on the site unless otherwise agreed. Generally, subletting leased land requires the landlord's approval.
Subrogation. The tenant's right to transfer the lease is subject to the approval of the landlord or the Rent Tribunal. If the lease is to be transferred with the tenant's business in the premises, and the lease has been in force for at least three years, the Rent Tribunal generally approves the transfer, unless the landlord has specific reasons to disapprove.
The tenant's right to assign a land lease depends on the purpose and legal classification of the lease but, in principle, the tenant can transfer the lease unless otherwise agreed and the landlord has no specific reason to disapprove.
For IP rights, see Question 5, IP rights and licences.
No formalities are generally required to lease or license movable property. However, the lessee should ensure that the original contract allows it to sublet the assets. It may need to obtain the consent of the other party to the contract before subletting.
The leasing or licensing of key contracts to third parties is subject to the key contracts' terms. The lessee may need to obtain the consent of the other party to the contract beforehand.
To an incoming supplier on an initial outsourcing?
To an incoming supplier on a change of supplier?
Back to the customer on termination of an outsourcing?
Employees transfer by law if the transfer falls under the Employment Protection Act (EPA). This law complies with Directive 2001/23/EC on safeguarding employees' rights on transfers of undertakings, businesses or parts of businesses. To comply, both the:
Outsourcing must be carried out by way of an asset transfer.
Transferred assets and liabilities must be a transfer of:
an undertaking;
a business; or
a part of a business.
The main issue is often whether it is a transfer of business. The relevant criteria for determining this issue can be obtained from various EC cases, such as Spijkers v Gebr Abbatoir CV [1986] ECR 119.
If the outsourcing does qualify under this legislation, the business' employees transfer to the transferee by operation of law, unless the individual employee opposes the transfer (in which case the employee remains employed by the transferor and risks having his employment terminated due to redundancy) (section 6B, EPA).
The same principles apply as for an initial outsourcing (see above, Initial outsourcing).
On termination of an outsourcing there is no transfer by operation of law of employees from the transferee back to the transferor unless there is a transfer of a business from the transferee to the transferor (see above, Initial outsourcing).
When an undertaking, business or part of a business is transferred, the transferee assumes the transferor's rights and obligations to the employees. The transferee and the transferor are jointly and severally liable to the employees for financial obligations relating to the period before the transfer.
Generally, the transferor is responsible for benefits that employees have acquired under employee pension schemes during their employment with the transferor (including age, disability and survivors' benefits). However, any contractual obligations (as set out in an employment agreement) to pay premiums for the benefits transfer to the transferee with the other employment benefits included in the employment agreement (see below, Employee benefits).
However, under the Act on Securing Pension Obligations, the transferee can take over pension obligations that the employees have acquired during their term of service with the transferor, if the employees consent to the transfer. Without the employees' consent, the transferee can obtain an order from the County Administrative Board (the authority monitoring the labour market) for the transfer.
When an undertaking, business or part of a business is transferred, the transferee must continue to provide the transferred employees with all their previous employee benefits (see above, General terms).
Collective agreements. When considering the effect of a transfer of business on collective agreements, three different situations must be distinguished (section 28, Employment Co-Determination in the Workplace Act):
If the transferee but not the transferor is party to a collective agreement, then the transferee's collective agreement covers the transferred employees, and their terms of employment are amended and adjusted accordingly.
If the transferor but not the transferee is party to a collective agreement, the transferor's collective agreement binds the transferee after the transfer. However, this can be avoided if the transferor terminates the collective agreement more than 60 days before transferring the business. If the termination takes place on a later date, the collective agreement binds the transferee for 60 days after the date of termination. In any event, the transferee must apply the terms of employment included in the transferor's collective agreement to the transferred employees for one year after the business transfer.
If both the transferor and transferee are parties to collective agreements the transferee must apply the terms of employment contained in the transferor's collective agreement to the transferred employees for one year after the business transfer. After one year, the transferee's collective agreement will apply to the transferred employees.
The transferor, in practice, must provide the information to the transferee that is necessary for the transferee to assume the transferor's rights and obligations in relation to the employees, for example:
The individual employment contracts.
Information on applicable collective agreements (if any).
Information on union membership (if any).
Periods of employment.
However, there is no statutory obligation to provide any specific information.
If a collective agreement binds the transferor, it must start negotiations with the trade unions to which it is bound under the agreement.
If no collective agreement binds the transferor, it must start negotiations with all trade unions that have members affected by the outsourcing (that is, those who have a right to transfer their employment to the transferee).
During the negotiations, the parties discuss the employer's motives for the proposed outsourcing. The negotiations should start at an early stage of the employer's decision-making process and be finalised before the actual decision to outsource is made. It is important that the trade unions do not get the impression that the employer has already made its decision. However, when the negotiations have ended, the employer has the discretion to decide whether to outsource, even if the trade unions do not give their approval. However, if the trade unions believe that the outsourcing would lead to a situation where relevant legislative or collective agreement provisions are breached, they have a right to veto the outsourcing.
A transferee that regularly takes on employees in outsourcing assignments is not obliged by statute to start negotiations with trade unions over the transfer. However, if a collective agreement binds the transferee, it may have a contractual obligation to start negotiations.
Transferred employees retain their terms and conditions, and detrimental changes made as a result of the transfer are invalid unless the employees consent to them.
In addition, the terms of a collective agreement cannot be changed without the consent of the trade unions and employers' organisations that are parties to the agreement.
In practice, many transferees ask the transferred employees to enter into new employment agreements when they are transferred, and generally this does not cause any problems provided that the employment terms are substantially similar or better than the previous terms.
Dismissals can only be implemented before a transfer of business if they are due to redundancy because of financial, technical or organisational changes that are not connected to the transfer of business (EPA).
Therefore, the transferor cannot implement dismissals of employees if the actual motive for the dismissal is to structure the business in a certain way after the transfer. In addition, the Labour Court has stated that a transferor's dismissal of an employee can have no legal consequences for the transferee after the transfer. If the transferor dismisses employees due to redundancy, and the transferor subsequently outsources the business in question, the employees can argue that the employment is transferred to the transferee and the dismissals are not in relation to the transferee.
There are no specific restrictions on the transferee dismissing employees after the transfer of a business, other than general employment law restrictions.
If the outsourcing falls under the EPA, it is not possible to structure the employee arrangements as a secondment, because all employees that are part of the business have a right to transfer their employment to the transferee by operation of law (see Question 7, Initial outsourcing). However, a secondment is possible if the employees give their explicit consent to it (which also means that the employees waive their rights to transfer).
The Personal Data Act (PDA) regulates the processing of personal data. The PDA is based on and implements the provisions of Directive 95/46/EC on data protection.
In outsourcings, the customer often transfers personal data to the supplier, which the supplier then processes (for example, in relation to employees, customers and subcontractors).
Processing personal data is prohibited unless the registered person (the person whose data is being processed) has given consent to the process. There are, however several exceptions to this rule. For example, processing of personal data is allowed in situations where the commercial interest of the data controller (usually the customer) outweighs the infringement of the registered person's personal integrity. In addition, personal data can always be processed to fulfil duties under a contract, including employment contracts. The controller of personal data must independently ensure that the processing complies with the PDA.
In outsourcings where the supplier processes personal data on the customer's behalf, it is important to ensure that the supplier:
Cannot undertake any actions with the personal data other than those required to provide the services to the customer.
Always acts with the personal data as the customer instructs. Generally, the service supplier warrants that it will not process personal data in any way other than as the customer instructs.
The customer usually draws up the draft services specification, often with the assistance of a consultant in the field of the specific services to be purchased. The parties then negotiate the specification. When finalised, it is usually attached to and integrated within the services agreement. The services specification should harmonise with the other parts of the service agreement, for clarity.
The service levels and service credits scheme are typically appended to the service agreement. They should harmonise with the other parts of the service agreement, for clarity (see Question 15).
Charging methods used in a Swedish outsourcing are usually one or a combination of the following bases:
Fixed price.
Time and material.
Bonus/credits.
The method used depends on the type of outsourcing. If the services to be provided are standard services, the pricing is often made per unit. If the outsourcing is tailor-made (for example, business process services), a cost-plus method (costs with the addition of a margin) based on the number of employees can be used. For certain services, for example, telecommunications services, a pass-through principle is often applied and the pass-through cost (the internal cost for managing the service) is often added as a mark-up.
Generally, the service fee reduces with time, since the supplier will be expected to use its increased experience to provide the services more efficiently.
A bonus system may serve as an incentive for the supplier to provide the services more efficiently. There are many ways to construct a bonus system and the details depend on the charging principles and the services to be provided. One common method is to agree a default service level. If the service level that the supplier achieves exceeds the default service level, the supplier is entitled to a bonus that corresponds to the achieved service level. The agreement should also specify the credits to which the customer is entitled if the supplier also fails to meet the default service level.
Since outsourcing contracts usually span several years, the pricing mechanism should be flexible to deal with varying market prices. One method to do this is to use a price indexation clause, which should correspond to the relevant costs. In Sweden, official price and cost indexes published by the Agency for Official Statistics often serve as the basis for indexation clauses.
In addition, in relation to pricing and long-term service agreements, it is in the customer's interest to ensure that the:
Costs for the services are maintained at market level.
Services provided are of market quality.
Therefore, the customer typically has benchmarking rights to review both price and service levels at certain intervals during the term of the service contract. In certain cases, the customer may be entitled to a price reduction or quality improvement if it can be objectively assessed through benchmarking that either the:
Prices exceed the market prices by a certain margin.
Quality or service levels commonly applied on the market (if assessable) are stricter than those originally agreed by the parties.
However, in practice, these benchmarking rights are difficult to apply.
Under general law, reliefs available to the customer are:
An order to perform (if suitable).
Price reduction.
Damages.
Termination of the contract if the breach is material.
The services to be provided by the supplier are often critical to the customer's business. Therefore, the customer may have a legitimate interest in ensuring that the supplier maintains the necessary qualities to provide the services in accordance with the service level requirements.
To achieve this, the customer commonly has a right to audit the operation at certain intervals. A third party expert often conducts the audit. If any inconsistencies are found, top-level management will usually consider the matter before any strict legal measures are taken to correct the inconsistencies. The customer may also have step-in rights and be entitled to provide the services on behalf of the supplier and at the supplier's cost.
The most commonly used protections for deteriorating service performance, apart from the remedies available under general law (see Question 19) are:
Liquidated damages.
Service credits.
In addition, the parties often establish a steering group to deal with service issues, including performance. In the event of deteriorating performance, the steering group seeks to find the reasons for the deterioration and a mutually acceptable way of dealing with the problems. If the steering group fails to agree on a course of action, top-level management usually considers the matter before any strictly legal actions are taken.
An outsourcing transaction frequently involves a business transfer. Swedish law entitles the business' employees to retain their employment with the employer to which the business is transferred. Therefore, it is common that the transferor (in this case, the customer) warrants that no employees other than those specified will be entitled to employment with the transferee (in this case, the supplier). If this warranty is breached, the customer usually indemnifies the supplier.
In addition, the transferor and transferee of a business are mutually responsible for any debts to employees until the transfer is closed. Therefore, the supplier has an interest in including in the contract a warranty that no employee has any claims on the customer other than those specifically stated. Pensions are, however, excluded from this obligation.
Commonly, a licensee or transferor of software warrants that it is entitled to license or transfer the software. If this warranty is breached, the breaching party must indemnify the other party.
Swedish law does not impose any limitations on fitness for purpose and quality of service warranties. It is possible to use "as is" clauses (that is, the service is provided without warranties). However, general contract law states that the customer is entitled to expect that a service or goods should be of a quality that corresponds to the price, although this is optional, so the parties can agree otherwise in the contract.
Swedish law does not impose any maximum or minimum term on contracts. However, a contract cannot be perpetual, that is, for an indefinite term. A contract term should be specified to avoid uncertainty.
Swedish law does not regulate the length of notice period. In the rare event that the parties have failed to regulate such period in the contract, general law sets out that the notice period should be reasonable.
Unless the parties have agreed otherwise, a fundamental breach of contract entitles the other party to terminate the agreement. Termination does not disqualify the terminating party from also claiming damages and in practice this usually happens (see Question 19). A fundamental breach of contract can consist of either:
One significant breach.
A party continuously failing to comply with its obligations over time, even though each failure seen separately is not fundamental.
The parties are free to agree on termination rights. Usually, the customer includes rights to terminate an outsourcing contract for convenience at a certain cost, as the customer's strategy may change and require a different outsourcing model, or the outsourced operations may be returned to the customer for in-house production.
The services provided under the outsourcing contract are often fundamental to the customer's business, and it is often necessary that the supplier be provided with confidential business information to be able to provide the services to a sufficient standard. Therefore, if the supplier becomes controlled by a third party, the customer often has a legitimate interest in ending the relationship, particularly if that third party is a competitor or potential competitor of the customer.
There are no implied rights for the supplier to continue to use licensed IP rights post-termination. The parties can agree on this issue, provided that no third party's right is breached. (For further information on IP rights, see Questions 5, IP rights and licences, and 6, IP rights and licences.)
The parties agree on the customer's access to the supplier's know-how post-termination in the service contract. The customer often requires certain transitional assistance when the service contract is terminated. It is often convenient to include this obligation on the supplier in the service contract.
The parties can, in principle, exclude all liabilities, except liability for wilful misconduct. Therefore, liability for indirect and consequential damages can be excluded, unless due to wilful misconduct.
Contractual parties are free to agree a cap on liability. However, a court can view the cap as unreasonable and change it (although this is rare).
Transfers of assets to the supplier?
Transfers of employees to the supplier?
Value added tax (VAT) or the equivalent sales tax on the service being supplied?
Other significant tax issues?
A transfer of assets at market value triggers any deferred tax inherent in the assets (that is, if the market value is higher than the taxable value of the assets). Any gain arising on the customer is taxable at a flat rate of 28% (assuming that the transferor is a corporate entity).
Even if the assets are transferred at taxable value, the customer is taxed as if the assets had been sold at market value unless certain requirements are met. The most important requirements are that the:
Supplier must be taxable in Sweden.
Supplier must not have losses carried forward.
Assets must constitute a business division.
It is not acceptable for tax purposes to offset a low purchase price for the assets against a reduced price for services purchased from the supplier.
Transfers of employees do not give rise to any tax consequences. The fact that employees are transferred indicates that the transferred assets constitute a business division (see above, Transfers of assets to the supplier).
The transfer of assets to the supplier is exempt from VAT provided that the assets constitute a business division and that the supplier carries on a business subject to VAT.
Services that the supplier provides are usually subject to VAT. If the customer does not carry out business subject to VAT, and is unable to recover input VAT, this means that VAT on services that the supplier provides is a cost for the customer. Therefore, outsourcing by companies that are not subject to VAT can create additional costs and be more expensive than managing these functions internally.
There are no other significant tax issues that are specific to outsourcing.