01/09/2026
The contract price is not always the amount the seller receives.
In cross-border transactions, parties often devote considerable attention to the headline price, payment schedule and currency—yet give far less consideration to the tax provisions that may determine the transaction’s actual economics.
A well-drafted international contract should address, among other matters:
• Withholding tax: Is the payer required to deduct tax at source, and does a contractual gross-up apply?
• Tax treaty relief: Who is responsible for obtaining the necessary residence certificates, forms and supporting evidence—and what happens if relief is delayed or refused?
• VAT and indirect taxes: Is the price inclusive or exclusive of VAT, GST or similar charges? Which party bears the risk of an unexpected assessment?
• Permanent establishment: Could the scope of services, personnel presence or authority to negotiate contracts create a taxable presence in another jurisdiction?
• Currency and payment mechanics: Who carries the risk of exchange-rate movements, banking charges, payment restrictions or delays caused by compliance checks?
• Price adjustments and indemnities: Does the agreement provide a workable mechanism for reallocating costs if the anticipated tax treatment changes?
These points should not be treated as boilerplate. A tax clause can materially alter the value of a bargain, while an apparently minor inconsistency between the pricing, payment and tax provisions may lead to disputes, unexpected liabilities and cash-flow pressure.
The practical lesson is straightforward: legal, tax and finance teams should review the commercial model together—and do so before the principal terms are fixed.
In international contracting, effective risk allocation requires more than agreeing a price. It requires clarity as to what will be paid, what will be deducted, when funds will be received and who bears the cost if the assumptions prove incorrect.
This post is for general information only and does not constitute legal or tax advice.