The DevonThink Office plugin for Safari provides a “format by instapaper” option when saving a website. Will there be a call out to an external instapaper service when this option is selected?
No, the Instapaper option in the DEVONthink clip extension uses Instapaper’s (mostly) text view in the capture. You’ll need to also install the Instapaper extension if you also want to save the page to Instapaper.
Greg, thanks for the reply.
My concern is more that if I have (highly) confidential data I cannot use any external service. Both the transport to the server and the server itself are not under my control. That is why both these element are not usable. Only if this instapaper extention is implemented to happen 100% locally, can I consider this feature as acceptable.
Since the confidentiality issue is with respect to your data, I suggest running a service such as Little Snitch to verify for yourself what happens when you use the Instapaper feature - network messages, addresses etc… I wouldn’t base my contract and/or policy compliance on the word of forum posters. Including me 
As Greg noted, your data would not be saved to Instapaper unless you install the Instapaper extension. I don’t know whether or not your clipping has to be routed to an Instapaper server for formatting if you use the Instapaper Formatting option of Clip to DEVONthink.
If you use Safari, DEVONagent Pro or DEVONthink’s browser there are three options to clip the selected portion of a Web page to DEVONthink that are completely local, using Services. The keyboard shortcut Command-) captures as rich text, preserving text formatting, images, links, tables and lists. The keyboard shortcut captures those same features as WebArchive, and in addition preserves the layout of the selection. The keyboard shortcut Command-( captures the selection as plain text, so that formatting, clickable links, and images are not preserved. All of these captures maintain the page URL in the captured document’s Info panel. (Neither Firefox nor Chrome can capture rich text or WebArchive using Services.)
My usual capture mode is as rich text, selecting the desired portion of an HTML page from the bottom up, then pressing Command-). Comment: Many pages display extraneous images and text not related to the desired content. Excluding extraneous content results in smaller captured files and, importantly, can improve the efficiency of searches and the artificial intelligence features of DEVONthink such as Classify and See Also.
Safari provides the Reader button for display of many pages. Clicking that button will provide an alternative display of an article as rich text. Press Command-A to select all of that display and press Command-) to capture as rich text. (Some data such as publication date and author may or may not be captured via Reader.) Is this strictly local? I’m not certain.
Another strictly local capture method is to print the page as PDF. With the page displayed, press Command-P to invoke the Print panel. Click on the PDF button, then on the option to Save PDF to DEVONthink.
In addition to the recommendations already posted, one could just uncheck the ‘Reformat with Instapaper’ if data security is a concern. The value of the Instapaper option is on web pages that have a lot of extraneous data, such as news sites, etc. I would expect that the pages with sensitive data that you are archiving do not have that problem.