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A proposed tax bill designed to discourage U.S. companies from outsourcing labor and services offshore has attracted attention among many firms that use such services, despite doubts about whether there is a viable path forward for the legislation in the near term.
The Halting International Relocation of Employment (HIRE) Act, circulated in draft form by Sen. Bernie Moreno (R-Ohio) last month but yet to be formally introduced, would impose a 25% excise tax on payments made to foreign persons for services that benefit U.S. consumers. The bill also would make any offshoring payments —and the excise tax payment itself — non-deductible and would increase the penalty for failure to pay.
In introducing the bill, Moreno said his goal is to disincentivize U.S. companies from “chasing cheaper wages and hiring foreign workers.”
“If companies want to hire foreign workers instead of Americans, my bill will hit them where it hurts: their pocketbooks,” he said.
The proposal would impose the new excise tax on any “premium, fee, royalty, service charge or other payment” to a foreign person for “labor or services the benefit of which is directed, directly or indirectly, to consumers located in the United States.” This broad language has the potential to impact a large number of firms using offshore services for anything from call centers or shared services to highly skilled professionals.
Moreno is a first-term senator who is not a member of the Senate Finance Committee, which has jurisdiction over tax policy, and there is not a likely legislative vehicle for the provision in the immediate future. However, concerns about the offshoring of jobs can cross party lines; the bill’s denial of deduction was once a perennial Democratic proposal. There is not a revenue estimate for the bill, but it would almost certainly raise money at a time when the U.S. federal debt is a concern to many.
Grant Thornton Insight:
If enacted, this bill would make offshore services used by U.S. firms significantly more expensive — though potentially still not as expensive as onshoring those same services, in some cases. Companies would need to determine the impact on their margins and related business considerations. While the bill is not moving in Congress at this time, firms would be wise to assess their exposure to offshore service payments and model financial impact under the proposed excise tax.
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