Congress wants to tax outsourcing of services—but practically speaking, it may end up taxing the cost of staying competitive. That’s the core flaw with the Halting International Relocation of Employment Act, or HIRE Act, a proposal to levy a 25% excise tax on payments made by US companies to foreign entities that provide services to US consumers.
The bill aims to discourage offshoring, fund retraining, and encourage companies to hire domestically. But it’s functionally a service-sector tariff dressed in Apollo Creed shorts. Without an immediate source of fully trained domestic workers, the tax would drive up information technology costs, set back modernization efforts, and hurt corporate balance sheets.
The legislation also denies tax deductions for outsourcing payments. The message is clear: US companies relying on foreign services must be ready to pay for the privilege.
The immediate effect would be higher costs of doing business in the digital economy, rather than job creation. Companies would need to hike prices, cut budgets (including labor costs), or delay investment in new developments.
Under the HIRE Act, inflationary pressures likely would hit small and midsized firms first and hardest, as they’re the least likely to have domestic hiring capacity to replace offshore talent. A small software development company that outsources programming to India probably wouldn’t be able to hire a half dozen domestic developers, but they also may be in no position to pass a 25% cost increase on to their customers. That’s a recipe for disaster.
Protecting workers is a noble endeavor, but domestic training must precede any attempt to penalize global hiring. Otherwise, you’re not reshoring jobs—you’re just taxing an inescapable economic reality.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined conservation easements, why location is important for borderless workers, and more.
The Exchange—It’s where great ideas on tax and accounting intersect.
Insights
Tax Court Creates Steep Hurdle for Valuating Donated Easements
McLaughlin & Stern’s John Barrie says a July bench opinion from a US Tax Court judge may complicate efforts to donate property for conservation easement purposes.
Multinationals Operating in the EU Can’t Ignore ESG Obligations
KPMG’s Ruth Guerra and Weronika Zurawska look at how multinationals should respond to the EU’s rapidly evolving regulatory landscape on environmental, social, and governance issues.
Indian Ruling Aims to Provide Tax Certainty for Aircraft Lessors
AZB & Partners’ Aditya Singh Chandel and Akshat Jain explain the recent ruling by the Mumbai Tax Tribunal and say it reinforces India’s commitment to upholding international treaty obligations.
Why Location Matters for Borderless Workers and Value-Added Tax
Stripe’s Aleksandra Bal explains that value-added tax rules are very important for businesses with employees on secondment and that it’s essential for tax managers to be aware of the implications.
Mayo Clinic Tax Win Poised to Help Groups With Complex Missions
Goodwin’s Carrie Garber Siegrist says the Mayo Clinic v. US ruling may signal a shift in how courts approach certain unrelated business income tax rules.
Navigating Global Tax Uncertainty Means Returning to Core Values
Taxpayers and tax authorities must prioritize transparency and competitiveness to reinforce fiscal stability in an uncertain international tax policy environment.
Spanish Supreme Court Cash Pooling Ruling Raises Stakes for MNEs
DLA Piper experts explain how the recent Supreme Court ruling in Spain marks a turning point for multinational treasury management, establishing that cash pooling policies must reflect economic reality.
Canada’s Tariff Remission ‘Bait and Switch’ Is Another Misstep
Canada’s decision not to remit tariff surtaxes paid between March and August is a policy blunder that could be challenged in courts.
Texas Cannabis Groups Need Foresight to Gain Coveted License
Cannabis businesses in Texas looking to gain medical licenses need to thoroughly plan out their budgets and figure out how to expand operations.
Columnist Corner
The survival of Norway’s wealth tax in its national election shows that equitable taxation remains politically salient despite diminishing wealth tax policies across Europe, Andrew Leahey says in his latest Technically Speaking column.
The US’ lack of a sovereign wealth fund and widening inequity make wealth taxation worth considering, Andrew argues, writing that “if fairness can carry the day in Norway, even against billionaires’ threats and a populist surge, there is no excuse for US policymakers to keep ducking the issue.” Read More
News Roundup
IRS Business Chief Sues IRS Alleging Retaliation to Oust Her
A top IRS leader put on administrative leave for her unspecified, alleged conduct against Republicans is suing the IRS and the Treasury Department, claiming they unlawfully violated her privacy.
Baker McKenzie Pulled Into Probe of Puerto Rico Tax Shelter
The subpoenas signal a new phase in an ongoing investigation by the Justice Department and the Internal Revenue Service into Americans sheltering potentially billions of dollars from taxes under incentives that lure wealthy people to Puerto Rico with promises of total or near total tax exemptions.
No Tax on Tips Rule for Influencers, Bellhops Floated by IRS
Workers in a wide range of industries—from bellhops to influencers—will be eligible for a new tax break on tips the IRS outlined Friday.
Pharma Industry Weighs Where to Hold Its IP Amid Tariff Turmoil
President Donald Trump’s tariff policies are prompting large pharmaceutical companies to promise investments in US manufacturing, but it might let them keep the crown jewels—their intellectual property—overseas.
Tax Management International Journal
How Technology Is Transforming Transfer Pricing Compliance
As scrutiny from tax authorities intensifies and transparency requirements grow, technology should be utilized and integrated into transfer pricing compliance procedures, say Grant Thornton practitioners.
Career Moves
Cadwalader Recruits Katten Private Wealth Partner Matthew Sperry
Matthew Sperry joined Cadwalader as a partner in its private wealth practice in London and New York, the firm announced Tuesday.
Baker McKenzie Adds Trowbridge to Tax Practice in London Office
Sam Trowbridge will join the tax practice at Baker McKenzie and will be a partner in the London office, the firm announced Tuesday.
SouthBank Legal Adds Former DOJ Tax Leader Ugolini as Partner
Francesca Ugolini joined SouthBank Legal as a partner in its tax controversy practice in Washington, DC, the firm announced Friday.
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