The HIRE Act Analysis -Financial Impact on US-India Cost Centric Entities

Decoding the financial impact on USA – India cost centre entities

Background

The Halting International Relocation of Employment (HIRE) Act was introduced in the U.S. Senate on October 6, 2025 by Senator Bernie Moreno (R–Ohio). According to Senator Moreno’s official statement, the bill was introduced to address decades of “globalist politicians and C-Suite executives” shipping “good-paying jobs overseas in pursuit of slave wages and immense profits.”¹

What the Bill says:

Under the Bill², The U.S. Internal Revenue Code would be amended to create a new Chapter 50B  “Outsourcing Payments.”  The key operative provisions, discussed below, introduce both an excise levy and a denial of tax deductions:

Outsourcing payment defined – The term ‘outsourcing payment’ has been defined as follows:

“The term ‘outsourcing payment’ means any premium, fee, royalty, service charge, or other payment made— 

(A) in the course of a trade or business,

(B) to a foreign person, and

(C) with respect to labor or services the benefit of which is directed, directly or indirectly, to consumers located in the United States”

Imposition of tax – There is hereby imposed on each outsourcing payment a tax equal to 25% of the amount of such payment.

Additional no tax deduction – Section 280I provides that no deduction shall be allowed for such outsourcing payment

Domestic Workforce Fund: The bill creates a Domestic Workforce Fund in the U.S. Treasury, financed by the 25% outsourcing tax and related penalties which will support workforce development, retraining and apprenticeship programs to boost domestic employment in sectors affected by outsourcing.

Effective date: The amendments made by this Act shall apply to payments made after December 31, 2025.

Reporting and Penalties: The bill requires persons making such outsourcing payments to file returns providing details of these payments, with substantial penalties prescribed for failure to pay or report the tax correctly.

Conclusion: The HIRE Act proposes a 25% excise tax on payments by U.S. companies to foreign service providers benefiting U.S. customers, with no deduction allowed for such payments leading to additional tax cost of upto 58%.

What’s the current status?

As of the current date, the bill is merely proposed legislation and has not proceeded beyond the introduction stage.

While the Bill may still take time – or face dilution – it clearly signals a shift in the U.S. policy environment and reinforces a clear policy direction: offshore cost arbitrage seems under political pressure. 

What does it mean for Indian back office service providers?

IT services, including hardware, account for $224 billion of export revenue, 62% of which comes from the U.S., according to estimates by Nasscom³. 

A combination of the 25% outsourcing tax and the loss of deductibility (resulting in 21% federal tax plus applicable state taxes) would raise the U.S. client’s effective outsourcing cost in the range of 46% to 58% depending on the state in which the U.S. client is domiciled.

In the absence of any exemption for related-party transactions means even intra-group service payments may be caught and any captive cost-plus models and “flip” structures (U.S. hold-co with Indian delivery arm) would be also be exposed.

Independent service providers and consulting firms working with U.S. clients could face price renegotiations or slower new deal flow. 

Illustrative Computation – Impact on a Delaware-Based U.S. Entity

Assume a U.S. company incorporated in Delaware engages an Indian firm for back-office support and pays USD 100,000 for services benefiting U.S. customers.

Particulars	Amount (USD)	Remarks
Base payment to Indian provider	100,000	Contracted service fee
Add: 25 % Excise Tax (HIRE Act)	25,000	Payable by the U.S. entity on the outsourcing payment
Subtotal (cash outflow)	125,000	Service fee including excise duty
Add: Tax cost from non-deductibility – Federal	21,000	U.S. federal corporate rate ≈ 21 % → lost deduction on 100,000
Add: Tax cost from non-deductibility – State (Delaware)	0	Assuming no business in Delaware, no corporate income tax in Delaware has been considered
Total effective cost	≈ 146,000	Combined impact of excise + lost deductions
Effective cost increase over base	≈ 46 %	Compared to USD 100,000 base cost

Result: A service engagement costing USD 100,000 today could cost nearly USD 147,000 once the HIRE Act applies.

Possible Alternatives to fund the India Co

Businesses might consider funding captive entities as equity investments or evaluating FDI or loan-based funding (ECB) as temporary alternatives to service fee flows. However, these approaches must be carefully assessed for Transfer Pricing and FEMA compliance, ensuring that transactions continue to reflect arm’s length principles and genuine commercial substance.

Disclaimer:
This note has been prepared by Treelife for general informational purposes only. It should not be treated as legal, tax, or investment advice. Readers are advised to seek professional guidance tailored to their specific circumstances.

References:

1.  [1] New Moreno Bill Would Crack Down on Outsourcing, Fund American Worker
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2. [2]  https://www.moreno.senate.gov/wp-content/uploads/2025/09/The-HIRE-Act.pdf ↩︎
3. [3]  Caught in the HIRE Act, Indian IT may lose its cost advantage – The Economic Times ↩︎