# The HIRE Act Analysis -Financial Impact on US-India Cost Centric Entities Published: 18 Nov 2025 Author: Treelife Practice area: Finance Tags: HIRE Act, HIRE Act Analysis Source: https://treelife.in/finance/the-hire-act-analysis/ ## Summary - The HIRE Act was introduced in the US Senate on 06/10/2025 by Senator Bernie Moreno of Ohio, aimed at curbing the outsourcing of jobs by US companies to foreign service providers. - The Bill proposes a new Chapter 50B titled Outsourcing Payments under the US Internal Revenue Code, imposing an excise tax of 25% on each outsourcing payment. - An outsourcing payment is defined as any premium, fee, royalty, service charge or other payment made in the course of a trade or business to a foreign person for labour or services that benefit consumers located in the US, whether directly or indirectly. - Section 280I of the Bill denies any tax deduction for outsourcing payments, in addition to the 25% excise levy, compounding the tax cost for the paying US entity. - If enacted, the amendments would apply to outsourcing payments made after 31/12/2025. - The Bill establishes a Domestic Workforce Fund in the US Treasury, financed by the outsourcing tax and related penalties, to support workforce retraining and apprenticeship programmes in sectors affected by outsourcing. - Persons making outsourcing payments would be required to file returns disclosing these payments, with substantial penalties prescribed for failure to pay or report the tax correctly. - On an illustrative USD 100,000 payment by a Delaware-based US entity to an Indian back office provider, the 25% excise tax adds USD 25,000, and the loss of deductibility adds a further USD 21,000 in lost federal tax benefit, pushing the total effective cost increase to a range of 46% to 58% depending on the US client's state of domicile. - Indian IT and back office service providers are significantly exposed since IT services exports to the US account for roughly USD 224 billion, 62% of which comes from US clients per Nasscom estimates, and the Bill carries no exemption for related-party transactions, exposing captive cost-plus and flip structure arrangements as well. --- Blog Content Overview - [1 Decoding the financial impact on USA – India cost centre entities](#Decoding_the_financial_impact_on_USA_8211_India_cost_centre_entities) [1.1 Background](#Background) - [1.2 What the Bill says:](#What_the_Bill_says) - [1.3 What’s the current status?](#What8217s_the_current_status) - [1.4 What does it mean for Indian back office service providers?](#What_does_it_mean_for_Indian_back_office_service_providers) - [1.5 Illustrative Computation – Impact on a Delaware-Based U.S. Entity](#Illustrative_Computation_Impact_on_a_Delaware-Based_US_Entity) - [1.6 Possible Alternatives to fund the India Co](#Possible_Alternatives_to_fund_the_India_Co) ## **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](#a123db93-a9a9-4500-85e6-f7f2ee7c121f) ### **What the Bill says:** Under the Bill[2](#74597bac-6323-4b03-8664-43511501aff8), 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 Nasscom[3](#dbb7ef60-4d22-41c6-9f1a-9b9dec2aac32).  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 provider100,000Contracted service feeAdd: 25 % Excise Tax (HIRE Act)25,000Payable by the U.S. entity on the outsourcing payment**Subtotal (cash outflow)****125,000**Service fee including excise dutyAdd: Tax cost from non-deductibility – Federal21,000U.S. federal corporate rate ≈ 21 % → lost deduction on 100,000Add: Tax cost from non-deductibility – State (Delaware)0Assuming no business in Delaware, no corporate income tax in Delaware has been considered**Total effective cost****≈ 146,000**Combined impact of excise + lost deductionsEffective 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] [New Moreno Bill Would Crack Down on Outsourcing, Fund American Worker](https://www.moreno.senate.gov/press-releases/new-moreno-bill-would-crack-down-on-outsourcing-fund-american-workers/) [↩︎](#a123db93-a9a9-4500-85e6-f7f2ee7c121f-link) - [2]  [https://www.moreno.senate.gov/wp-content/uploads/2025/09/The-HIRE-Act.pdf](https://www.moreno.senate.gov/wp-content/uploads/2025/09/The-HIRE-Act.pdf) [↩︎](#74597bac-6323-4b03-8664-43511501aff8-link) - [3]  [Caught in the HIRE Act, Indian IT may lose its cost advantage – The Economic Times](https://economictimes.indiatimes.com/tech/information-tech/caught-in-the-hire-act-indian-it-may-lose-its-cost-advantage/articleshow/123772657.cms?from=mdr) [↩︎](#dbb7ef60-4d22-41c6-9f1a-9b9dec2aac32-link) ### Related posts: - [What Is An Income Statement?](https://treelife.in/finance/what-is-an-income-statement/) - [Private Equity vs Venture Capital | Top 13 Differences to Know](https://treelife.in/finance/private-equity-pe-vs-venture-capital-vc/) - [ESOP FAQ](https://treelife.in/finance/esop-faq/) - [Understanding SaaS or Software-as-a-Service](https://treelife.in/finance/understanding-saas-or-software-as-a-service/) --- This is informational content from Treelife. 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