Key Takeaways:
- The HIRE Act would impose a steep excise tax on payments to foreign entities for services that directly or indirectly benefit U.S. consumers, potentially impacting call centers, shared services, and global outsourcing models.
- In addition to disallowing related tax deductions, the bill grants Treasury the authority to enforce compliance and prevent avoidance through transfer pricing and intermediary structures.
- While the bill’s near-term prospects are unclear, it signals a shift toward more aggressive tax treatment of offshoring, so middle-market companies should proactively assess their exposure and consider realigning global service delivery strategies.
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On September 5, Senator Bernie Moreno (R-OH) introduced the Halting International Relocation of Employment (HIRE) Act—a bill that, if enacted, would impose significant tax consequences on U.S. companies outsourcing services overseas that benefit U.S. consumers.
The legislation proposes a 25% excise tax under new Section 5000E on payments made to foreign entities for services—such as call center operations or shared service functions—when those services are directly or indirectly directed to U.S. consumers. In addition to the excise tax, the bill seeks to disallow related deductions, further increasing the tax burden of offshoring activity.
What’s Included—and What’s Not Defined
The bill broadly defines a “foreign person” as any non-U.S. individual or entity, with limited exceptions for U.S. possessions. However, it lacks clear definitions for what qualifies as services “benefiting U.S. consumers,” creating uncertainty around compliance thresholds. This vagueness may complicate implementation and leave taxpayers like you needing significant regulatory guidance, particularly in industries that rely heavily on global delivery models.
Additionally, the bill would:
- Authorize the Treasury to issue anti-abuse guidance to address transfer pricing arrangements, related-party transactions, and other intermediary structures.
- Require information reporting to improve enforcement.
- Allocate tax revenue to a newly established Domestic Workforce Support Fund.
Legislative Outlook: Unclear but Worth Monitoring
While the bill was blocked from immediate floor consideration and lacks bipartisan sponsorship, it’s part of a broader trend in Washington: increasing scrutiny of cross-border service arrangements and job relocation. Though unlikely to advance in the near term, the proposal signals a policy direction that middle-market companies—particularly those with global footprints—should track closely.
MGO Insights: What Businesses Should Consider
Even without imminent passage, this bill may influence future tax policy discussions, especially as lawmakers seek new revenue sources. Middle-market companies in healthcare, technology, financial services, and customer-centric industries should evaluate:
- The structure of their global delivery models.
- The tax impact of offshoring versus domestic operations.
- Their ability to pivot or localize functions in response to potential tax law changes.
As always, proactive planning is key. MGO’s tax policy specialists and international advisory team are monitoring developments and available to help businesses assess exposure, model potential outcomes, and develop mitigation strategies.
Proactive Planning for a New Era of International Tax Scrutiny
Navigating evolving international tax landscapes requires more than compliance; it demands strategic foresight. MGO’s International Tax team is closely tracking the HIRE Act and similar legislative proposals that may impact cross-border service models.
We help middle-market companies across industries—from technology and life sciences to financial services and manufacturing—evaluate their outsourcing strategies through a tax lens, model potential exposure scenarios, and prepare mitigation plans. Whether you need guidance on transfer pricing, global service structuring, or tax deduction planning, we bring clarity to complexity and position your business to respond with agility and confidence. Contact us to learn more.