A K&B Global perspective for CFOs, CIOs, CPOs, and GBS leaders
The Halting International Relocation of Employment (HIRE) Act would levy a 25% excise tax on “outsourcing payments” a U.S. taxpayer makes to a foreign person for services whose benefit is directed to U.S. consumers and deny a tax deduction for those payments. Treasury must define apportionment for “mixed” services and issue anti-avoidance rules. The bill is introduced (not enacted); if passed as drafted, it would apply to payments after Dec 31, 2025.
Two important clarifications: (1) There is no nearshore exemption—Mexico/Canada are still “foreign persons”; (2) entities organized under the laws of a U.S. possession (e.g., Puerto Rico) are not “foreign persons” under the draft definitions.
Why Act Now?
If enacted, the after-tax cost of U.S.-benefiting offshore services rises sharply; sector watchers expect material pressure on offshore IT/BPM economics. Also, deferring action means paying a premium later. Early movers lock in domestic capacity at today’s prices and industrialize automation months ahead— shrinking what might be taxed and showing clear, documented savings when the bill is passed.
What the bill says (in plain English)
- 25% excise on outsourcing payments to a foreign person if the services benefit U.S. consumers (directly or indirectly)
- Mixed payments taxed pro-rata to the U.S. share; Treasury to set mechanics and documentation
- Non-deductible: both the excise and the underlying outsourcing payment
- Scope of “foreign person” excludes entities organized under U.S. possessions’ laws
- Timing: applies to payments after 12/31/2025 (if enacted); Treasury to issue anti-avoidance guidance
Cost math (illustrative)
Let P = payment to a foreign provider; t = 21% federal corporate tax rate.
- Today: after-tax ≈ 0.79P (deductible)
- Under HIRE (draft): 1.25P (25% excise; non-deductible payment)
- Illustratively, 1.25P / 0.79P ≈ +58% vs today (federal-only; apportionment and state taxes will vary outcomes)
Automation/AI: the fastest lever to blunt exposure
Focus on reducing labor intensity in U.S.-benefiting workflows so less spend is hit by the excise—while improving quality and speed.
High-confidence targets (measurable in 6–12 months):
- Tier-1 service: AI triage/deflection and agent-assist → ticket compression, faster handle times.
- QA & releases: regression automation, change-impact checks → fewer manual hours, fewer escaped defects, higher on-time releases.
- Back-office GBS (AP/AR/order/HR): doc-AI + rules/bots → higher STP%, lower exception rates.
- AIOps: noise suppression/auto-remediation → lower MTTR, fewer tickets.
- Evidence by design: auto-tag tickets/time/user-geo to generate apportionment evidence for mixed services.
- Map exposure: Build an exposure ledger of all foreign-party services tagged by beneficiary market; flag “mixed” services and define apportionment evidence.
- Fix contract hygiene: Insert market-based scoping, apportionment methods, change-in-law triggers, and monthly documentation requirements.
- Design operating options: Evaluate U.S./PR pods for U.S.-benefiting work; keep global work offshore where apportionment supports it.
- Launch automation sprint: Select 3–5 use cases (Tier-1, regression, AP/AR) with <90-day payback and clean evidence.
- Stand up governance: A Value & Compliance Tracker that reports excise exposure, lost deductibility, SLAs/XLAs, evidence coverage %, and excise avoided ($) each month.
How K&B Global can help
- Exposure map & scenario model (incl. apportionment methods)
- Contract Review to understand impacts of the change and proposed new language to limit impact to you
- Operating model blueprint (leveraging vendors in lower cost US locations or any locations exempted)
- Assessment of automation quick-wins
- Value & Compliance Tracker + board-ready brief
✅ Next Steps
The HIRE Act may still be a draft bill, but the implications are too significant to wait. Forward-looking leaders are already mapping exposure, rethinking contracts, and launching automation to minimize risk.
If you’d like to understand how these changes could affect your organization and what options you have to mitigate them, Let’s -
K&B Global partners with CFOs, CIOs, CPOs, and GBS leaders to prepare for legislation like the HIRE Act and turn disruption into advantage.