The U.S. HIRE Act Explained: What Indian IT and Global Businesses Must Know (2025–26 Outlook)
A new bill in the U.S. Senate—the Halting International Relocation of Employment (HIRE) Act—is sending shockwaves through the global outsourcing industry. If passed, its proposed 25% excise tax could fundamentally reshape the cost-benefit analysis for U.S. companies using offshore services.
This guide breaks down what the Act means for Indian IT giants, Global Capability Centers (GCCs), and international businesses preparing for 2026.
1. What is the U.S. HIRE Act?
The HIRE Act is a bill introduced in the U.S. Senate by Senator Bernie Moreno (R-Ohio) in September 2025. While not yet law, its introduction signals a serious policy shift toward economic protectionism.
At its core, the Act seeks to:
- Impose a 25% excise tax on “outsourcing payments” made by U.S. persons to foreign entities.
- Define “outsourcing payments” broadly to include service fees, royalties, consulting charges, or any payment where the work benefits U.S. consumers.
- Deny U.S. companies the ability to deduct such payments as business expenses, drastically amplifying the effective cost.
- Channel tax revenues into a Domestic Workforce Fund to support apprenticeships and job creation in the U.S.
- Apply to payments made after December 31, 2025.
2. Who Will Be Directly Affected?
The tax applies to any U.S. entity paying a foreign entity for services. The impact is wide-ranging:
- Indian IT Service Providers: Major players like TCS, Infosys, Wipro, and Tech Mahindra contracting with U.S. clients.
- Global Capability Centers (GCCs): Captives in India that are subsidiaries of U.S. companies providing back-office or R&D support.
- Mid-size & Startup Firms: Companies providing SaaS support, data analytics, or BPO services from offshore locations.
- Knowledge Services: Consultancies and legal/accounting firms delivering services from abroad.
3. The "Double-Hit" of Excise Tax + Deduction Denial
Unlike income tax, which is levied on profits, an excise tax is a flat charge on the transaction itself. This makes it punitive.
Example: The Double-Hit
A U.S. insurance company pays an Indian IT vendor $10 million for claims-processing services. Under the HIRE Act:
- The IRS levies a $2.5 million (25%) excise tax on that payment.
- The U.S. company is also barred from deducting the $10M expense from its taxable income.
The Result: The U.S. company faces both an extra tax liability and a higher taxable income, making domestic hiring significantly more attractive.
4. What if Services are Provided Across Multiple Regions?
This is where the “apportionment rule” comes in. If a contract supports both U.S. and non-U.S. markets, the IRS requires the payment to be split based on the portion of benefit accruing to U.S. consumers.
The Challenge: Companies must prove this split with hard data (usage metrics, revenue allocations). Simply writing “30% non-U.S.” in a contract won’t be enough.
5. Why is This Significant for Indian IT?
India accounts for nearly 60% of the global IT outsourcing market to the U.S. The HIRE Act strikes at the core value proposition:
- Cost Competitiveness: Analysts estimate a 40–60% increase in effective outsourcing costs.
- Contract Velocity: Renewals may slow as clients wait for legislative clarity.
- Profit Margins: The financial model of Indian IT could be severely squeezed.
6. Impact on Global Capability Centers (GCCs)
Many multinationals operate GCCs in India for IT, finance, HR, or R&D. Under the HIRE Act, intra-group charges are classified as “outsourcing payments.”
Payments from a U.S. parent to its Indian subsidiary will trigger the excise tax. Treasury will scrutinize intermediary structures to prevent tax avoidance. GCCs can no longer assume that intra-group = safe.
7. Legal and Compliance Challenges
- Defining Benefit: Is an app developed in India but used globally "for U.S. consumers"? This will be a key contention point.
- Apportionment Disputes: Companies will need defensible allocation methods.
- Documentation: Expect new reporting forms and officer certifications.
- Treaty Relief: Unlikely to be creditable under existing tax treaties as it is an excise tax.
8. Possible Scenarios
- Full Enactment (Jan 2026): 25% tax implemented, causing significant disruption.
- Amended Enactment: Lower tax rate (10–15%) or phased rollout.
- Legislative Stall: Bill dies, but uncertainty affects renewals.
- Global Retaliation: WTO actions or reciprocal taxes by other nations.
9. How Companies Should Prepare (The Way Forward)
Proactive preparation is crucial. Companies should focus on five key areas:
- Contract Strategy: Insert change-in-law clauses and tax-sharing provisions.
- Delivery Diversification: Develop dual-shore pods and explore near-shoring to Mexico or Costa Rica.
- Compliance Readiness: Build frameworks for benefit allocation documentation.
- Board-Level Governance: Run financial simulations under multiple tax scenarios.
- Advocacy: Work with industry associations (NASSCOM) to lobby for amendments.
10. Final Word: A Strategic Inflection Point
The U.S. HIRE Act is not just a financial hurdle—it is a strategic inflection point. For Indian IT, it demands contract reengineering and delivery innovation. For global businesses, it signals a new age of protectionist taxation.
The path forward is clear: Companies that embed legal foresight into their contracts and diversify their delivery structures will mitigate the disruption and emerge as future-ready leaders.
Office of M S Sulthan Legal Associates
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