US Senate tables another law to curb offshoring

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Bangalore: Yet another legislation targeting offshoring has been introduced in the US Senate on Wednesday but the ‘Creating American Jobs and Ending Offshoring Act’ appears to be targeting not just IT outsourcing but also the bulk of manufacturing offshoring that happens in China.

US Senate majority leader Harry Reid of Nevada, a Democrat leader, introduced the legislation which seeks to provide tax breaks to firms that hire local workers and replace offshore workers. The Act also promises to end subsidies for plant closing costs.

The legislation has been co-sponsored by many members of the Democratic Party but notably includes Charles Schumer of New York. Schumer, in August, had called Indian IT exporter Infosys Technologies “chop shop”, which means a place where stolen cars are dismantled and the parts sold. The senator had also pushed the US Border Security Bill, which sought to beef up security along porous borders by hiking visa fees.

US media reports quoted Schumer saying he would like to see a vote on the Creating American Jobs and Ending Offshoring Act before the November elections. The Act provides businesses with relief from the employer share of the social security payroll tax on salaries paid to new employees in the US. However, businesses need to certify that the local employee has replaced an overseas employee. This tax relief is available for 24 months, beginning September 22, 2010.

The Act also eliminates subsidies and tax breaks to companies that transfer facilities and production offshore. Currently, US corporations can defer paying US tax on income earned by their foreign subsidiaries until and unless the income is ploughed back to the US. Many Democrats had been threatening to “close this loophole”.

According to Kumar R Parakala, global head of sourcing advisory, KPMG, what needs to be pointed out to the US government is that Indian IT-BPO firms are not only providing outsourcing services but also employing US talent by setting-up operations in the US. “All top Indian IT-BPO firms have onshore operations in the US. On the bilateral front, India has outsourced multi-million dollar defence work to US multinationals,” he said.

“Such moves creates a different outsourcing environment, with greater stress on shore and lesser on off-shore presence. However, it creates opportunities for all those Indian companies who have on-shore presence to increase their visibility. Now, Indian service providers should create business models to particularly cater to government...