You're going to love this one. According to Ernst & Young, Obama's majorly hyped tax incentive he's planning on plugging, which gives an incentive to offshore outsource your job, all of those offshore outsourcing companies will not be affected in the least. Nice huh? All U.S. corporations have to do is create a separate business entity and then contract with that entity to offshore outsource your job.
Can you spell LOOPHOLE?
Domestic business process outsourcing (BPO) units providing services to the American companies will not be affected by the proposed decision of US President Barack Obama to discourage outsourcing by imposing taxes, said global consultancy firm Ernst & young.
"The companies which outsource business to third parties will not be impacted (by the proposed tax move)," said Ernst & Young Tax Director Rajendra Nayak. However, he added, the US companies which outsource services from their own arms including wholly-owned subsidiaries might face the heat of Obama's tax proposal, which is yet to be approved by the US Congress.
According to the E&Y expert, the captive outsourcing units of Americans will be impacted by the proposal as it would be required to adhere to the regulations of the home country. On the other hand, the domestic Business Process Outsourcing units provide services to companies from different countries, including America, will primarily be governed by Indian laws and may escape the impact of changes in the US tax laws, Nayak said.
The step, he said, is directed at encouraging the US companies to do business in the US. However, the success of this objective would depend on comparative advantage that locations like India provide over the loss of revenue because of taxes back home in the US, sources in the Central Board of Direct Taxes (CBDT) said. The US companies would stop giving business to their subsidiaries in India only after evaluating if the benefit they have in India based on lower production costs in the country is higher than the tax to be borne in the US itself, they said.