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Chris Niccolls

Will the Election Change Outsourcing?

By November 10, 2012

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Question 2

During the elections, there was a lot of talk from both candidates about "no more outsourcing." But what did they really say, and what does it mean for you? The answer to that question is not what you expect.

During a campaign complex issues are often condensed into soundbites, that make little sense when you look more closely. Outsourcing, offshoring and automation all got squashed into just "outsourcing." Neither candidate was talking about on-shore outsourcing, hiring an accounting firm to manage your payroll nor paying for a cloud service. The issue was about government subsidies for offshoring.

Government subsidies? What this meant was that if you opened a new office, the cost of opening that office is a business expense and therefore, a legitimate tax deduction. If you opened a center offshore, then that too would be a business expense. That's what President Obama sees as a loophole that needs to be closed. OK. But what if you didn't build a site, but instead worked with an outsourcer? That would be unaffected by the President's policy.

Furthermore, opening a business office in another country will continue to be a legitimate business expense, although I would assume that you would deduct those expenses against the taxes in the country where the center is located, not in the U.S. Still, in a global economy, the costs might be legitimately credited in both countries. If major corporations are taking tax deductions against US taxes, I'm guessing that it's more difficult than tholiticians believe to separate out business center costs from outsourcing center costs, if both operations are in the same location. Which is likely to be the case for large corporations?

To sum it all up, I'd say that President Obama's position may slightly reduce the incentives for a global corporation that wants to move work to one of their centers in another country. However, it does not apply to moving work around in the US, nor does it affect any work sent to a domestic business partner, an outsourcer or a Cloud based service. Outside of a small number of highly global firms, this looks like it's not much of a game changer.

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