New Proposed U.S. Excise Tax on Certain U.S. “Outsourcing” Payments

by & · October 29, 2025

In September, a new bill was introduced in the U.S. Senate entitled the “Halting International Relocation of Employment Act” or “HIRE Act” (the “Bill”). Generally, the Bill proposes a 25% excise tax on certain outsourcing payments made by U.S. persons or entities to non-U.S. persons or entities. The Bill, if enacted, could have a significant impact on Canadian companies that are currently engaged in certain cross-border arrangements with U.S. companies, including subsidiaries or affiliates.

In general, the Bill would impose a 25% excise tax on any premium, fee, royalty, service charge, or other payment made in the course of a trade or business by a U.S. person to any non-U.S. person if the benefit of the labor or services is directly or indirectly directed to consumers located in the United States. In addition, the Bill would also generally prohibit U.S. companies from deducting any such outsourcing payments in determining their U.S. federal taxable income. The Bill provides little specific guidance as to the meaning of these terms. Accordingly, if this legislation were to be adopted into law, the scope of payments or activities that might otherwise be subject to the excise tax and deduction denial remains uncertain. However, based on the language used in the draft proposal, intercompany and affiliate licensing or service arrangements appear likely to be “within scope”.

To date, the sponsor of the Bill has been unsuccessful in bringing the Bill up for debate before the full U.S. Senate due, in part, to the current government shutdown. It is unclear whether and to what extent the Bill may gain support in the future. We will continue to monitor this proposed legislation. Any Canadian company that is currently engaged in, or is considering, a cross-border licensing, service or similar arrangement with a U.S. company (including subsidiaries or affiliates) should monitor the progress of the Bill and consider the potential impact its passage could have on those arrangements.

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Kendall R. Fisher

Kendall’s practice focuses on U.S. federal tax issues related to domestic and cross-border mergers, acquisitions and debt and equity financings, as well as inbound and outbound tax planning related to multinational structures, tax treaties, controlled foreign corporation issues, passive foreign investment company issues, the Foreign Account Tax Compliance Act (FATCA), and the Foreign Investment in Real Property Tax Act (FIRPTA). His practice also includes domestic business formations, joint ventures, acquisitions, combinations, sales, and general tax planning.

Ian E. Brown

As an Associate in Dorsey’s Tax, Trusts and Estates group, Ian advises clients on a wide range of tax matters. His practice focuses on U.S. federal income tax issues related to inbound and outbound tax planning for multinational structures, tax treaties, controlled foreign corporations, passive foreign investment companies, entity formations, reorganizations and restructuring, debt and equity financing, and mergers and acquisitions.

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