Philippine BPOs of US-based firms may be taxed twice under Obama proposal

MANILA, Philippines - Philippine units of US-based companies such as Accenture and IBM should maintain the value of its high-quality outsourcing work, a move seen to neutralize “anti-outsourcing" tax measures announced by the United States.

This recommendation was issued ICT research think tank XMG Global as US President Barack Obama fulfilled a campaign promise to charge higher taxes on American firms that have offshore operations.

Under Obama’s tax plan, American business process outsourcing (BPO) companies are required to pay taxes twice – once for the locality in which it operates and the other for revenues earned abroad even if these haven’t been repatriated.

Obama’s proposal will “further dampen and squeeze net profitability levels [of US firms], but not to the point that it becomes the tipping point for repatriating work back to the US or putting the brakes to offshore," XMG, a technology research firm headquartered in the Philippines and Canada, said.

Even as offshoring has become an issue under the Obama administration, this business trend “will not go away" and “cannot effectively be outlawed," XMG chief analyst Lauro Vives and research analyst Arthur Sevilla said in joint statement.

“The US scenario of ongoing shortages of highly skilled labor for IT and BPO, an aging workforce and the unavoidable high cost of operating in the US continue to make the offshoring a viable business strategy," they stated.

XMG labeled the Obama tax plan as standing “on dubious grounds" and will “have only a nominal impact at the end.

“Unfortunately, those affected unconstructively will be small to medium companies whose offshoring game plan continues to contribute positively to the corporate bottom-line. In turn, this has a deleterious effect in making progress in improving the US economy," the analyst firm said.

The debate on the merits of outsourcing “are long on rhetoric and short on good ideas about how to realistically and better address this critical business issue," the XMG said.

It stressed that rejuvenating domestic employment would be futile if the Obama administration cannot holistically develop other programs aimed at realistically re-skilling the aging American workforce and creating an even-level playing field for global trade.

“It would be shameful to forget that the US have become the world’s largest economy and solidified its national competitiveness on the back of globalization and offshoring," XMG pointed out.

Assuming that the tax plan takes wings and is vigilantly enforced, XMG said its research indicated the emergence of a new genre of vendors and captives who will ensure operating offshore still remain profitable.

Offshoring, it added, will continue to become a business strategy as US companies realize they cannot mortgage near-term tax savings for potential long-term losses from marginalized globalization plans.

“Anti-offshore and related protectionist activities have not significantly affected offshoring, and we at XMG Global do not expect them to do so in the near term. This broader trend is not changing anytime soon," the research company said. - GMANews.TV