US companies outsourcing work are worried over ‘Trump tax’. Here’s why

US companies that outsource work to India are worried as President Donald Trump may slap a 20% tax on companies off-shoring their businesses.

As per reports, these companies are tweaking contracts and several clauses due to the possible new tax regime. If this goes through, it will get expensive for US companies to off-shore work.

"The worry for several companies that are outsourcing work is that, going ahead, they may face additional taxes of around 20% if they are offshoring their business under new laws that may be introduced within a year or so,” Girish Vanvari, national head, tax, at KPMG India, told ET.

Many companies have begun adding new clauses in case new taxation comes into effect.

"Some of the bigger clients have been seeking to introduce a clause that protect them in case of a new taxation and pricing would be renegotiated. In some cases, even Indian companies want to introduce caveats around deliverables and time frame, in case of a change in any laws around immigration,” Sandeep Ladda, national leader of technology at PwC, told ET.

Many companies now prefer short-term deals and this will also leave an impact on companies outside the US.

"Even if there is no tax on imports of services as we fear but there are stricter regulations around H1B visas, it will affect their (IT companies') economics and hence their capacity to execute contracts,” a person close to the US bank told ET.

Presently, ‘Trump tax’ is a proposal to slap penalties on importers.