Proposed Tax on Calls Sent to Non-U.S. Call Centers

02 June 2010 Publication
Author(s): James R. Kalyvas

Legal News Alert: Information Technology & Outsourcing

Senator Charles Schumer (D-NY) is proposing legislation that, if passed, would impose a $0.25 tax on each of the roughly 1.6 billion U.S.-originated call center calls sent outside of the United States each year. The legislation also would require companies to inform U.S. customers that a call is being transferred outside of the United States and to which country the call is being routed. The per-call tax would be assessed on the company transferring the call. Sen. Schumer reasons that by making outsourcing cost prohibitive, this legislation would reduce the number of American call center jobs sent overseas and bring some already-outsourced jobs back to the United States.

While we do not know whether this or similar legislation will ultimately be passed, it is important to note that such legislation, if passed, can significantly alter the ROI of call center transactions. Companies currently negotiating call center transactions, or contemplating call center transactions in the future, should include terms in their call center services agreements to protect the company should costs rise as a result of this or similar legislation. For example, consider adding the following terms to your call center services agreements:

  • A right to terminate if costs increase. Provide that the customer may terminate the agreement if any new laws or regulations are implemented that result in the total cost of the transaction to the company increasing by more than a specified percentage (for example, more than five percent per year). Ensure that this termination right does not give rise to termination for convenience or other termination fees, and is exercisable prior to such laws or regulations becoming effective.
  • Ensure control over and prohibit moving call centers outside of the United States. If your call centers are located in the United States, prohibit suppliers from relocating any portion of the call centers to locations outside of the United States unless you and the supplier agree to such relocation in advance. Ensure that in connection with any relocation of your call centers abroad, the amount of tax liability to each party arising from such a move and the allocation of responsibility for current and future taxes between the parties are clearly defined. Furthermore, consider specifying that any increased tax burden that is or may be incurred by your company in connection with or as a result of any unapproved relocation will be the responsibility of the supplier.
  • Require shared tax responsibilities. Provide that any excise tax on calls originating in the United States that are sent abroad — like the tax proposed as part of Sen. Schumer’s legislation — are paid by the supplier or shared equally between the parties.
  • Limit tax exposure by handling calls in the United States. Where call centers will be established abroad, provide that “first line” call handling occur within the United States through, for example, a staffed call center, an Internet-based knowledge base, or an automated voice response system. This will reduce the number of calls sent outside of the United States and decrease the associated tax burden.
  • Reduce customer calls entirely. Provide non-call-based customer assistance through real-time “chat-based” customer support and other Internet-based customer care options.

U.S. lawmakers are working on ways to retain U.S. jobs and increase tax revenues. Sen. Schumer’s proposed legislation, while still in the early stages of the lawmaking process, is a part of that effort, and similar legislation is likely on the way. Companies considering outsourcing business operations such as call centers should anticipate the affect that this type of legislation will have on the costs of outsourcing transactions and include appropriate provisions in their outsourcing agreements to address the potential impact.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

James R. Kalyvas
Los Angeles, California

Matthew A. Karlyn
Senior Counsel
Boston, Massachusetts

Kenny W. Hoeschen
Milwaukee, Wisconsin