This week we find that Obama plans to clamp down on the overseas earnings of US corporations by making a variety of amendments to the US tax code. His statement earlier this week certainly had some offshore service providers a little nervous, “That [old tax code] says that you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.”

Eyebrows were certainly raised in the outsourcing world, evident through a host of sensational headlines in India’s Economic Times such as, ‘Obama torpedos Bangalore again’. But what do these proposed tax revisions mean for US companies and their offshore partners?

Essentially the tax code system, which Obama is attempting to change, allows US companies to defer paying corporate tax on income earned overseas, until that income returned back to US soil. A tax credit for tax paid overseas is also given to the businesses and the US Government will take whatever is left.

Obama’s revisions will mean that US companies will have to pay the US corporate tax immediately, although the tax credit will still apply. This revision will see US companies having to pay more tax however, will we see a significant drop in offshoring as a result? Will this bring the big players of the global offshoring market to their knees?

Mark Kobayashi-Hillary, NOA Offshore Director and industry expert, thinks not, “This is not a big threat to the outsourcing industry. Obama pledged these tax reforms in the election campaign so they should not come as a surprise to anyone. He is simply trying to stimulate future investment on home soil and in turn generate more jobs.”

A rational response, however, are these protectionist policies a determent to free trade? Emerging outsourcing destinations such as Kenya, Vietnam, Sri Lanka and Egypt have previously been unable to compete within global markets, however with a booming outsourcing market, these regions are now able to step up to the plate and engage in business with the rest of the world.

“It will be difficult for the Obama administration to be harsher on offshoring. If Obama does try to implement tougher sanctions then he would be going against international free trade laws that the US have signed up to.” Mr Kobayashi-Hillary responded.

So, can US companies and overseas service providers breathe a sigh of relief?

Peter Ryan, head of offshoring analysis at Datamonitor, believes that there is some cause for concern, “President Obama's recently announced changes to the tax code for US firms doing business abroad, could have significant implications for US firms with offshore sites. Should Obama’s new tax plans become law in 2011 as planned, the initial impact for contact center outsourcers selling offshore delivery will be increased price points. In an era of ever-tightening margins, not only will this option be unpalatable for many prospects looking to work with an outsourcer, it could also force existing clients to examine other business models for customer-facing work.”

Increased prices in difficult times may indeed have an impact on the market. However, as Mr Kobayashi-Hillary commented, “The savings made by offshoring work far outweigh the tax increases.”

Lower wage costs, lower infrastructure fees and government incentives all combine to make offshoring an attractive proposition. Tax adjustments, such as the ones planned for 2011, will not significantly impact the outsourcing market and in all probability will not enhance the job market in the US. Businesses don’t set up shop in Bangalore for tax relief. They set up shop in Bangalore because it costs significantly less to produce the same work than if they stayed on home soil.

Voters will be pleased that Obama appears to be coming good on his pre election promises. However, this is not the assault on offshoring that some were expecting. Obama may still have things in store for the offshoring community, but it is unlikely that the impact will be great. We are on the cusp of true globalisation and I can’t see any entity halting the progress. Outsourcing and offshoring is just too integrated into modern business to suddenly stop.