House Committe Bans 'Corporate Inversions' From Security Contracts

by Mike Godfrey, Tax-News.com, Washington

25 June 2003

Opponents of companies based in low-tax jurisdictions to avoid US taxes won a significant victory last week when lawmakers successfully amended a bill in the House Appropriations Committee to prevent such firms from bidding for contracts from the Department of Homeland Security's $29 billion budget.

The amendment will bar firms that have undergone 'corporate inversion' profiting from public contracts. It applies to firms which have set up an offshore subsidiary which then acquires the onshore parent, thus avoiding domestic taxes, a procedure that can save a company millions of dollars in taxes.

The campaign against the 'unpatriotic' actions of such corporations has intensified in recent months, stoked by media campaigns from pressure groups such as 'The Bermuda Project' which recently screened a television ad juxtaposing the imagery of young American GIs toiling in the sands of Iraq against corporate fat cats enjoying the offshore life in Bermuda.

Recently, the state of Connecticut made a similar move when the state legislature approved a bill that will prevent local government agencies signing contracts with firms that have reincorporated offshore. State lawmakers subsequently drew up a list of 18 such firms which will be banned from bidding for projects contracted out by the state.

Government contracts can be very lucrative for those companies lucky enough to win them. According to an Associated Press analysis of government contracts last month, US firms incorporated in low tax jurisdictions conducted $1 billion worth of business with federal agencies last year. The largest recipient of government business in recent times is Bermuda-based consulting firm Accenture Ltd, which won $662 million worth of contracts between October 2001 and September 2002, largely from the Transportation Security Agency. Another notable winner was engineering firm Foster Wheeler, gaining contracts worth $293.3 million over the same period.

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