Offshore Tax Legislation Likely To Be Passed In US

by Mike Godfrey, Tax-News.com, Washington

21 March 2002

Tax experts have warned Bermuda, and other jurisdictions popular with US companies looking to relocate, not to assume that legislation designed to curb the tax benefits for US companies located offshore will not be passed.

Following a report in the New York Times last month, which drew attention to a 'wave' of US companies choosing to relocate to offshore jurisdictions in order to enjoy lower taxes, two new pieces of legislation seeking to tax the foreign earnings of US companies based offshore as domestic earnings have been introduced, and it is understood that two more bills are likely to follow soon.

The furore is principally centred on Bermuda based US companies such as Tyco, Global Crossing, and Ingersoll-Rand. Speaking last week, Senator Paul Wellstone, one of the likely candidates to introduce another bill on the issue, played the patriotism card.

'When Global Crossing and other companies don't pay their fair share, the rest of American taxpayers and small businesses are stuck with the bill.' He continued: 'They can't afford the big name tax lawyers and accountants to show them how to cook their books Enron-style, but they probably wouldn't want to anyway.'

Speaking to the Bermuda Royal Gazette earlier this week, Dr Daniel Mitchell, senior fellow with Washington based The Heritage Foundation warned Bermuda and other offshore jurisdictions not to be complacent:

'Bermuda and other competitive jurisdictions should not assume legislation will be defeated,' he explained. 'On one side, the free-market associations will be working to block this legislation, but it is very hard to say politically what will happen. I would stress that there is a very serious threat (of legislation being passed).'

Meanwhile, President of the Center for Freedom and Prosperity, Andrew Quinlan reassured Bermuda and the newly relocated US companies that the powerful think-tank is doing all it can to protect the status quo, revealing to the Royal Gazette that: 'It is our major issue for the year.'

Mr Quinlan suggested that, rather than targeting companies which choose to reincorporate overseas as 'unpatriotic', and attempting to punish them, the US Government should work at reforming the country's 'Draconian' tax code in order to encourage them to stay.

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