Stanley Works Backs Off Bermuda Move

by Mike Godfrey, Tax-News.com, New York

02 August 2002

Influenced by moves in Congress to penalize companies which 'expatriate' to offshore jurisdictions, and a new determination among US policy-makers to address the problematic US Tax Code, Stanley Works has abandoned its plan to move its corporate headquarters to Bermuda.

Stanley Works shareholders voted in May by 57.3 million (79% of those voting) "for" the proposal to 14.9 million "against," to change its place of incorporation from Connecticut to Bermuda; but the move was set aside after Connecticut Attorney General Richard Blumenthal took legal action alleging irregularities in the voting process. Stanley planned a second vote, but hadn't held it pending Securities and Exchange Commission clearance.

Under the Stanley Works' plan, Stanley Works, Ltd., a newly formed Bermuda corporation, would have become the parent company of The Stanley Works. Stanley had predicted it would save $30 million a year by reincorporating in Bermuda, largely by avoiding tax on international earnings which are currently taxed in the US.

Although Stanley has been shamed into abandoning its move, the underlying tax problem for international US companies hasn't gone away, with schemes to exempt export earnings from tax struck down by the WTO, and legislative changes still just a gleam in Bill Thomas's eye. His bill to adjust the tax system is widely seen as a piece of politicking prior to mid-term Congressional elections, and stands little chance of becoming law.

What is more real is legislation to exclude expatriating companies from government contracts. The Democrats, with some Republican support, have been tacking amendments with that effect onto House spending bills, and are employing similar tactics in the Senate. No law has yet emerged for Mr Bush's signature, but it would be dangerous for companies to disregard the storm signals at this moment in history.

Firms that have recently moved to Bermuda include Accenture Ltd, oil services companies Nabors Industries and Weatherford International, electrical manufacturer Cooper Industries, and Ingersoll-Rand.

Accenture received $282 million from the government in 2001, but Stanley Works counted a mere $5m of its $2.5bn turnover from government contracts. And it is arguably unconstitutional to exclude a company from tendering for contracts because it quite legally optimises its tax affairs.

Stanley Chairman John Trani said that Stanley had been asked by Congressional leadership on both sides of the aisle "to support their efforts toward rectifying this situation by enacting legislation that will create a level playing field for companies incorporated in the U.S."

"The real issue here is not whether any particular U.S. company decides to move its headquarters to Bermuda," Sen. Orrin G. Hatch, a Utah Republican, said in a statement following Stanley's decision. "The real issue is that Congress must pass legislation to ensure that our US international tax rules do not provide American firms an incentive to leave our shores."

Yes, but will it?

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