US Government Blames Tax Code For Corporate Flight

by Mike Godfrey, Tax-News.com, Washington

21 May 2002

Following several highly critical reports condemning the US government for failing to clamp down on 'unpatriotic' companies which choose to reincorporate offshore for tax purposes, the Bush administration has released a 31 page preliminary report on the issue, making its position abundantly clear to all concerned.

On Tuesday last week, Democrat Representative Charles Rangel attempted to piggyback legislation designed to remove the tax benefits of offshore relocation for US companies onto another bill designed to give tax relief to married couples. However, due to opposition from some Republicans, the 'Patriot Tax' amendment to the code was thrown out, and the vote on the marriage tax bill postponed until this week.

However, in a written statement released on Friday, Treasury Secretary, Paul O'Neill placed the blame squarely on America's tax code rather than on the fleeing companies, and warned that the hasty introduction of legislation designed to punish expatriating companies while failing to remove the incentive to relocate elsewhere could harm the US economy in the long term.

'This is about competitiveness and complications in the tax code that put US-based companies out of step with their foreign competitors,' he observed, continuing: 'I don't think anyone wants to wake up one morning and find every US company headquartered offshore because our tax code drove them away and no-one did anything about it.'

The Treasury Secretary said that the Bush administration would work closely with lawmakers to find a solution to the problem, but urged Congress to address disparities in the tax code which make it difficult for US companies to compete in the international arena, rather than seeking to punish organisations such as Stanley Works, Tyco International, and Ingersoll Rand for their lack of 'patriotism' in a time of national crisis.

Several US business dailies have also nailed their colours to the flagpost recently, representing a welcome - and somewhat overdue - counterpoint to the New York Times' strident and repeated denouncements of the most popular jurisdiction for reincorporating US companies, Bermuda.

'The US corporate income tax tops off at 35% and is applied to a company's income world-wide, not just to income earned domestically,' the Wall Street Journal pointed out last week. 'This puts American-based multinationals at a huge disadvantage with foreign rivals in overseas markets.'

The WSJ went on to observe that: 'Since 1994 more than 20 large US firms across a range of industries have reincorporated in tax havens such as Bermuda or the Cayman Islands, or are planning to. When companies are fleeing the US tax code to stay competitive abroad, there's something wrong with the tax code, not with the companies.'

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