Corporate Tax Traitor Lobbyists, Offshore Abuses and The Decline in U.S. Corporate Taxes
Jack Abramoff, Bill Archer, Charlie Black, Bob Dole, Ken Duberstein, Slade Gorton, Lawrence Levinson, Bob Livingston, Grover Norquist and other high-powered lobbyists and foreign country agents have been paid tens of thousands of dollars by corporations that have relocated their headquarters offshore to prevent Congress from closing loopholes in the tax law, proposals to bar expatriated corporations from government contracts, and other legislation associated with offshore tax haven abuses.
Beginning in late 2001, Connecticut-based toolmaker Stanley Works' announced its intention to relocate its headquarters (on paper) to Bermuda. Stiff resistance from investors, pensioners and state lawmakers prompted members of Congress began to introduce various bills to close the loopholes which allowed corporations to use the sham reincorporation transaction (known as corporate “inversions”) to reduce their taxes..
The corporate inversion transaction is expected to cost the U.S. $5 billion over the next decade, according to the Joint Committee on Taxation. By paying just $30,000 to establish a simple postal drop, for instance, Ingersoll-Rand expects to save $40 million per year by declare itself headquartered in Bermuda. Dozens of companies have undergone corporate inversions to reduce their taxes while continuing to enjoy U.S. protections. Although Stanley Works eventually backed down on its proposal, concerns remain that companies that others would try to move.
Over the next few years, efforts in Congress to close the loophole were repeatedly blocked, in large part because of pressure from the well-connected lobbyists and lawyers working for companies like Tyco, Accenture, Ingersoll-Rand, Nabors and other companies that have already reincorporated offshore.
At least 44 attempts have been made by members of Congress to close the offshore loophole or ban corporate expatriates from government contracts between 2001 and 2004. All but one failed.
In 2004, Congress finally addressed the issue as part of the “American Jobs Creation Act of 2004.” Yet, although the loophole was closed, the lobbyists worked hard to ensure that related provisions in the giant tax bill would not affect their clients. As a result, companies that had moved offshore before March 4, 2003 were grandfathered in.
Corporate Tax Traitors and Federal Contracts
The tax traitor lobbyists have also worked hard to block various attempts to ban corporate tax traitors from receiving government contracts.
For some of the companies, a lot can be at stake when it comes to government contracts. In 2002, the U.S. General Accounting Office reported that 4 of the 100 largest publicly traded federal contractors – McDermott (Panama), Foster Wheeler (Bermuda), Accenture (Bermuda) and Tyco (Bermuda) -- have incorporated in a “tax haven” country. The four companies pulled in a combined total of $2.7 billion from taxpayer-funded contracts during 2001. Accenture, for example, was ranked No. 24 on Washington Technology’s list of Top 100 federal contractors in 2003. The company had $279 million in federal contracts in fiscal 2001, according to the GAO report. It has since received a large border-control contract from the Department of Homeland Security (DHS) worth an estimated $10 billion.
GAO has also reported in June, 2004 that corporate expatriates are likely to have a tax cost advantage when it comes to federal contracting. In addition, GAO reported that 59 of the 100 largest publicly traded federal contractors (FY 2001) have at least one subsidiary in a tax haven country. (The SEC only requires corporations to report their significant subsidiaries, which means the number is likely a conservative one.)
Accenture officials have insisted all along that they were never a U.S. company and that the tax advantage was only a minor factor in the decision to incorporate in Bermuda in 2001.
"It is important to remember that the global Accenture organization has never been a US-based or US-operated organization and has never operated under a US parent corporation. Despite what some of our critics say, Accenture did not undertake what is called a US corporate inversion," the company suggested in mid-2004. (ComputerWire, 6/23/04)
Perhaps they should have made their position clear to their own lobbyists at BKSH before they filed a report with the Senate Office of Public Records in early 2002 which described their client as the firm “formerly known as Andersen Consulting.”
In truth, Accenture was previously a part of Andersen Worldwide, a division of Arthur Andersen. Accenture has downplayed its relationship to the now-defunct accounting firm.
A model provision that bars corporate expatriates from Homeland Security Department contracts was introduced by Senator Levin and passed in the 2004 DHS appropriations bill, thus amending the 2002 Homeland Security Act. The provision only applies to companies which reincorporated “after 2002.” (The loophole was inserted into the appropriations bill during the closed-door House/Senate conference committee mark-up, and would not affect a DHS contract already given to Accenture.).
DHS Undersecretary of Border and Transportation Security Asa Hutchinson apparently saw no problem in awarding a boundary-crossing tax-dodging corporation a deal to protect U.S. borders. But Rep. Lloyd Doggett, D-TX, saw the national security implications: “Our security is undermined by corporations that devise ways to avoid paying their share of the cost of keeping our homeland secure.”
Corporate offshore tax haven abuses extend far beyond the corporate inversion scam. (For examples of how companies use offshore subsidiaries to reduce their tax burden, see our corporate tax havens page.) Although the simple existence of a subsidiary in a tax haven country does not signify that a corporation is using it to avoid paying its fair share of taxes, there is little disagreement that that is the primary purpose, especially in cases where there is no substantial operation or business purpose involved.
In addition, growing evidence suggests that offshore have abuses raise national security concerns that extend beyond the loss of tax revenues. Halliburton, for instance has used a Cayman Islands subsidiary to avoid restrictions on doing business with Iran. Halliburton and its KBR subsidiary (which has made over $10 billion from contracts associated with the war in Iraq) have also used a Cayman Islands subsidiary -- Service Employees International Inc. (SEII) – to employ contract employees that it sends to Iraq. One KBR employee discovered after returning to the U.S. from Iraq that he was ineligible for unemployment compensation because the Texas Work Force Commission had determined that he technically was not employed by an American company.
Another reason to be concerned about offshore tax havens is that the lack of transparency (and aggressive bank secrecy) in these tax havens provides a cover for drug dealers, money launderers and dictators seeking to hide their ill-gotten gains. Heightened concerns about the ability of terrorist groups to move money around more easily under the cover of bank secrecy laws has caught the attention of the U.S. Treasury Department. Proposals to force increased disclosure and penalize bank secrecy is one reason that some tax haven countries have hired foreign registered agents to lobby on their behalf in the U.S. Along with certain U.S. banks, they have managed to stall efforts to address the bank secrecy problem.
For more on corporate tax dodgers go HERE.