Offshore Tax Havens Draw Fire
WASHINGTON -- A Senate panel voted Tuesday to deny tax breaks sought by U.S. firms that change their legal addresses to offshore tax havens such as Bermuda.
The Senate Finance Committee approved by voice vote a bill that would, for tax purposes, treat companies that move as if they never left.
It’s the first action by Congress to stop more such moves, which companies such as Leucadia National Corp. and Stanley Works have said would reduce their taxes to the level of their foreign competitors. Many lawmakers criticized the “corporate inversions” as wrong at a time when the U.S. is fighting a war against terrorism.
“Allowing a few unpatriotic corporations to exploit tax havens abroad is simply unfair to the American businesses with whom they compete and to the taxpayer families who have to pick up the slack,” said Rep. Lloyd Doggett (D-Texas), who has sponsored similar legislation in the House.
The issue became more heated this month after former Tyco International Chairman L. Dennis Kozlowski was indicted in New York on charges of evading sales taxes. Kozlowski spearheaded the shift of Tyco’s headquarters to Bermuda in 1997 as a tax-saving move.
Senate Finance Committee Chairman Max Baucus (D-Mont.) said he didn’t know when the full Senate would consider the measure, which was paired with $10.1 billion in tax incentives to boost charitable giving. But when the bill does move to the floor, he said, “I do not expect major opposition.”
The Finance Committee also approved new penalties for companies and individuals that don’t disclose their use of certain tax shelters. The measure would expose investment banks and accounting and law firms to stiffer fines for promoting or advising on tax shelters found to violate the law.
The Senate’s attempt to stop companies from using offshore addresses and other strategies to reduce--some say evade--U.S. taxes sets up a fight with the House and the Bush administration, which advocate better enforcement of existing laws and say the problem is rooted in a flawed U.S. tax code.
The committee’s approval comes four days after shareholders of oil well driller Nabors Industries Inc. backed a headquarters move to Bermuda. Insurance firm Leucadia’s shareholders this month also approved a move to that island; tool maker Stanley Works will hold a revote of its move proposal after Connecticut state officials challenged the results of a May 9 shareholder vote.
Peter Duda, a spokesman for Stanley Works, said the company opposed the Finance Committee’s bill because it “does not address the competitiveness issue.”
Sen. John B. Breaux (D-La.) said the Senate would not act quickly on the tax-saving ban. “This is not the highest priority,” he said, citing other issues pending in the Senate.
The Senate bill seeks to disrupt the plans of at least four companies that are in the process of moving to Bermuda or another tax haven such as the Cayman Islands or Luxembourg. They include Nabors and its competitor Weatherford International Inc., as well as Leucadia and Stanley Works.
The bill would treat companies that set up “shell” headquarters in other nations as U.S. firms for tax purposes. The measure also would retroactively deny tax benefits to at least three other companies that have acted since March 20, the proposed effective date. They include Cooper Industries, Noble Drilling Corp. and the consulting arm of PricewaterhouseCoopers.
