Gee, Is There a Choice Between Profits and Patriotism?

It’s official: I’ve decided to move this column to Bermuda. But don’t worry about getting me a house-warming present because I’m not really going anywhere. I’ll still live in the U.S., earn my living here and enjoy the protection, technology, infrastructure and status of the land of the free and the home of the brave. I’m just changing my business address. Because if I do that, I won’t have to pay for those benefits--I’ll get them free!

It’s all perfectly legal. It’s what accountants and financial advisors have dubbed “tax-motivated expatriation,” which has a nicer ring than “sleazy tax-cheating loophole.” It’s the latest mega-trend in corporate America, with more and more U.S. companies reincorporating offshore as a way of slashing their tax bills. You see, Bermuda, along with sparkling water and beautiful pink-sand beaches, also has no income tax. None. Pop that into your Quicken and see how fast it fattens your wallet.

And setting up shop on the sunny island couldn’t be easier. A company “moving” to Bermuda doesn’t actually have to move. It doesn’t even have to have an office or hold any meetings there. It just needs a P.O. box and someone to pick up the mail. Or it could just let the mail pile up and forget about having someone pick it up. There’s another cost savings.

This kind of paper relocation saved $400million last year for Tyco International, a New Hampshire-based manufacturer. And Ingersoll-Rand, a U.S. company that made the jackhammers that helped chisel Mt. Rushmore, avoids paying a U.S. tax bill of more than $40million a year by slipping into its Bermuda shorts.

But the tax savings don’t stop there. Many companies that move to Bermuda also open a corporate beachhead in that Wall Street of the Caribbean--Barbados--where, thanks to the alchemy of modern accounting and a sweetheart tax treaty, profits earned in the U.S. can be shipped abroad and transformed into a tax write-off.

And the benefits of this offshore shell game extend well beyond a corporation’s bottom line. Formerly red, white and blue companies now sporting a Bermuda tan are also suddenly and conveniently immune to judgments against them in U.S. courts, less accountable to their shareholders, who are unable to file class-action suits, and freed from a whole host of annoying government regulations.

Nobody is sure precisely how much this corporate exodus is costing our government, but the IRS estimates that it’s siphoning off at least $70billion each year from the U.S. Treasury. And that number doesn’t include the billions in taxes that corporations avoid paying by creating offshore subsidiaries. Enron, for example, had 881 of them and paid no taxes in four of the last five years.

Even more galling is the fact that many of the same companies that are giving the taxman the brushoff as they shield themselves with their Bermuda ZIP codes think nothing of holding out their hand when Uncle Sam is doling out government contracts.

And how’s this for irony: Among the more than $1billion in federal contracts held by Accenture, which relocated to Bermuda in 2001, is a five-year deal to redesign the IRS Web site. I wonder if it will include a special chat room for those who feel no need to pay their fair share.

Also showing a flair for self-parody is Tyco International, which established its Bermuda mail drop in 1997 and has taken in $1billion at the public trough over the last year--including $100million for helping provide terror- related emergency response services. Very post-Sept. 11 patriotic. But patriotism is the last refuge of the scoundrel, right? So when forced to choose between patriotism and profits, Tyco quickly charted a course for Bermuda.

Kate Barton, an Ernst & Young tax partner, doesn’t see any problem with this: “The improvement on earnings is powerful enough that maybe the patriotism issue needs to take a back seat to that.” Of course, it’s not just tax revenue that’s being lost. Because of convoluted laws that allow profits funneled offshore to be invested in foreign countries without being taxed--as opposed to money that’s brought back into the U.S., which is subject to taxes--we’re also losing American jobs to cheap-labor havens like China and Mexico.

Unfortunately, this tax dodge is not available to you and me--only to corporations. Just try telling the folks at the IRS that you’re planning to relocate to Bermuda and would like to sign up for the zero tax rate and see how long it is before they stop laughing.

Despite the billions being lost to these offshore tax havens, however, the Bush administration has shown little ardor for closing the loopholes. On the other hand, it seems very keen on ensuring that those receiving noncorporate welfare work for every dollar they get. The president doesn’t want anybody getting a free ride from the government without accepting the responsibility that comes with it. At least anybody who’s not a CEO.

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Excerpted from Arianna Huffington’s syndicated column.