Big guns hired to fight tax reforms

Firms enlist ex-lawmakers to limit expected changes to offshore finance breaks

August 09, 2002|By Julie Hirschfeld Davis | Julie Hirschfeld Davis,SUN NATIONAL STAFF

WASHINGTON - Companies that have reaped the benefits of offshore tax havens have hired an array of powerhouse lobbyists - including one-time Republican presidential candidate Bob Dole - to beat back congressional efforts to crack down on the practice and eliminate the tax breaks they enjoy.

Recognizing that there may be no way to stop Congress from taking high-profile action on the politically potent issue this year, the businesses are looking for ways to limit the damage.

The companies are working through their influential advocates to hold on to the tax advantages gained from relocating overseas while fending off congressional attempts to deprive them of lucrative federal contracts.

"The people that are active on this legislation are active on behalf of the companies that have already done it and don't want to get slammed," says Kenneth J. Kies, a veteran tax lobbyist and the managing director of the Federal Policy Group at Clark/Bardes Consulting.

Fueled by public outrage, measures that would curb the now-legal practice - known as a "corporate inversion" - and prevent companies from using it to shield income from U.S. taxes are swiftly making their way through the House and the Senate.

Of special concern to companies that have relocated in tax havens are provisions that Democrats have been able to tuck into two major bills in recent weeks banning such businesses from receiving federal contracts.

Just before the House left for its August break, Rep. Rosa DeLauro, a Connecticut Democrat, inserted the language into the House version of legislation to create a Department of Homeland Security. Sen. Paul Wellstone, a Minnesota Democrat, added a similar provision to the $355.4 billion Pentagon spending measure that the Senate passed last week.

The businesses involved include such companies as Tyco International Ltd., which reincorporated in Bermuda in 1997; the equipment manufacturer Ingersoll-Rand Co., which did so in December; and Accenture Ltd., a consulting concern spun off by the Chicago-based Arthur Andersen accounting group and incorporated in Bermuda in July 2001.

To lead the effort, the companies have assembled a formidable display of political muscle - among them, former Senate Majority Leader Dole, a Kansas Republican; former House Ways and Means Committee Chairman Bill Archer, a Texas Republican; former Sen. Dennis DeConcini, an Arizona Democrat; and Kenneth M. Duberstein, a former Reagan White House chief of staff.

According to lobbying records, Dole is registered on behalf of Tyco, Duberstein and DeConcini are working for Accenture, and Archer is signed up on behalf of energy companies Weatherford International Inc., which reincorporated in Bermuda in June, and Noble Drilling Services Inc., which did so in the Cayman Islands in May.

In a political climate in which no lawmaker wants to cast a vote against a corporate responsibility measure, these companies and their well-compensated representatives know they have an uphill battle ahead.

"It's kind of a race to see who can address a tragedy fastest," says DeConcini, who says his party has seized upon the tax haven issue. "It's all they got, it's all we got - the Democrats - and it's not the greatest issue."

The climate has led one major U.S. business - Stanley Works, a Connecticut toolmaker - to abandon its plans to reincorporate in Bermuda. PwC Consulting, which moved its headquarters to Bermuda in March, has ducked the issue as well. It announced July 30 that it would be acquired by IBM.

But for other companies that have moved offshore, there's no turning back. So they have turned instead to veterans of the Washington establishment, who can use their friendships and political influence to open doors that might otherwise be slammed in what has become a decisively anti-corporate environment on Capitol Hill.

"The reason they're pulling out the stops, the reason these lobbying firms are sending in the big names is because of this daunting task in front of them," says Sheila Krumholz, research director at the Center for Responsive Politics, a nonprofit group that tracks money in politics.

In a "corporate inversion," a U.S. company essentially turns its structure upside down to shield its foreign income from U.S. taxation. When the transaction is complete, the parent company, or at least its shell, is located in a tax-free nation, and the original company remains in the United States as a subsidiary. For tax purposes, it becomes a foreign-owned business.

Companies then can use a variety of complex transactions to shield even their U.S. income from taxes. In one common practice known as "earnings stripping," the U.S. subsidiary sends earnings to its foreign parent as interest payments on debt, making the earnings tax-deductible.

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