Companies not being advised to move offshore

By Max Heuer

WASHINGTON, Oct. 16, 2002--A Treasury Department official said Wednesday that accounting and consulting companies have stopped advising client companies to move their headquarters to countries that provide tax havens.

"Those kind of marketing activities have been put on ice," said assistant Treasury secretary for tax policy Pam Olson at a hearing before the Senate Appropriations Subcommittee on Treasury and General Government. "We are cautiously optimistic that we've turned the corner."

Sen. Byron Dorgan (D-ND), who chairs the subcommittee and was the only senator to attend the hearing, said the public embarrassment and media attention paid to embattled New Hampshire-based Tyco International has perhaps made companies reevaluate whether to move their headquarters.

Olson agreed, saying it was probably also "a combination" of the public pressure and the Internal Revenue Service's "getting more aggressive." She added, "There is still a lot of work to be done."

Dorgan opened the hearing by playing a recording of an Internet broadcast by Ernst & Young, in which one of the accounting and consulting firm's partners, Kate Barton, citedTyco as an example of offshore success.

In the recording, Barton says of the offshore move, "The improvement on earnings is powerful enough to say that maybe the patriotism issue should take a back seat."

Tyco reportedly saved $400 million in 2001 by moving its headquarters in 1997 to Bermuda, where it pays no U.S. taxes on sales abroad and can lower its U.S. taxes on sales in the United States. Former Tyco CEO Dennis Kozlowski was indicted last month in New York on charges of enterprise corruption and grand larceny--stealing about $600 million from the company. Kozlowski resigned as chairman and CEO of the Exeter-based firm earlier this year amid accusations of tax evasion and misuse of Tyco funds.

But while Tyco was used symbolically at the hearing as an example of a company that moved offshore and failed, the Connecticut-based tool company Stanley Works was cited as a company that decided to move offshore but then stayed in the country once the spotlight was turned on its planned move.

The Securities and Exchange Commission was investigating Stanley Works for possibly deceiving shareholders on the economic effect of a move to Bermuda, when it decided on Aug. 1 to cancel the move less than three months after receiving shareholder approval to go offshore.

"Stanley Works decided to do the right thing," Connecticut Attorney General Richard Blumenthal testified. "But there are corporations that already did go to Bermuda and are being favored because they did the wrong thing."

He added that the Connecticut company was under heavy legal and public pressure at the time and is now at a "strong competitive disadvantage" because its main competitors exploit the loophole.

Dorgan also emphasized a lack of patriotism in company managers who move their companies offshore, but he said there are still many admirable American companies.

He asked whether companies that move their headquarters to Bermuda should receive the military protection of the United States.

"To Mr. Kozlowski and others, maybe they should call on the Bermuda Air Force and Navy to protect them," Dorgan said, noting that Bermuda's military numbers only 27 soldiers.

"Isn't it the case [that corporations that move offshore] are saying, 'We don't want to contribute to this country's defense'" Dorgan added.

Bills pending in both chambers would close the loophole.

"I support reform of the tax code that would eliminate this type of loophole," Rep. John Sununu said in a phone interview after the hearing. He added that he supports a measure proposed by Rep. Bill Thomas (R-CA) that would penalize the stock holdings of executives whose companies move abroad, calling it "a step in the right direction."

Colin Van Ostern, a spokesman for Gov. Jeanne Shaheen, Sununu's Democratic opponent for the Senate, said in a phone interview, "One of Gov. Shaheen's top priorities is to shut down offshore corporate tax loopholes." Because of the loopholes, he added, "New Hampshire small businesses are forced to play on an unequal playing field."

Published in The Manchester Union Leader, in New Hampshire.