March 21,2002

Grassley Seeks End to Government Contracts for Corporate Tax Evaders

WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee on Finance,today revealed that several corporations that have set up shop overseas to avoid U.S. taxes enjoylucrative contracts with the federal government. Grassley pledged to work to end this practice.“I have no problem with U.S. companies operating in low-tax countries for legitimatebusiness purposes,” Grassley said. “Companies have to compete in the international markets. Myproblem is with companies that set up fictional headquarters in low-tax countries to escape U.S.taxes. These fictional headquarters are no more than a folder in a filing cabinet. Some of thesecompanies add insult to injury by signing big contracts with the federal government. Thesecorporations are skirting their own taxes, yet profiting from other people’s taxes. That’s wrong.”

Grassley said the practice of setting up in low-tax jurisdictions to avoid taxes has gone onfor years. For example, for years U.S. insurance companies have been fleeing to Bermuda toeliminate U.S. tax on their investments and gain a financial advantage over U.S.-based insurers.However, the recent spate of relocations are bigger and different, Grassley said. The recentdeals could not have been done without the two-year-old recession and the depressed stock market.

Net operating losses have built up during the recession. Those losses are used to shield thecorporation from tax when it does a purely paper move to the tax haven country. For these deals towork, the stock market must be depressed. A depressed stock market reduces the tax on theshareholders who approve these deals, and the stock market has been depressed since the tragicevents of September 11, Grassley said.

Grassley said after September 11, Ingersoll Rand left the country for Bermuda. Accordingto media reports, it pays less than $28,000 a year to Bermuda and receives $40 million in U.S. taxsavings. Stanley Works, the American tool maker, has announced it is leaving the United States togo to Bermuda. Stanley has expressed pride in shaving 7 percent off of its effective tax rates.“It’s outrageous that some companies are willing to leave their country during a war and arecession just to save some taxes,” Grassley said. “It’s especially shocking when those companiesare enjoying big government contracts.”

Grassley said Stanley Works had 100 government contracts during 2001, and Ingersoll Randhad more than 200 government contracts in 2001.

Grassley said he plans to crack down on this abuse. “Let me be clear to everyone developingor contemplating one of these deals, you proceed at your own peril,” Grassley said. “I’m workingon bipartisan legislation to go after not only the corporate expatriation abuse, but also the abuserswho seek big government contracts while skirting their U.S. tax obligations.”

Grassley obtained the following statistics from the General Services Administration regardingsome federal contractors who have completed a corporate expatriation transaction, also known asan inversion. GSA is continuing to review other contractors who have completed inversions.Ingersoll Rand completed its inversion in December. Stanley Works has not yet inverted, butis in the process of doing so. The following are the annual statistics for these two federal contractors:

(dollars are in thousands)
Stanley Works
FY 2001 100 actions $5,661
FY 2000 59 $3,893
FY 1999 25 $2,143
FY 1998 38 $2,582
FY 1997 no number provided $12,828

FY 2001 203 actions $12,386
FY 2000 152 $24,442
FY 1999 133 $8,463
FY 1998 86 $6,322
FY 1997 no number provided $10,225