Dereliction of duty
By Lou Dobbs: June 14, 2004

  THE FEDERAL GOVERNMENT LAST week awarded the multibillion-dollar U.S. Visit border security contract to Accenture LLP. The contract is to monitor visitors who enter the United States by air, sea, or land and could be worth as much as $10 billion over 10 years.
  The award is especially surprising because the federal government passed over two American bidders, Lockheed Martin Corp. and Computer Sciences Corp., to give the contract to Accenture LLP, whose parent company, Accenture Ltd., is headquartered in Bermuda. The deal raises questions as to whether government contracts, especially security contracts, should be awarded to non-U.S. companies and, more broadly, whether the United States is doing enough to discourage companies from expatriating and incorporating overseas.
  Democratic Sen. Harry Reid of Nevada says, "I think this is just awful. The problem is [that] those companies who do it fairly, stay in the United States like Lockheed Martin, Computer Sciences, and other U.S.-based corporations, are put at a sizable disadvantage because they've remained in this country and have to pay taxes. And this - I believe unpatriotic - company is now given this $10 billion contract." Reid is also concerned that "under this contract, Accenture will link to about 20 government databases to collect information on when visitors enter the U.S. and when they leave. To allow them to have that advantage is wrong."
  Frighteningly, the U.S. Visit contract is not an isolated case. A 2002 General Accounting Office study found that four of the 100 largest federal contractors, including Accenture, are incorporated offshore in tax-haven countries in order to lower their corporate taxes.
  In response, Accenture contended that it was never a U.S. company anyway, since it operated as a series of partnerships before incorporating in Bermuda in 2001. But as Texas Democratic Rep. Lloyd Doggett put it, "They got to Bermuda before other companies considered doing it and because they were a spinoff of Arthur Andersen and were starting anew. But it was for the same purpose as all of those that chose to reincorporate in Bermuda."
  The other three companies named in the GAO report, McDermott, Foster Wheeler, and Tyco, were incorporated in the United States before reincorporating in a foreign tax haven. Together, all four companies were awarded an incredible $2.7 billion in government contracts in 2001.
  CEOs of expatriated companies have often complained that American tax laws are so unfair that they have virtually no other choice but to seek tax shelter offshore. After Ingersoll-Rand decided to reincorporate in Bermuda, the chief financial officer said, "We thought very long and hard about it." But he added, "At the end of the day we were dealing with a competitive disadvantage, and we have a duty to our shareholders." Ironically, these companies are simply finding a way around their duty of paying American taxes. It is estimated that the move offshore has allowed Ingersoll-Rand to avoid paying roughly $40 million annually in U.S. taxes.
  Loopholes. Several legislative initiatives have been introduced in an effort to dissuade companies from unfairly utilizing offshore tax havens. On the state level, Montana and North Carolina have passed laws eliminating state contracts with businesses incorporated in tax havens. Unfortunately, the California Senate shot down legislation earlier this year to stop expatriate companies from reducing their taxable income in the state. The problem is particularly acute in California. It is estimated that loopholes exploited by expatriates cost the state $10 million in lost revenue yearly, an amount that could possibly escalate to $132 million over the next 10 years.
  On the federal level, the Corporate Patriot Enforcement Act sponsored by Reid would deny tax perks to companies that reincorporate in tax--haven nations. And Doggett has introduced the Fairness and Accountability International Taxation Act, which he says is "designed to deny tax-treaty benefits to entities like Accenture that are in foreign countries but are not predominantly owned by foreigners." Doggett also stresses, "When your main tax overhead is a palm tree in Bermuda, that is just not fair [to] other companies."
  It is also not fair to America. Our nation's budget deficit hit a record $374 billion in 2003. By choosing to incorporate overseas, many American companies are depriving the U.S. treasury of billions of dollars in tax revenue. It is up to Congress, Democrats and Republicans alike, to ensure that companies benefiting from the U.S. marketplace are paying their fair share back to America. Some might say to do otherwise would be unpatriotic.