U.S. Companies Rush to Go Offshore

APRIL 26, 14:48 ET
U.S. Companies Rush to Go Offshore
By CURT ANDERSON
AP Tax Writer

WASHINGTON (AP) — US companies are scrambling to complete tax-cutting relocations of corporate headquarters to offshore sites as momentum builds in Congress to stop the trickle before it becomes a flood.

One company, Leucadia National Corp. — a New York-based holding company whose subsidiaries include Empire Group insurance, plastic manufacturing and American Investment Bank — this month announced it was amending its charter so that only a majority vote of shareholders is necessary to approve its planned move, instead of a two-thirds majority.

A similar move was made in 1999 by Transocean, a drilling company that relocated from Delaware to Texas — where relocation shareholder votes need muster only a majority vote — and won approval to shift to the Cayman Islands, which has no corporate income tax. Transocean is now part of Transocean Sedco Forex Inc.

Rep. Richard Neal, D-Mass., said corporations are trying to dilute the power of shareholders so it is more difficult to stop planned moves to offshore tax havens, which a growing number of companies are considering to save millions of dollars in US taxes. Neal and other lawmakers have introduced legislation [Corporate Patriot Enforcement Act of 2002] that would effectively remove the tax advantages of these relocations.

"Shareholders must remain vigilant against covert efforts by corporate expatriates to sneak out of the country," Neal said.

An attorney for Leucadia declined comment Friday. But that company is hardly alone in working overtime to get its relocation completed — a move that analysts say can slash a company's overall tax rate from 35 percent to as low as 20 percent.

Noble Drilling Corp. shareholders voted Thursday to reincorporate in the Cayman Islands from Delaware. Other companies trying to finish moves include The Stanley Works, Cooper Industries and Nabors Industries Inc. Big names already in Bermuda include Accenture, Ingersoll-Rand Inc. and Tyco International.

Some of these companies say they are different. Accenture, for instance, objected strenuously to comments by Neal this week that it had reincorporated in Bermuda to cut US taxes.

A company statement said Accenture was never a US corporation prior to setting up shop in Bermuda in 2001, but rather a global collection of independent partnerships, even though it was once the consulting arm of the Chicago-based Arthur Andersen accounting firm — the same firm now embroiled in the Enron scandal.

Neal was unbowed, replying that the firm's statement "stretches corporate spin to the breaking point."

"It is irrefutable that Arthur Andersen of Chicago begat Andersen Consulting, and Andersen Consulting begat Accenture of Bermuda," he said.

Pressure is growing on Capitol Hill to stop the exodus. Earlier this week, House Minority Leader Dick Gephardt joined Neal to promote his legislation [Corporate Patriot Enforcement Act of 2002], lending greater political heft to the issue. Gephardt, D- Mo., said just four companies combined will save an estimated $525 million a year in US taxes by moving offshore.

"It is an unpatriotic act that has no place in a country that demands responsibility from all while seeking to promote opportunity for all," Gephardt said.

Some senior Republicans, notably Sen. Charles Grassley of Iowa, support legislation to end the offshore tax advantages [Reversing the Expatriation of Profits Offshore Act, or REPO]. Until recently, other Republicans have stressed that legislation should not seek to punish the companies but should fundamentally change tax laws that put US companies at a disadvantage internationally.

That attitude appears to be changing. Rep. Jim McCrery, R-La., chairman of the revenue subcommittee of the House Ways and Means Committee, said Congress should examine both the tax system and the "equity of moving offshore."

"It's not punishing the companies, it's making sure that all of our corporations are on equal footing," McCrery said. "My sense is it's not a big problem right now, but it's big enough that we have to deal with it before it gets a lot bigger."

McCrery said his panel would hold a hearing on the issue in a few weeks. The Senate Finance Committee, meanwhile, plans later this year to consider legislation [Reversing the Expatriation of Profits Offshore Act, or REPO], introduced by Grassley and the panel's chairman, Democratic Sen. Max Baucus of Montana, aimed at removing the offshore tax advantage.

(For convenience, I added [links] in the above article to the referenced legislation.)

That's three articles on this subject that have appeared in various major media sources within just over a week and that's just the ones that I have run across. I mention this fact, because Action America has been warning of the increase in capital flight and expatriation of the wealthy for several years. For all those years, expatriation of the wealthy (people and corporations) has been quietly on the increase.

Although the major media has not taken notice of this phenomena, it has not been lost on Congress. In fact, fear of increasing wealth expatriation led Congress in 1996, to quietly pass the Health Insurance Portability and Accountability Act, which claims the right of the United States to tax the earnings of former Americans for 10 years after they renounce their US citizenship and become a citizen of another country. Congress then followed that absurd law with the Immigration and Nationality Act of 1996, which denies wealthy expatriates the right to ever return to the United States after they renounce their US citizenship.

But, instead of slowing down wealth expatriation, these two acts actually increased it. Although the significance of those two acts was lost on the average American and the major media, the wealthy saw them for exactly what they were - attempts by the US government to limit what private individuals could do with their own wealth. They saw those acts as yet another section in the virtual Berlin Wall of laws being erected by the US government, designed to keep wealth here where they can tax it at punitive rates and exert control on how it is invested.

The result is that many wealthy Americans chose, rather than to meekly accept that they were trapped here, to flee before things got even worse. Most people who learned of this wealth flight simply considered that line of thought to be paranoid. The USA Patriot Act and the above proposed punitive legislation is proof positive that they were not paranoid. They were right.

But, because of the Health Insurance Portability and Accountability Act, they were forced to take ALL of their wealth with them or risk it being confiscated by the IRS to pay that 10 years worth of taxes. So, not only did those acts actually cause and increase in expatriation, rather than a decrease, it had the additional negative effect of forcing these expats to take ALL of their wealth with them when they leave, thus exacerbating an already bad situation.

But what will happen now that the major media is beginning to take notice? Wealthy investors drove the market down sharply upon news of a boiler explosion in New York last week. What do you think they will do as the level of wealth expatriation becomes public knowledge?

Every time Congress passes more wealth punitive legislation, expatriation jumps. The USA Patriot Act, the Reversing the Expatriation of Profits Offshore Act and the Corporate Patriot Enforcement Act of 2002 would be enough to make more that a few wealthy individuals and corporations leave. But, now that the major media is taking notice, wealth expatriation could very well skyrocket.

The important thing to remember is that expatriation of the wealthy is not generally undertaken by choice. They are not, as Sen. Gephardt so erroneously calls them, "unpatriotic". Rather, the wealthy are leaving, because Sen. Gephardt and others in our government have left them no other choice. It isn't wrong or unpatriotic to protect what you have earned from confiscation. What is unpatriotic is for Grassley, Gephardt and others in Congress to use their power to try to control wealth that they did not earn, thus putting all Americans at risk of financial collapse.

For more info on capital flight and the serious threat that it represents, see the Tax and Economy section of Action America. In particular, see the recently updated, "Tick-Tick-Tick - The Economy Bomb".

Wealth is leaving the United States as a direct result of repressive laws passed by Congress. It can be stopped or even reversed. But, that cannot happen as long as there is an agency like the IRS, tasked with looking into every American's personal finances and threatening corporations with an incomprehensible tax code. Things have now become so bad that the only thing that has a chance of reversing this trend is the repeal of the 16th Amendment and the implementation of a National Retail Sales Tax.

Actually, they do know the answer to stemming the expatriate tied

How true:

Rep. Bill Archer, Chairman, House Ways and Means Committee:

"A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."

... why don't they fix it?

Walter Williams, World Net Daily, 10-25-2000

According to the most recent U.S. Treasury Department figures, ... the top 50 percent ($36,000 and over) paid 96 percent of income taxes. Guess what the bottom 50 percent of income earners paid?
If you're among those who pay little or no federal income taxes, what do you care about tax cuts? Moreover, if you think tax cuts pose a threat to government handout programs, you might be openly hostile and support Al Gore's silly "risky scheme" talk. So many Americans paying little or no federal taxes makes for a natural spending constituency. It's like me in the restaurant: What do I care about extravagance if you're footing the bill?

The siren call for representation without taxation is the formula that got us where we are at today. The ability to hide or disguise taxation from the view of large sectors of the electorate allows the Congress to get away with the creation of the evergrowing monster that it fosters.

A government which robs Peter to pay Paul can always depend on the support of Paul.
-George Bernard Shaw

Liberty and freedom have a price, responsibility. If that price is is not perceived there are no brakes on the growth of government, the ultimate result is the end of freedom through creeping socialism.

70% of the voting public clamors for more from government, believing the other guy behind the tree foots the bill. Unfortunately the people are once again snookered into believing in the Congressional toothfairy.

Seems they need a wake up call.

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