{"article":{"id":15001,"heading":"U.S. Companies File in Bermuda to Slash Tax Bills","author":"DAVID CAY JOHNSTON for New York Times","created":"2002-02-19 19:31:12","modified":"2005-08-15 00:53:52","last_modified":"Mon, 15 Aug 2005 07:53:52","article":"

U.S. Companies File in Bermuda to Slash Tax Bills

By DAVID CAY JOHNSTON

growing number of American companies,

encouraged by their financial advisers,

are incorporating in Bermuda to lower

their taxes sharply without giving up the benefits

of doing business in the United States.

Insurance companies led the way, but now

manufacturers and other kinds of companies are

following.

Stanley Works (news\/quote), for 159 years a

Connecticut maker of hammers and wrenches,

is among the latest with plans to become a

corporation in Bermuda, where there is no

income tax. The company estimates that it will

cut its tax bill by $30 million a year, to about $80

million.

Tyco International (news\/quote), a diversified

manufacturer with headquarters in Exeter, N.H.,

says that being a Bermuda corporation saved it

more than $400 million last year alone. Other

companies that have incorporated in Bermuda or

plan to do so include Global Crossing, a Beverly

Hills, Calif., telecommunications company; Ingersoll-Rand (news\/quote) and Foster

Wheeler (news\/quote), both New Jersey industrial manufacturers; Nabors Industries

(news\/quote), a Texas company that is the nation's largest oil well services

company; and Cooper Industries (news\/quote), a Houston manufacturer of industrial

equipment.

Becoming a Bermuda company is a paper transaction, as easy as securing a mail

drop there and paying some fees, while keeping the working headquarters back in

the United States.

Bermuda is charging Ingersoll- Rand just $27,653 a year for a move that allows the

company to avoid at least $40 million annually in American corporate income taxes.

The company is not required to conduct any meetings in Bermuda and will not even

have an office there, said its chief financial officer, David W. Devonshire.

\"We just pay a service organization\" to accept mail, he said.

Kate Barton, an Ernst & Young tax partner, said that incorporating in Bermuda \"is a

megatrend we are seeing in the marketplace right now.\" Many corporations that are

planning the move have not yet announced it, she said.

In a Webcast to clients, Ms. Barton cited patriotism as the only potentially troubling

issue that corporations consider before moving to Bermuda, and she said that

profits trumped patriotism.

\"Is it the right time to be migrating a corporation's headquarters to an offshore

location?\" she asked. \"And yet, that said, we are working through a lot of companies

who feel that it is, that just the improvement on earnings is powerful enough that

maybe the patriotism issue needs to take a back seat to that.\"

The White House has said nothing about these moves and their effect on tax

revenues. Mark A. Weinberger, chief of tax policy in the Treasury Department, said the

moves to Bermuda and other tax havens showed that the American tax system might

be driving companies to make such decisions. \"We may need to rethink some of our

international tax rules that were written 30 years ago when our economy was very

different and that now may be impeding the ability of U.S. companies to compete

internationally.\"

But others have expressed concern about the trend. Senator Charles E. Grassley of

Iowa, the ranking Republican on the Senate Finance Committee, expressed alarm.

\"There is no business reason for doing this, other than to escape U.S. taxation. I

believe the Finance Committee needs to investigate this activity.\"

There is no official estimate of how much the Bermuda moves are costing the

government in tax revenues, and the Bush administration is not trying to come up

with one.

A Bermuda address is being recommended by many legal, accounting and

investment advisers. Stanley Works, for example, relied on Ernst & Young for

accounting advice, Skadden Arps Slate Meagher & Flom for legal advice, and

Goldman, Sachs for investment advice.

Ingersoll-Rand's top tax officer, Gerald Swimmer, said all of the major investment

houses and accounting firms had presented the idea to his company.

Ingersoll-Rand expects its worldwide income taxes to fall to less than $115 million

from about $155 million annually.

Many companies looking for tax havens abroad are choosing Bermuda because it is

close, its political system is stable and it uses a legal system similar to that of the

United States. But some, like Seagate Technology (news\/quote), the California

maker of computer disk drives, have gone to the Cayman Islands and other places.

Insurers have also flocked to Bermuda to escape most insurance regulations,

including how much money they must hold in reserve to pay claims.

Since companies that move to Bermuda usually keep their main offices in the United

States, they continue to have all the security provided by the American government,

the legal system and the courts.

But by moving to Bermuda, their income from outside the United States becomes

exempt from American taxes. Also, when the American company borrows from its

Bermuda parent, the interest it pays creates a deduction that reduces U.S. taxes, but

there is no tax on the interest earned by the Bermuda parent.

These companies say they are moving because their worldwide tax rates are higher

than those of foreign competitors. Stanley Works expects its worldwide tax rate to fall

to 23 percent to 25 percent of profits, down from 32 percent now, said Gerard J.

Gould, Stanley's vice president for investor relations. \n","contact":"","link":"","address":"www.nytimes.com","phone":"","parent_id":0,"mime_type":"text\/plain","summary":"in light of the whole enron thing...","numcomment":0,"fileurl":"\/uploads\/2002\/02\/u.s._h7m80v.txt","filesize":"7.0 kibibytes","article_url":"\/news\/2002\/02\/15001.php"},"attachments":[],"comments":[]}