Federal Contracts Ban Eased on Firms With Offshore Tax Havens

October 8, 2009

(ChattahBox)—The Senate has proposed a loosening of a federal contracts ban on so called, “inverted” companies that place the majority of their operations outside of the United States to avoid paying taxes. The easing of the ban was heavily lobbied for by the U.S. Chamber of Commerce and other corporate groups.

The move is being criticized by public interest watchdog groups, like PIRG, which referred to the limit on the ban, as a “big corporate loophole.”

Senators originally supporting the ban on inverted companies, like Sen. Susan Collins (R-Maine) insist the new language limiting the ban, would not permit companies to avoid paying U.S. taxes, while benefiting from federal contracts.

In 2002, Collins strongly criticized companies with offshore tax havens, while supporting the ban. “These companies create phony foreign headquarters in a file folder or a mailbox to escape taxes and then use other people’s taxes to turn a profit,” said Collins.

The original ban on companies with the majority of their operations in offshore tax havens was first included in the 2002 Homeland Security Act and was later expanded to include other government contracts, as well.

The Senate proposal loosens the ban by adding language that states the ban “shall not apply to the extent that it is inconsistent with United States obligations under an international agreement.”

Chris Braddock, the Chamber’s senior antitrust director, described the new language as protecting companies from “…violating trade agreements.”

The Senate Appropriations subcommittee still needs to vote on the new language easing the restrictions on inverted companies, and it would have to be reconciled with a current House Bill absent limitations on the ban.



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