Are Corporate Tax Havens Unpatriotic?

W A S H I N G T O N, March 5 -- This could be a fateful week for American corporations considering a move offshore to avoid taxes and please stockholders.

Rep. Richard Neal, D-Mass., plans to introduce a bill that would seek to deter American companies from moving to paper headquarters in Bermuda and elsewhere outside the United States.

" I think it's a sophisticated way of avoiding taxes," said Neal, whose legislation would redefine such corporations as American for tax purposes, meaning they would owe their full U.S. taxes anyway.

"Where we are getting ready for a $40 billion proposal to rebuild our national defenses, $13 to $18 billion for homeland security," Neal told ABCNEWS, "why should we suggest that those who are in the best position to pay [taxes]" be allowed to go out of their way to avoid them?

From Mount Rushmore to Bermuda

Ingersoll-Rand is the latest example. The corporation was founded in 1905 by the merger of two American firms in the equipment and manufacturing business. Its admirers like to point out that IR's jackhammers helped create the faces on Mount Rushmore. More recently, it has asked the U.S. government to buy its airport security devices, which are supposed to help identify suspected terrorists.

In December, Ingersoll-Rand completed the creation of a paper headquarters offshore. Now, it is represented by three British citizens sitting in an office at 2 Church Street in Hamilton, the capital of Bermuda. The paper transaction allows the American equipment maker to legally avoid about $40 million per year in U.S. taxes.

Some tax experts justify Ingersoll-Rand's action by saying it absolves them of obligations to pay taxes on profits earned by overseas subsidiaries. Ingersoll-Rand refused to comment despite repeated requests.

"The real question," says Peter Baumbusch, a tax partner of the Los Angeles law firm of Gibson, Dunn & Crutcher, "is why should the United States add its tax burden to income that had nothing to do with the United States other than the place of incorporation?"