[Congressional Record Volume 148, Number 17 (Tuesday, February 26, 2002)]
[Senate]
[Pages S1149-S1151]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   THE BERMUDA TRIANGLE TAX LOOPHOLE

  Mr. WELLSTONE. Mr. President, S. 565 is a very important piece of 
legislation. It is good work. I thank Senator Dodd and others for their 
good work. But there are some other issues that are hanging over us 
like a big cloud.
  In particular, I am talking about the Federal budget. On February 5, 
the President sent us a blueprint for this next decade. I have to say 
that it is a pretty bleak picture. There are cuts in job training 
programs during hard economic times. There is a 50-percent cut in 7(a) 
programs to small businesses that leveraged, for example, $1 billion in 
my State of Minnesota over the last 5 years, in hard economic times.
  There is an inadequate education budget. I don't know whatever 
happened to the language ``leave no child behind,'' but I know we are 
now getting a tin cup budget. We don't have the money for 
prekindergarten. We don't have the money for afterschool programs. At 
the same time we have the tax cuts for the top 10 percent of families 
with incomes of $297,000 and over. At the same time we want to 
eliminate the alternative minimum tax. At the same time, in the energy 
bill, we want to give tax cuts maybe to the tune of $28 billion to oil 
companies that had $40 billion in profits last year.
  We are going to have to make some choices. Do we put children and 
education first? Do we put these big corporations and more tax breaks 
and tax loopholes for these big corporations first? Do we put veterans 
first? Or are we going to have Robin-Hood-in-reverse tax cuts for the 
top 1 percent of the population? Are we going to balance the budget to 
be fiscally responsible, or are we going to be taking the money out of 
the trust funds?
  I ask unanimous consent that this article from the New York Times be 
printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                [From the New York Times, Feb. 18, 2002]

         U.S. Corporations Are Using Bermuda To Slash Tax Bills

                        (By David Cay Johnston)

       A 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, 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, 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; Ingesoll-Rand and Foster Wheeler, 
     both New jersey industrial manufacturers; Nabors Industries, 
     a Texas company that is the nation's largest oil well 
     services company; and Cooper Industries, 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,

[[Page S1150]]

     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, 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.
       Another company, Cooper Industries, expects to lower its 
     worldwide income tax bill to $80 million from about $134 
     million.
       Robert Willens, a tax expert at Lehman Brothers, said that 
     ``any company with a decent amount of foreign income will see 
     its tax rate fall dramatically'' by moving its nominal 
     headquarters to Bermuda.
       ``But the political considerations sometimes prevail,'' he 
     added, ``and companies are understandably reluctant to do 
     something like this because it will not necessarily be 
     properly construed in the marketplace. It may be seen as not 
     patriotic and in the wake of Sept. 11, that is not a good 
     posture for a company.''
       Mr. Willens said that he had personally presented the 
     Bermuda idea to some companies and that the idea had been 
     turned down for just that reason. ``The companies most 
     willing to do this are not household names,'' he said, ``but 
     Stanley Works is verging on a household name.''
       Mr. Gould said Stanley Works, whose products can be found 
     in many home toolboxes, had not received a single complaint 
     that it was being unpatriotic. Only a few shareholders 
     complained, he said, and all were longtime shareholders who 
     will owe taxes on their capital gains if the deal is approved 
     by two-thirds of the Stanley Works shareholders.
       The Internal Revenue Service has ruled that shareholders 
     must pay taxes on any increase in the value of their shares 
     between the date they bought them and the date the company 
     incorporated in Bermuda, even if they do not sell the shares. 
     The government designed this rule to place a price on what it 
     calls tax-motivated expatriation.
       With the stock market depressed, Mr. Willens noted, 
     interest in moving to Bermuda is up because fewer 
     shareholders would owe capital gains. And even when a move to 
     a tax haven occurs, the company is not required to report to 
     the I.R.S. on the holdings of each stock owner. Only the 
     integrity of individual taxpayers ensures that the taxes are 
     paid, as is the case with any tax on capital gains.
       ``I am sure a few get missed,'' Mr. Willens said with a 
     chuckle.
       Peter L. Baumbusch, an international tax lawyer with 
     Gibson, Dunn & Crutcher in Washington, said current tax law 
     discriminated against existing multinational corporations 
     with headquarters in the United States.
       David A. Weisbach, a University of Chicago professor of tax 
     law, said the corporate moves to Bermuda should prompt 
     Congress to review the American corporate tax regime, which 
     was established when American companies sold primarily to the 
     domestic market and few foreign companies had a major 
     presence in the United States.
       ``Should we be taxing worldwide income or not?'' he asked. 
     ``That is the really hard question.''
       Representative Charles B. Rangel of New York, the ranking 
     Democrat on the House Ways and Means Committee, said the 
     patriotism question also needed to be debated.
       ``Some companies flying the Stars and Stripes renounce 
     America when it comes to paying their taxes,'' he said. 
     ``They choose profits over patriotism. So far, the Bush 
     Treasury Department has shown no interest in stopping these 
     corporate moves, or even drawing attention to them. 
     Supporting America is more than about waving the flag and 
     saluting--it's about sharing the sacrifice. That's true of 
     soldiers, citizens, and it should be true of big companies, 
     too.''

  Mr. WELLSTONE. Mr. President, it is in this context that I read from 
this article of last week about a new Bermuda Triangle for big 
businesses where the tax bill goes in, but the check never comes out. 
The article is entitled, ``U.S. Corporations Are Using Bermuda To Slash 
Tax Bills.'' It reveals that a number of prominent U.S. corporations 
using creative paperwork have transformed themselves into Bermuda 
corporations purely to avoid paying their fair share of U.S. taxes. 
These new Bermuda companies are purely shell companies. They are shell 
corporations. They have no staff. They have no offices. They have no 
business activity in Bermuda. They exist for the sole purpose of 
shielding income from the IRS.
  Let me give you a few examples.
  Ingersoll-Rand is paying Bermuda approximately $28,000 in fees to 
save itself $40 million in taxes. Stanley Tools intends to recharter in 
Bermuda and save themselves $30 million a year. Tyco International 
saved $400 million last year in taxes. The list goes on and on.
  Small businesses in Detroit Lakes, MN, or Mankato, MN, or in 
Minneapolis-St. Paul, MN, or in Duluth, MN, cannot avail themselves of 
the Bermuda Triangle. They cannot afford the big-name tax lawyers and 
accountants to show them how to do their books Enron style, but they 
probably wouldn't do it anyway, because the small businesspeople in 
Minnesota do not want to renounce their citizenship, they do not want 
to renounce their patriotism, and they want to pay their fair share of 
taxes as everybody else does.
  So I say to Senators, as we look at these budget priorities, we are 
going to have to decide what we are going to be doing. Are we going to 
go after these tax scofflaws? Are we going to have fair tax relief? Are 
we going to save Social Security or let them get away with this? This 
is really outrageous.
  I simply say that the priority for me, as a Senator, is to go after 
this ``Bermuda triangle'' boondoggle. The priority for me, as a 
Senator, is to go after these multinational corporations that will not 
pay their fair share of taxes. And the priority for me is to make sure 
that Senators vote so we can all be on record as to whether or not we 
want more loopholes, more tax breaks for multinational corporations so 
they do not have to pay their fair share of taxes, and, as a result, we 
do not invest in children and education.
  We say we do not have money for affordable prescription drugs. We say 
there is no money for affordable housing. That is simply outrageous. We 
say we cannot help anybody with health security for themselves and 
their families.
  There are three courses of action I will announce in the Chamber 
today:
  No. 1, the letter to the Finance Committee, saying: I call upon you 
to basically do everything you can do to end this outrageous loophole 
of these multinational corporations setting up these sham offices in 
countries such as Bermuda and not paying taxes.
  No. 2, I say to Senators that on the budget resolution, which will be 
coming up maybe this month--certainly next month--I am going to have an 
amendment which says: Find the savings from these big corporations that 
are not paying their fair share of taxes and are setting up these sham 
offices in countries such as Bermuda and put it into education and 
health care. We will have a straight up-or-down vote on that amendment 
to the budget resolution.

  Then, No. 3, I want to send a Dear Colleague letter out to Senators, 
Democrats and Republicans alike. I definitely will introduce 
legislation. I do not have all the specifics down right now, but it 
seems to me, at a bare minimum, what we can say to these companies is: 
Look, you can set up some sham office in some other country as a tax 
dodge, but if you are doing most of your business in the United States 
of America, you are going to be taxed on the business you do here.
  The second thing we can say to these companies is: You get all kinds 
of tax breaks, you get all kinds of Government help, the assumption 
being you are investing in our economy. But if you are going to set up 
these sham offices, if you are going to be involved in this tax 
avoidance, then you are not going to get any more of these breaks 
because, frankly, you are not being a good citizen corporation; you are 
acting a little bit too much like Enron. You are not being very 
patriotic when you are not willing to pay your fair

[[Page S1151]]

share of taxes. And, frankly, as Senators, we are sick of the tradeoff. 
We do not like going back to our States and saying to law enforcement: 
We are going to have to cut the COPS Program by 80 percent. We do not 
like to tell small businesses they are not going to have access to low-
interest loans. We do not like telling our schools and our children 
there isn't going to be the money for education. We do not like telling 
elderly people: God knows for how long all of us who have run for 
office have promised there will be affordable prescription drugs, but, 
sorry, we do not have any money to do any of that for you. We do not 
like telling families who have no health insurance whatsoever: We 
cannot do anything to help you because we have some of these big 
corporations, these multinationals, that have done the opposite of 
being good corporate citizens and basically have set up these 
elaborate, disingenuous, dishonest, tax evasion schemes.
  As a Senator from Minnesota, my priority is to make sure they pay 
their fair share of taxes. That is the very least we can ask of them.
  Mr. President, other than that, I do not feel strongly about this 
issue.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. WELLSTONE. Mr. President, I ask unanimous consent the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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