International Taxation: Information on Federal Contractors With
Offshore Subsidiaries (02-FEB-04, GAO-04-293).
Every year, U.S.-based multinational corporations transfer
hundreds of billions of dollars of goods and services between
their affiliates in the United States and their foreign
subsidiaries. Such transactions may be a part of normal business
operations for corporations with foreign subsidiaries. However,
it is generally recognized that given the variation in corporate
tax rates across countries, an incentive exists for corporations
with foreign subsidiaries to reduce their overall tax burden by
maximizing the income they report in countries with low income
tax rates, and minimizing the income they report in or repatriate
to countries with high income tax rates. Various studies have
suggested that U.S.-based multinational corporations appear to
engage in transactions such as these that shift income from their
affiliates in high-tax countries to subsidiaries in low-tax
countries to take advantage of the differences in tax rates in
foreign countries. In 2002, GAO reported that 4 of the 100
largest publicly traded federal contractors are incorporated in a
"tax haven" country that either does not tax corporate income or
taxes the income at a low rate. As a follow-up to the report,
Congress asked us to determine which, if any, of the 100 largest
publicly traded federal contractors we identified in our 2002
report have subsidiaries that are incorporated in a tax haven
country. Congress further asked us to determine, to the extent
possible, which of these subsidiaries are Foreign Sales
Corporations, a type of corporation that can exempt a portion of
its foreign sales income from U.S. tax.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-293
ACCNO: A09192
TITLE: International Taxation: Information on Federal
Contractors With Offshore Subsidiaries
DATE: 02/02/2004
SUBJECT: Federal taxes
Tax administration
Tax shelters
Multinational corporations
Reporting requirements
Income taxes
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GAO-04-293
Report to Congressional Requesters
February 2004
INTERNATIONAL TAXATION
Information on Federal Contractors With Offshore Subsidiaries
Contents
Tables
February 2, 2004Letter
The Honorable Byron Dorgan Ranking Minority Member Subcommittee on
Competition, Foreign Commerce, and Infrastructure Committee on Commerce,
Science, and Transportation United States Senate
The Honorable Carl Levin Ranking Minority Member Permanent Subcommittee on
Investigations Committee on Governmental Affairs United States Senate
Every year, U.S.-based multinational corporations transfer hundreds of
billions of dollars of goods and services between their affiliates in the
United States and their foreign subsidiaries. Such transactions may be a
part of normal business operations for corporations with foreign
subsidiaries. However, it is generally recognized that given the variation
in corporate tax rates across countries, an incentive exists for
corporations with foreign subsidiaries to reduce their overall tax burden
by maximizing the income they report in countries with low income tax
rates, and minimizing the income they report in or repatriate to countries
with high income tax rates. Various studies have suggested that U.S.-based
multinational corporations appear to engage in transactions such as these
that shift income from their affiliates in high-tax countries to
subsidiaries in low-tax countries to take advantage of the differences in
tax rates in foreign countries.1
In 2002, GAO reported that 4 of the 100 largest publicly traded federal
contractors are incorporated in a "tax haven" country that either does not
tax corporate income or taxes the income at a low rate.2 As a follow-up to
the report, you asked us to determine which, if any, of the 100 largest
publicly traded federal contractors we identified in our 2002 report have
subsidiaries that are incorporated in a tax haven country. You further
asked us to determine, to the extent possible, which of these subsidiaries
are Foreign Sales Corporations, a type of corporation that can exempt a
portion of its foreign sales income from U.S. tax.
To determine which, if any, of the 100 largest publicly traded federal
contractors (in terms of fiscal year 2001 contract obligations) we
identified in our 2002 report have subsidiaries in a tax haven country, we
reviewed various public documents the corporations filed with the
Securities and Exchange Commission (SEC) on its Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system. We used information from the
documents each corporation filed with the SEC that were the most recent
available at the time we reviewed that corporation's filings. However, as
the SEC only requires public corporations to report their significant
subsidiaries,3 we were only able to identify those subsidiaries that the
contractors reported to the SEC, or disclosed through other means. In
certain cases, we obtained subsidiary information from corporate
representatives or the corporations' Web sites. To determine whether a
country is considered a tax haven, we referred to the criteria the
Organisation of Economic Co-operation and Development (OECD) has developed
to characterize tax haven countries. We did not attempt to determine if
corporations with subsidiaries in tax haven countries engaged in
transactions with their subsidiaries intended to reduce their overall tax
burden. (For a more detailed discussion of our scope and methodology, see
app. I). We conducted our review between July and December 2003 in
accordance with generally accepted government auditing standards.
Results in Brief
Fifty-nine of the 100 largest publicly traded federal contractors from
fiscal year 2001 report having a subsidiary in a tax haven country.
Fifty-eight of these 59 corporations also report having additional foreign
subsidiaries in countries other than tax havens. Likewise, 26 of the 59
corporations that report having a subsidiary in a tax haven country report
that at least one of these subsidiaries is a Foreign Sales Corporation.
Four of these 26 contractors also report having additional Foreign Sales
Corporations in countries other than tax havens. However, as the SEC only
requires corporations to report their significant subsidiaries, there may
be additional corporations among the 100 largest publicly traded federal
contractors that have a subsidiary in a tax haven country. Likewise, some
corporations that report having a subsidiary in a tax haven country could
have additional subsidiaries in tax haven countries that they have not
reported. The simple existence of a subsidiary in a tax haven country
does not signify that a corporation has established that subsidiary
primarily for the purpose of reducing its overall tax burden.
Background
There are few corporations of any significant size that are not faced with
applying international tax rules to some aspect of their business. Under
the U.S. income tax system, domestic corporations are taxed on income
regardless of where it is earned. Thus, U.S. corporations are subject to
U.S. tax on income from foreign operations in addition to the foreign tax
they pay on such income in the country where it is earned.4 However,
income a corporation's foreign subsidiary earns is usually not subject to
U.S. tax until the subsidiary repatriates the income to its U.S. parent.5
The deferral of U.S. tax liability from a foreign subsidiary's income can
provide that subsidiary's U.S. parent corporation with financial benefits
if this income is invested abroad on a long-term basis.
Likewise, every year, U.S.-based multinational corporations transfer
hundreds of billions of dollars of goods and services between their
affiliates in the United States and their foreign subsidiaries. Although
such transactions may be a part of normal business operations for
multinational corporations, variations in corporate tax rates across
countries create the potential for multinational corporations to engage in
transactions with their foreign subsidiaries with the purpose of reducing
their overall tax burden. For example, multinational corporations may try
to maximize the income they report in countries with low tax rates through
the pricing of intercompany transactions of goods or services. Pricing of
intercompany transactions across tax jurisdictions can affect the
distribution of profits and, therefore, taxable income among related
companies. Underpayment of U.S. income taxes can result from the
inappropriate pricing of transactions between interrelated companies with
operations in both the United States and in a country with a lower tax
rate.6 Likewise, multinational corporations may try to minimize income
reported in the United States through deductible interest payments to
their subsidiaries in low-tax countries. Under certain circumstances, the
interest expense that U.S. corporations pay on debt that their foreign
subsidiaries issue them is deductible for U.S. tax purposes, and can serve
to reduce a corporation's taxable income in the United States.
Transactions intended to reduce a corporation's overall tax burden may be
particularly relevant to corporations with subsidiaries in tax haven
countries that impose no or nominal tax on income.
The United States has, however, enacted various legislative provisions
since the 1970s intended to reduce the amount of U.S. tax that U.S.
corporations pay on income earned from the export of goods and services to
foreign countries. One set of these provisions, the Foreign Sales
Corporation (FSC) provisions, was enacted in 1984 as a replacement to the
Domestic International Sales Corporation (DISC) provisions (enacted in
1971).7 A Foreign Sales Corporation generally is not subject to U.S.
income tax on certain foreign trade income, and a U.S. corporation
generally is not subject to U.S. income tax on dividends paid by a Foreign
Sales Corporation out of certain earnings. As such, Foreign Sales
Corporations and their parent corporations can receive a tax benefit from
income reported in the United States that is not available to U.S.
corporations that report income from other types of foreign subsidiaries,
which is taxed without the FSC exemption, generally at the time it is
repatriated to the United States.
The Internal Revenue Service (IRS) estimates that in 2000, the latest year
for which data are available,8 there were 4,200 Foreign Sales Corporations
representing gross receipts of $349.0 billion, total income of $43.9
billion, taxable income of $6.7 billion, and a tax liability of $2.3
billion. An estimated 88 percent of these Foreign Sales Corporations
reported receipts from the sale of manufactured products. Foreign Sales
Corporations can only be established in U.S. possessions (excluding Puerto
Rico) or countries with whom the United States has an agreement on the
exchange of tax information, including a number of tax haven countries.
In 2000, the FSC Repeal and Extraterritorial Income Exclusion Act9
replaced the FSC provisions with the Extraterritorial Income (ETI)
provisions.10 The ETI provisions provide corporations with tax benefits
similar to those the FSC provisions provide. However, the ETI provisions
permit corporations to exclude certain qualifying foreign trade income
from U.S. tax, and are not restricted to the export of goods and services
through a foreign corporation. Although the FSC provisions were repealed
in 2000, Foreign Sales Corporations in existence prior to September 30,
2000, can continue to use the FSC rules for transactions related to a
binding contract with an outside party.
Over Half of the 100 Largest Publicly Traded Federal Contractors Report
Having a Subsidiary in a Tax Haven Country, Including Some that Report
Having a Foreign Sales Corporation in a Tax Haven Country
Eighty-six of the 100 largest publicly traded federal contractors from
fiscal year 2001 report having a foreign subsidiary, of which 59 report
having a subsidiary incorporated in a tax haven country. Of these 59
corporations, 58 also report having additional foreign subsidiaries in
countries other than tax havens. However, as the SEC only requires public
corporations to report their significant subsidiaries, there may be
additional corporations among the 100 largest publicly traded federal
contractors that have a subsidiary in a tax haven country. Likewise, some
corporations that report having a subsidiary in a tax haven country could
have additional subsidiaries in tax haven countries that they have not
reported. However, given SEC regulations, these subsidiaries would not be
"significant" in relation to their parent corporations' consolidated
assets or equity in income from continuing operations. (For a complete
list of the corporations among the 100 largest publicly traded federal
contractors from fiscal year 2001 that report having a subsidiary in a tax
haven country, see app. IV).
In addition, 26 of the 59 federal contractors that report having a
subsidiary in a tax haven country report that at least one of these
subsidiaries is a Foreign Sales Corporation. Four of these 26 corporations
also report having additional Foreign Sales Corporations in countries
other than tax havens. Other than these 26 corporations, one additional
corporation among the 100 largest publicly traded federal contractors
reports having a Foreign Sales Corporation. The predominance of Foreign
Sales Corporations incorporated in tax haven countries among the 100
largest publicly traded federal contractors is comparable to the
incorporation locations of all Foreign Sales Corporations. According to
the IRS, in 2000 an estimated 92 percent of all Foreign Sales Corporations
were incorporated in the tax haven countries of the U.S. Virgin Islands
(52 percent), Barbados (35 percent), and Bermuda (5 percent). According to
an IRS official, the vast majority of Foreign Sales Corporations are
incorporated in tax haven countries because, although a portion of the
income these corporations earn is exempt from U.S. tax, this income may be
subject to tax in the country where it is earned. As such, incorporating a
Foreign Sales Corporation in a country with a high tax rate would not
provide the overall tax savings that the FSC provisions would otherwise
provide.
As SEC regulations do not specifically require corporations to report if a
subsidiary is a Foreign Sales Corporation in their public filings,11
additional corporations among the 100 largest publicly traded federal
contractors that may have a Foreign Sales Corporation in a tax haven or
other country. Furthermore, some corporate representatives we spoke with
stated that their Foreign Sales Corporations are largely dormant or are
being phased out, given that the FSC benefit has been replaced by the ETI
benefit. (For a complete list of the corporations among the 100 largest
federal contractors from fiscal year 2001 that report having a Foreign
Sales Corporation in a tax haven country, see app. IV).
The simple existence of a subsidiary in a tax haven country does not
signify that a corporation has established that subsidiary primarily for
the purpose of reducing its overall tax burden (although the Foreign Sales
Corporation benefit was created for that express purpose). Likewise, we
did not attempt to determine if corporations with subsidiaries in tax
haven countries engaged in transactions with their subsidiaries intended
to reduce their overall tax burden.
Agency Comments
We provided a draft of this report to the IRS and the SEC for their
comment. In a letter dated January 12, 2004, the IRS stated that they had
no comments with regard to tax administration issues, and had referred the
report to the Department of The Treasury to comment on tax policy issues.
On January 12, Treasury provided oral comments on several technical
issues, which we incorporated into this report where appropriate. The SEC
stated in a January 13, 2004, letter that the report provided a useful
description of the 100 largest publicly traded federal contractors'
offshore subsidiaries and related tax matters. On the same date, the SEC
also provided an additional oral comment on a technical matter, which we
incorporated into this report.
As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this report. We will then send copies of this report to
the Commissioner of Internal Revenue, the Chairman, Securities and
Exchange Commission, and other interested parties. We will also make
copies available to others on request. In addition, this report will be
available at no charge on GAO's Web site at http://www.gao.gov.
If you have any questions concerning this report, please contact me on
(202) 512-9110. Key contributors to this report are listed in appendix V.
James R. White Director, Tax Issues
Scope and MethodologyAppendix I
We used the list of the 100 largest publicly traded federal contractors in
fiscal year 2001 identified in our October 2002 report, Information on
Federal Contractors That Are Incorporated Offshore (GAO-03-194R) as the
basis to determine which, if any, of the 100 largest publicly traded
federal contractors have subsidiaries in tax haven countries. To identify
which, if any, of these corporations report having a subsidiary in a tax
haven country, we reviewed various public documents the corporations filed
with the Securities and Exchange Commission (SEC) on its Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system. For U.S. corporations,
we reviewed the lists of subsidiaries that public corporations are
required to include as an exhibit (Exhibit 21)1 to a number of forms they
file with the SEC. We obtained this exhibit from each corporation's Form
10-K2 because, according to the SEC, although U.S. corporations can
include Exhibit 21 with a number of forms, they most often file this
exhibit with Form 10-K on an annual basis. However, for 2 U.S.
corporations, we obtained subsidiary information from Exhibit 21 to Form
S-1,3 because that form was the most recent filed with the SEC that
contained this exhibit. For foreign corporations, we obtained subsidiary
information from Form 20-F,4 or an exhibit to this form (Exhibit 8), which
foreign corporations registered with the SEC file on an annual basis
instead of Form 10-K. For each corporation, we reported information from
the Exhibit 21 or Form 20-F that was the most recent available at the time
we reviewed that corporation's filings with the SEC.
As the SEC only requires public corporations to report their significant
subsidiaries, we were only able to identify those subsidiaries the
contractors reported to the SEC or disclosed through other means. Within
Exhibit 21 or Form 20-F, public corporations may omit information on those
subsidiaries that do not constitute a significant subsidiary when
considered in the aggregate. The SEC considers a subsidiary to be
significant if: 1) the parent corporation and its other subsidiaries'
investments in and advances to the subsidiary exceed 10 percent of the
consolidated total assets of the parent corporation and its subsidiaries,
2) the parent corporation and its other subsidiaries' proportionate share
of the total assets (after intercompany eliminations) of the subsidiary
exceeds 10 percent of the consolidated total assets of the parent
corporation and its subsidiaries, or 3) the parent corporation and its
other subsidiaries' equity in the income from continuing operations5
exceeds 10 percent of the consolidated income from continuing operations
of the parent corporation and its subsidiaries. Corporations may also omit
information on consolidated wholly owned multiple subsidiaries carrying on
the same line of business (such as chain stores). Likewise, the SEC does
not specifically require corporations to report whether a subsidiary is a
Foreign Sales Corporation within their filings.6
For a number of corporations, we supplemented information from EDGAR with
information from corporate representatives or the corporations' Web sites.
For example, we contacted 22 corporations to clarify or supplement unclear
or incomplete information they reported in their Exhibit 21 filings. We
also obtained information on the principle subsidiaries for 5 foreign
corporations that are not registered with the SEC from annual reports or
other information available on these corporations' Web sites. Furthermore,
we contacted the 18 corporations that did not report having any foreign
subsidiaries in their SEC filings to verify this information. Some of
these corporations disclosed having foreign subsidiaries that they did not
report in their SEC filings (implying that in the aggregate, these
corporations did not deem these subsidiaries to be significant), including
4 that disclosed having a foreign subsidiary in a tax haven country (these
corporations are noted in apps. III and IV). We did not contact
corporations that reported having foreign subsidiaries only in countries
other than tax havens to determine if they had additional subsidiaries
incorporated in a tax haven country that they did not report.7
To determine whether a country is considered a tax haven, we referred to
the Organisation of Economic Co-operation and Development's work on tax
havens - OECD, Progress in Identifying and Eliminating Harmful Tax
Practices (2000); The OECD's Project on Harmful Tax Practices: The 2001
Progress Report (November 2001); and List of Unco-operative Tax Havens
(April 18, 2002, and revised on May 20, 2003). Although the OECD does not
provide a unique definition of the term "tax haven," we use the term in
this report because it is the term we used in our October 2002 report to
refer to countries that impose no or nominal tax on corporate income, and
because the OECD has established a set of criteria to characterize a tax
haven country or jurisdiction. Specifically, the OECD stipulates four
major features of a tax haven: 1) no or nominal income tax, 2) rules that
prevent the effective exchange of information with foreign tax
authorities, 3) a lack of transparency in the operation of legislative,
legal, or administrative provisions, and 4) the absence of a requirement
for a substantive local presence. In general, the OECD classifies a
country as a tax haven if it meets the criteria of no or nominal income
tax, and at least one of the other criteria. (For a list of countries the
OECD considers tax havens, see app. II).
Finally, although we identify the corporations among the 100 largest
publicly traded federal contractors that report having a subsidiary in a
tax haven country, we did not attempt to determine if these corporations
engaged in transactions with their subsidiaries intended to reduce their
overall tax burden.
List of Tax Haven Countries Appendix II
The Organisation of Economic Co-operation and Development (OECD) has
identified 39 countries or jurisdictions that they consider to be tax
havens.1 In this report we refer to these 39 countries and jurisdictions
as tax havens:
The 100 Largest Publicly Traded Federal Contractors (Fiscal Year
2001)Appendix III
The following table lists the 100 largest federal contractors that are
publicly traded corporations, their rank among the 100 largest publicly
traded federal contractors in fiscal year 2001, the dollar amount of their
fiscal year 2001 federal contracts, the state or country where they are
incorporated, and the number of their foreign subsidiaries. Unless
otherwise noted, we obtained the information on the number of each
corporation's foreign subsidiaries from forms filed with the Securities
and Exchange Commission. We were unable to provide information on the
number of foreign subsidiaries for the Lockheed Martin Corporation, which
did not include this information in an Exhibit 21 filing, and did not
respond to our request for this information before this report was
completed. Likewise, Honeywell International, Inc., which did not report
having any foreign subsidiaries in its Exhibit 21 filing, provided us with
information on its Foreign Sales Corporations, but not its other foreign
subsidiaries.
Table 1: The 100 Largest Publicly Traded Federal Contractors
Federal contract Number of
Company name Rank obligations FY 2001 Incorporation foreign
(dollars in location subsidiaries
thousands)a
Accenture, Inc. 58 $278,990 Bermuda 153
Affiliated Computer 37 451,067 Delaware 24
Services, Inc.
Alliant Techsystems, 20 826,269 Delaware 0
Inc.
Altria Group, Inc.b 80 149,634 Virginia 263
American Management 13 1,675,676 Delaware 17
Systems, Inc.
AmerisourceBergen 10 1,900,969 Delaware 1r
Corporation
Anteon International 41 406,304 Delaware 4r
Corporationc
Anthem, Inc. 55 293,153 Indiana 0
Archer Daniels 70 189,876 Delaware 9
Midland Company
AT&T Corporation 43 398,326 New York 116r
Avaya, Inc. 94 115,079 Delaware 62
BAE Systems, plc 16 972,526 United Kingdom 6ds
Ball Corporation 78 153,613 Indiana 47
Bearingpoint, Inc.e 90 177,456 Delaware 101
Berkshire Hathaway, 97 111,993 Delaware 13
Inc.
The Boeing Company 2 14,362,243 Delaware 96
BP, plc 36 480,858 United Kingdom 27
CACI International, 46 380,524 Delaware 2
Inc.
Cardinal Health, 40 422,120 Ohio 98
Inc.
CNF, Inc. 54 295,113 Delaware 49r
Computer Associates 75 172,202 Delaware 45
International
Computer Sciences 14 1,648,495 Nevada 97
Corporation
ConAgra Foods, Inc. 83 131,850 Delaware 4
Cubic Corporation 91 117,054 Delaware 6
DaimlerChrysler AG 38 435,921 Germany 1
Dell, Inc.f 34 493,423 Delaware 76
DRS Technologies, 93 116,395 Delaware 10
Inc.
Electronic Data 26 560,767 Delaware 313
Systems Corporation
Engineered Support 50 321,384 Missouri 0r
Systems, Inc.
Exxon Mobil 21 707,283 New Jersey 90
Corporation
FedEx Corporation 64 214,907 Delaware 75
Fluor Corporation 18 931,885 Delaware 202
Ford Motor Company 73 179,126 Delaware 46
Foster Wheeler, Ltd. 57 286,298 Bermuda 92
Furniture Brands 96 112,395 Delaware 9
International, Inc.
GenCorp, Inc. 84 131,848 Ohio 29
General Dynamics 6 4,928,238 Delaware 26g
Corporation
General Electric 12 1,808,984 New York 10
Company
General Motors 63 222,440 Delaware 200
Corporation
Goodrich Corporation 52 308,283 New York 62
GTSI Corporation 42 402,408 Delaware 0r
Halliburton Company 30 534,177 Delaware 131
Harris Corporation 45 389,970 Delaware 32
Health Net, Inc. 17 944,618 Delaware 2
Hillenbrand 95 114,456 Indiana 27
Industries, Inc.
Holly Corporation 87 121,831 Delaware 0
Honeywell 15 1,442,018 Delaware 3r
International, Inc.
Humana, Inc. 44 394,135 Delaware 2
International
Business Machines 33 498,656 New York 98
Corporation
The IT Group, Inc.h 22 671,977 Delaware 25r
ITT Industries, Inc. 19 879,772 Indiana 142
Jacobs Engineering 29 536,130 Delaware 48
Group, Inc.
Johnson Controls, 53 299,592 Wisconsin 76
Inc.
L-3 Communications 35 482,248 Delaware 45r
Holdings, Inc.
Lockheed Martin 1 17,951,303 Maryland unknown
Corporation
Lucent Technologies, 98 107,402 Delaware 93
Inc.
ManTech
International 56 291,513 New Jersey 15
Corporation
McDermott 11 1,885,243 Panama 10
International, Inc.
McKesson Corporation 88 121,526 Delaware 0
Motor Oil (Hellas)
Corinth Refineries 69 199,462 Greece 2s
S.A.
Motorola, Inc. 27 552,520 Delaware 20
Newport News 4 5,689,539 Delaware 0
Shipbuilding, Inc.i
Northrop Grumman 5 5,636,124 Delaware 52r
Corporationj
Olin Corporation 100 104,121 Virginia 13
Oracle Corporation 65 212,468 Delaware 84
Orbital Sciences 77 161,286 Delaware 0
Corporation
Oshkosh Truck 25 566,511 Wisconsin 20
Corporation
Parker-Hannifin 79 153,562 Ohio 95
Corporation
PC Connection, Inc. 92 116,919 Delaware 0
Philipp Holzmann AG 23 655,360 Germany 5s
The Procter and 62 224,212 Ohio 306
Gamble Company
Raytheon Company 3 6,123,605 Delaware 95
Rockwell Automation, 47 372,131 Delaware 10
Inc.k
Rockwell Collins, 61 234,075 Delaware 2
Inc.
Rolls-Royce, plc 49 327,792 United Kingdom 30ls
Science Applications
International 8 2,654,492 Delaware 15
Corporation
Siemens AG 85 124,452 Germany 102
Smiths Group, plc 72 184,232 United Kingdom 11s
Sprint Corporation 82 136,200 Kansas 56
SRA International, 60 234,926 Delaware 0
Inc.
Telos Corporation 89 118,803 Maryland 0mr
Tetra Tech, Inc. 66 211,705 Delaware 3
Texas Instruments, 74 178,631 Delaware 51
Inc.
Textron, Inc. 24 600,533 Delaware 19
The Titan 39 424,087 Delaware 4
Corporation
TRW, Inc.n 9 2,499,816 Ohio 33r
Tyco International, 68 206,387 Bermuda 1,736
Ltd.
Unisys Corporation 28 549,905 Delaware 8
United Industrial 76 171,044 Delaware 2
Corporation
United Technologies 7 3,500,465 Delaware 66
Corporation
URS Corporation 59 262,489 Delaware 94
Valero Energy 51 310,202 Delaware 10
Corporation
Veridian 71 188,960 Delaware 0
Corporationo
Verizon 67 207,210 Delaware 2
Communications, Inc.
The Wackenhut 48 356,968 Florida 47
Corporation p
Washington Group 31 531,234 Delaware 35
International, Inc.
Weston Solutions, 86 124,380 Pennsylvania 1r
Inc.q
WGL Holdings, Inc. 99 105,260 Virginia 0
WorldCom, Inc. 32 503,811 Georgia 187
Xerox Corporation 81 139,224 New York 216
Total $101,770,865
Sources: General Services Administration, Securities and Exchange
Commission, corporate representatives, and GAO Internet research.
a Contract obligations include contracts with subsidiaries.
b Formerly Philip Morris Companies, Inc.
c Formerly Azimuth Technologies, Inc.
d BAE Systems, plc also participates in eight foreign joint ventures.
e Formerly KPMG Consulting, Inc.
f Formerly Dell Computer Corporation.
g Does not include Veridian Corporation (or its subsidiaries), which
General Dynamics acquired after fiscal year 2001. Information on Veridian
Corporation and its subsidiaries are presented separately in this report.
h Assets acquired by the Shaw Group in May 2002; corporation still exists
in bankruptcy.
i Merged with Northrop Grumman Corporation in November 2001.
j Does not include Newport News Shipbuilding or TRW, Inc. (or their
subsidiaries), which Northrop Grumman acquired after fiscal year 2001.
Information on Newport News Shipbuilding and TRW, Inc., and their
subsidiaries are presented separately in this report.
k Formerly Rockwell International Corporation.
l Rolls-Royce, plc also participates in 20 foreign joint ventures.
m Telos Corporation also holds a 50 percent interest in a foreign joint
venture that has been inactive since 2000.
n Acquired by Northrop Grumman Corporation in December 2002.
o Acquired by General Dynamics Corporation in August 2003.
p Acquired by Group 4 Falck (Denmark) in May 2002; does not include
Wackenhut Corrections Corporation (or its subsidiaries), which is now an
independent corporation.
q Formerly Roy F. Weston, Inc. and now privately held.
r Corporation provided information on foreign subsidiaries directly to
GAO.
s Information on foreign subsidiaries from annual report or other
information available on corporation's Web site.
Federal Contractors that Report Having a Subsidiary in a Tax Haven
CountryAppendix IV
The following table shows the 59 corporations among the 100 largest
publicly traded federal contractors that report having a subsidiary
incorporated in a tax haven country. Although the dollar amount of
contract obligations for each corporation includes contracts with their
subsidiaries, we did not identify if these obligations were related to
subsidiaries in tax haven countries. The number of foreign subsidiaries
and number and location(s) of foreign subsidiaries in tax haven countries
include information on Foreign Sales Corporations. For the 26 corporations
that report having a subsidiary in a tax haven country that is a Foreign
Sales Corporation, separate information on the number of Foreign Sales
Corporations and the number and location(s) of Foreign Sales Corporations
in tax haven countries is provided. The information provided for each
corporation is based on its latest available information either filed with
the Securities and Exchange Commission, provided to GAO, or presented on
its Web site at the time we performed our review of that corporation.
Unless otherwise noted, we obtained the information on the number and
locations of foreign subsidiaries and Foreign Sales Corporations for each
corporation from forms filed with the SEC.
Table 2: Corporations Among the 100 Largest Publicly Traded Federal
Contractors that Report Having Subsidiaries and Foreign Sales Corporations
Incorporated in Tax Haven Countries
Federal Number and Number of Number and
contract location(s) subsidiaries location(s)
obligations Incorporation Number of of foreign that are of Foreign
Company name FY 2001 location foreign subsidiaries Foreign Sales
(dollars in subsidiariesb in tax Sales Corporations
thousands)a havensb Corporations in tax
havens
19
Andorra (1)
Bermuda (5)
Accenture, Inc. $278,990 Bermuda 153 0 0
Gibraltar (8)
Isle of Man
(2)
Mauritius (3)
Affiliated 2
Computer 451,067 Delaware 24 0 0
Services, Inc. Barbados
9
Bahamas (1)
British
Virgin 2
Altria Group, Islands (1)
Inc.c 149,634 Virginia 263 2 U.S. Virgin
Cayman
Islands (1) Islands
Panama (3)
U.S. Virgin
Islands (3)
1
Archer Daniels 189,876 Delaware 9 0 0
Midland Company Cayman
Islands
116 5
2
(Subsidiary Cyprus (2)
AT&T 398,326 New York information 2 U.S. Virgin
Corporation provided Panama (1)
directly by Islands
corporation) U.S. Virgin
Islands (2)
4
Bahrain (1)
1
Avaya, Inc. 115,079 Delaware 62 Barbados (1) 1
Barbados
Gibraltar (1)
Panama (1)
22
Aruba (2)
Barbados (1)
Bermuda (8)
Bearingpoint, British
Inc.d 117,456 Delaware 101 Virgin 0 0
Islands (2)
Cayman
Islands (2)
Netherlands
Antilles (6)
Panama (1)
31
Bermuda (6)
British 1
The Boeing Virgin
Company 14,362,243 Delaware 96 Islands (1) 2 U.S. Virgin
Cayman Islands
Islands (1)
U.S. Virgin
Islands (23)
United 1
BP, plc 480,858 Kingdom 27 0 0
Guernsey
5
Barbados (1)
Bermuda (1)
Cardinal
Health, Inc. 422,120 Ohio 98 British 0 0
Virgin
Islands (1)
Malta (1)
St. Lucia (1)
49
(Subsidiary 3
CNF, Inc. 295,113 Delaware information 0 0
provided Bermuda
directly by
corporation)
Computer 1
Associates 172,202 Delaware 45 0 0
International Bahrain
1 1
Cubic
Corporation 117,054 Delaware 6 U.S. Virgin 1 U.S. Virgin
Islands
Islands
3
Barbados (1)
Dell, Inc.e 493,423 Delaware 76 0 0
Cayman
Islands (1)
Panama (1)
8
Bahrain (1) 2
Electronic Data
Systems 560,767 Delaware 313 Barbados (2) 2 Barbados (1)
Corporation
Bermuda (3) Bermuda (1)
Panama (2)
Exxon Mobil 11
Corporation 707,283 New Jersey 90 0 0
Bahamas
13
Antigua (1)
Bahamas (1)
Barbados (1)
Bermuda (1)
Cayman
Islands (2)
FedEx
Corporation 214,907 Delaware 75 Grenada (1) 0 0
Netherlands
Antilles (2)
St. Kitts (1)
St. Lucia (1)
Turks &
Caicos (1)
U.S. Virgin
Islands (1)
27
Barbados (5)
Bermuda (7)
British 2
Fluor 931,885 Delaware 202 Virgin 2
Corporation Islands (2) Barbados
Guernsey (8)
Liechtenstein
(2)
Mauritius (3)
1
Ford Motor 179,126 Delaware 46 0 0
Company Cayman
Islands
8
Bermuda (6)
Foster Wheeler, 286,298 Bermuda 92 0 0
Ltd. Mauritius (1)
Netherlands
Antilles (1)
Furniture 3
Brands
International, 112,395 Delaware 9 Barbados (1) 0 0
Inc.
Vanuatu (2)
2
GenCorp, Inc. 131,848 Ohio 29 Bermuda (1) 0 0
U.S. Virgin
Islands (1)
4
Cayman 1
General Islands (2)
Dynamics 4,928,238 Delaware 26 1 U.S. Virgin
Corporationf Cyprus (1)
Islands
U.S. Virgin
Islands (1)
13
Barbados (3)
Bermuda (2) 3
Cayman Barbados (1)
General Motors 222,440 Delaware 200 Islands (4) 3
Corporation U.S. Virgin
Mauritius (1)
Islands (2)
Netherlands
Antilles (1)
U.S. Virgin
Islands (2)
7
Barbados (2)
2
Cayman
Goodrich Islands (2) Barbados (1)
Corporation 308,283 New York 62 3
Gibraltar (1) U.S. Virgin
Mauritius (1) Islands (1)
U.S. Virgin
Islands (1)
17
Cayman
Halliburton Islands (13)
Company 534,177 Delaware 131 0 0
Liechtenstein
(2)
Panama (2)
3
Bermuda (1) 1
Harris
Corporation 389,970 Delaware 32 Cayman 1 U.S. Virgin
Islands (1)
Islands
U.S. Virgin
Islands (1)
2
Health Net, 944,618 Delaware 2 Bermuda (1) 0 0
Inc.
Cayman
Islands (1)
2
Hillenbrand 1
Industries, 114,456 Indiana 27 Barbados (1) 1
Inc. Barbados
Bermuda (1)
3
Honeywell (Subsidiary 2 2
International, 1,442,018 Delaware information 3
Inc. provided Barbados Barbados
directly by
corporation)
6
Bahamas (1)
International
Business Barbados (1) 1
Machine 498,656 New York 98 1
Corporation Bermuda (2) Barbados
British
Virgin
Islands (2)
3
2
Bermuda (1)
ITT Industries, Bermuda (1)
Inc. 879,772 Indiana 142 Cayman 2
Islands (1) U.S. Virgin
U.S. Virgin Islands (1)
Islands (1)
5
Barbados (1)
Jacobs 1
Engineering 536,130 Delaware 48 Cyprus (1) 1
Group, Inc. Barbados
Panama (1)
U.S. Virgin
Islands (2)
3 3
L-3
Communications 482,248 Delaware 45 U.S. Virgin 3 U.S. Virgin
Holdings, Inc. Islands
Islands
3
Lucent Barbados (1) 1
Technologies, 107,402 Delaware 93 1
Inc. Bermuda (1) Barbados
Cyprus (1)
ManTech 1
International 291,513 New Jersey 15 0 0
Corporation Panama
9
McDermott Mauritius (1)
International, 1,885,243 Panama 10 0 0
Inc. Netherlands
Antilles (1)
Panama (7)
52 2
Northrop (Subsidiary Bermuda (1)
Grumman 5,636,124 Delaware information 1 0
Corporationg provided Cayman
directly by Islands (1)
corporation)
Olin 1
Corporation 104,121 Virginia 13 0 0
Bermuda
4
Cayman
Oracle Islands (2) 1
Corporation 212,468 Delaware 84 1
Barbados (1) Barbados
Netherlands
Antilles (1)
Oshkosh Truck 1
Corporation 566,511 Wisconsin 20 0 0
Barbados
6
Barbados (2)
Bermuda (2) 1
The Procter & 224,212 Ohio 306 1
Gamble Company British Barbados
Virgin
Islands (1)
Cayman
Islands (1)
4 1
Raytheon 6,123,605 Delaware 95 Bermuda (1) 1 U.S. Virgin
Company
U.S. Virgin Islands
Islands (3)
30h
(Subsidiary
United information 1
Rolls-Royce plc 327,792 Kingdom obtained from 0 0
annual report Guernsey
available on
corporation's
Web site)
Science 2
Applications
International 2,654,492 Delaware 15 Barbados (1) 0 0
Corporation
Bermuda (1)
3
Sprint 136,200 Kansas 56 Bermuda (1) 0 0
Corporation
Cayman
Islands (2)
7
Bahamas (1)
Texas Barbados (3) 3
Instruments, 178,631 Delaware 51 3
Inc. Bermuda (1) Barbados
Cayman
Islands (1)
Panama (1)
1 1
Textron, Inc. 600,533 Delaware 19 1
Barbados Barbados
3
Barbados (1)
Titan
Corporation 424,087 Delaware 4 Cayman 0 0
Islands (1)
U.S. Virgin
Islands (1)
33
2
(Subsidiary 1
TRW, Inc. 2,499,816 Ohio information Barbados (1) 2
provided Barbados
directly by Bermuda (1)
corporation)
115
Bahamas (8)
Barbados (17)
Belize (1)
Bermuda (55)
British
Virgin
Islands (3)
Cayman
Islands (5) 1
Tyco
International, 206,387 Bermuda 1,736 Cyprus (3) 1 U.S. Virgin
Ltd.
Gibraltar (5) Islands
Isle of Man
(1)
Jersey (2)
Marshall
Islands (8)
Mauritius (3)
Panama (2)
U.S. Virgin
Islands (2)
United 4
Technologies 3,500,465 Delaware 66 0 0
Corporation Cayman
Islands
7
Bermuda (1)
URS Corporation 262,489 Delaware 94 Cayman 0 0
Islands (1)
Cyprus (4)
Panama (1)
Valero Energy 2
Corporation 310,202 Delaware 10 0 0
Bermuda
Verizon 1
Communications, 207,210 Delaware 2 0 0
Inc. Bermuda
3
The Wackenhut
Corporationi 356,968 Florida 47 Belize (1) 0 0
Panama (2)
Washington 1
Group 531,234 Delaware 35 0 0
International Bermuda
10
Barbados (1)
Bermuda (3)
WorldCom, Inc. 503,811 Georgia 187 British 0 0
Virgin
Islands (1)
Cayman
Islands (1)
Panama (4)
24
Aruba (1)
Barbados (4)
Bermuda (10)
Cyprus (1)
Xerox 2
Corporation 139,224 New York 216 Jersey (1) 2
Barbados
Mauritius (1)
Netherlands
Antilles (3)
Panama (2)
Turks &
Caicos (1)
Sources: General Services Administration, Securities and Exchange
Commission, corporate representatives, and GAO Internet research.
a Contract obligations include contracts with subsidiaries.
b Includes foreign sales corporations.
c Formerly Philip Morris Companies, Inc.
d Formerly KPMG Consulting, Inc.
e Formerly Dell Computer Corporation.
f Subsidiary and Foreign Sales Corporation information does not include
Veridian Corporation (or its subsidiaries), which General Dynamics
acquired after fiscal year 2001. Information on Veridian Corporation and
its subsidiaries are presented separately in this report.
g Subsidiary and Foreign Sales Corporation information does not include
Newport News Shipbuilding or TRW, Inc. (or their subsidiaries), which
Northrop Grumman acquired after fiscal year 2001. Information on Newport
News Shipbuilding and TRW, Inc., and their subsidiaries are presented
separately in this report.
h Rolls-Royce, plc also participates in 20 foreign joint ventures,
including one joint venture incorporated in the tax haven country of Isle
of Man.
i Acquired by Group 4 Falck (Denmark) in May 2002; does not include
Wackenhut Corrections Corporation (or its subsidiaries), which is now an
independent corporation.
GAO Contacts and Staff AcknowledgmentsAppendix V
GAO Contacts
James R. White, (202) 512-9110 Ralph T. Block, (415) 904-2150
Acknowledgments
In addition to the individuals above, Jeff Arkin, Amy Friedheim, Shirley
Jones, Amy Rosewarne, and Jennifer Wong made key contributions to this
report.
(450245)
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