Reincorporating Overseas No Barrier to Government Contracts

Ingersoll-Rand does hundreds of millions of dollars worth of federal work despite shifting its legal address to Bermuda to avoid taxes.

American manufacturer Ingersoll-Rand Co. forged the tools that carved the Panama Canal and shaped Mount Rushmore. When it shifted its legal address to Bermuda in 2001 to reduce taxes, the maneuver sparked bipartisan outrage in Congress.

“These corporations have turned their back on their country,” Nevada Democrat Harry Reid fumed from the Senate floor, adding that his father, a hard-rock miner, had wielded an Ingersoll-Rand jackhammer. “There is no reason the U.S. government should reward tax runaways with lucrative government contracts.”

Rented Mailboxes

The U.S. has the highest corporate income-tax rate in the developed world, 35 percent. Because the U.S. taxes profits based on the country of the company’s legal incorporation, rather than of executives, factories or customers, switching to an address in a lower-tax nation can dramatically reduce a firm’s tax bills. Before a tax-law change in 2004, this exercise involved little more than completing some paperwork and renting an office or a mailbox in Bermuda or the Cayman Islands.

Never U.S.-Based

All three companies say they’ve complied with the law. James McAvoy, a spokesman for Accenture, said the company isn’t inverted because it was never a U.S.-based organization. When it first separated from Chicago-based Arthur Andersen in 1989, it was set up as a network of separate partnerships around the world overseen by a Swiss entity. For that reason, the U.S. General Accounting Office concluded in 2002 that Accenture wasn’t inverted.

Military Supermarkets

First, Ingersoll-Rand could garner contracts that aren’t funded by annual congressional appropriations. In March 2010, an Ingersoll-Rand unit received a contract to maintain equipment at supermarkets on military bases from Texas to Hawaii. Funded by a 5 percent surcharge on purchases at the stores, the contract has already paid more than $100 million, according to data compiled by Bloomberg.

‘Bidding Groups’

“The characterization that Ingersoll-Rand did anything improper is inaccurate,” said Zelent, the spokeswoman. She added that forming bidding groups on projects is common and “often encouraged by the acquiring governmental agency.”

Swiss Incorporation

Another inverted company that claimed not to be is Foster Wheeler AG, a former New Jersey firm now incorporated in low-tax Switzerland. Scott Lamb, the company’s vice president for investor relations, said the division whose name appears on the filing hasn’t worked for the government since 2006.

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