The Obama administration quietly handed a victory to U.S. companies that avoid taxes by claiming a foreign address, suggesting that virtually all of them are still eligible for government contracts.
The Department of Homeland Security last year endorsed a legal memorandum that argued in part that a 2002 law banning such companies from federal contracts was invalid, according to a copy of the memo obtained by Bloomberg News. Although President Barack Obama later began publicly criticizing the tax maneuvers known as inversions, there’s no sign that he has reversed the department’s decision.
The March 2013 memo was submitted to Homeland Security by one of the country’s largest inverted companies, the manufacturer Ingersoll-Rand Plc. The company argued in part that U.S. trade agreements with foreign governments invalidated the law that would prohibit it from winning federal contracts.
In a written response last year, a Homeland Security lawyer cleared Ingersoll-Rand for government work without explaining his reasoning, saying only that “we do not have reason to disagree” with the company’s argument. While it was known that Ingersoll-Rand received a green light, it hadn’t been reported that the government accepted a line of reasoning that called the whole law into question.
The correspondence came during a record wave of corporate address changes, including moves by Burger King and medical device-maker Medtronic Plc. Almost 50 companies have now inverted, most of them in the past five years, and a Congressional panel estimated last year that future inversions would cost the Treasury $19.5 billion in forgone revenue over the following decade.
A Homeland Security spokeswoman said the department follows the law and declined to comment further. The White House also declined to comment.
‘Corporate Deserters’
Rosa DeLauro, part of a group of liberal Congressional Democrats who want to tighten the law, called it “abhorrent” that Homeland Security would allow such companies to get contracts. “The federal government should be making it harder for corporate deserters to get contracts, not easier,” she said in a statement.
The administration’s support for Ingersoll-Rand’s reasoning suggests that bills submitted by DeLauro’s group to expand the contracting prohibition to a broader range of companies would have little or no effect. That’s good news for corporate expatriates like Medtronic, Eaton Corp. and Tyco International Plc, which aren’t covered by the current prohibition but are targets of the Democrats’ bill.
Ingersoll-Rand’s decision to switch its tax address from New Jersey to Bermuda in 2001, after more than a century as an American industrial icon, helped cut hundreds of millions of dollars from its tax bills and spur Congress to pass the 2002 contracting ban.