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EDITIONS
Friday, 26 July, 2002, 09:03 GMT 10:03 UK
California bans tax dodgers
Hamilton, the capital of Bermuda
Bermuda: a popular location for a PO Box headquarters
California, the most populous and richest state in the US, will no longer do business with or invest in companies that dodge US taxes.

In recent months a flood of firms have moved their official address from America to offshore havens including the Cayman Islands and Bermuda to avoid paying tax at home.


California is the 800-pound gorilla of the states... A board that doesn't take notice probably isn't doing its job

Patrick McGurn
Institutional Shareholder Investors
But in most cases the only sign of their new headquarters is a postbox and perhaps a lawyer, while everything else stays exactly where it was in the US.

Now the California state treasurer's office, which controls $45bn in state and local funds, lists 23 such companies which are not acceptable business partners.

It has also called on two massive California public pension funds to pull $750m of investments in them as well.

Sham

Philip Angelides, the state treasurer, was clear on what the companies had done.

"Corporations hiding behind a mailbox in Bermuda are shirking their duty as Americans, and undermining confidence in the financial system," he told reporters.

"We will use our clout as investors to let companies know we will not tolerate this type of irresponsible conduct."

He compared their behaviour with that of companies such as Enron and WorldCom which have been accused of fiddling their figures to improve their share price.

"These sham transactions, like the accounting of scandals at Enron and WorldCom, are the kinds of deceptive corporate practices that have shaken the financial marketplace and cost families, pensioners and taxpayers billions," he said.

Moving offshore also makes it more difficult for shareholders to keep tabs on the company they own, and more difficult to sue if necessary, he said.

Mr Angelides is on the board of the California Public Employees Retirement System (CalPERS) and the State Teachers' Retirement System (CalSTRS), whose collective financial weight amounts to over $250bn.

CalPERS will discuss the proposal to sell up its holdings in the firms on the list at its next board meeting in August.

Dodging the tax bullet

The flight to a phantom existence on islands in the Caribbean or the Gulf of Mexico comes as an increasing number of US companies complain that taxation at home is more onerous than that faced by foreign competitors.

Police in the Cayman Islands
Not necessarily the best defence against tax evasion
In response, big consultancies have advised that they relocate their official headquarters elsewhere.

Among those who have taken advantage are Tyco - whose former chief executive is himself currently under arrest for suspected tax dodging - and Ingersoll-Rand, both companies which are on Mr Angelides' list.

The consultants are taking their own advice too, with Accenture - formerly part of auditors Andersen - and PricewaterhouseCoopers' new spin-off Monday both deciding to head offshore.

Congress fights back

Many Republicans are broadly in favour of what they are doing - although in the wake of recent corporate scandals, few - bar a handful of rightwing think tanks, most prominently the Centre for Freedom and Prosperity - are prepared to say so in public.

But others say the move is unpatriotic, and both Democratic and Republican legislators are pushing new laws to prevent the practice.

Jim Maloney, who represents Connecticut in the House of Representatives, believes companies are being unpatriotic.

His line, and that of Senators including Iowa Republican Chuck Grassley, is that because their offices stay put and therefore continue to use US services without paying a penny to support them, they are effectively swindling other taxpayers.

Connecticut's Stanley Works, a century-old manufacturer, was stalled in its attempt to move offshore by a court case which held it had mishandled the shareholder ballot on the decision.

Take note

But it is California's action - unhampered by lobbyists' millions - that is likely to have more effect on the companies in question.

"California is the 800-pound gorilla of the states, so I don't think anybody can afford to ignore it," said Patrick McGurn, director of corporate programmes at Institutional Shareholder Investors.

"A board that wouldn't take notice of the action probably isn't doing its job."

  • The full list published by the state treasurer includes: Accenture, APW, Cooper Industries, Everest Re, Foster Wheeler, GlobalSantaFe, Gold Reserve, Helen of Troy, Ingersoll-Rand, LEucadia National Corp, McDermott International, Monday, Nabors Industries, Noble Corp (Drilling), PXRE Corp, Stanley Works, Transocean Offshore, Tyco International, Veritas DGC, Weatherford International, White Mountains Insurance, Xoma Corp.
  • See also:

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