US 'pays offshore firms $1bn'

Bermuda and the Caymans are the favoured destinations

Companies which have moved offshore to avoid paying US taxes are making a billion dollars a year from US government contracts, an Associated Press investigation has found.

The figure marks an 18% increase over the most recent comparable data, collected in 2001 by Democratic staffers on the House of Representatives Ways & Means Committee.

The biggest beneficiary of government largesse in the 2002 financial year was Bermuda-based consulting firm Accenture with $440.9m (£267m ; 371m euros), according to AP.

Tax loopholes have encouraged a number of big firms to carry out a "corporate inversion", where the company moves - usually in name only - to an offshore location while its operations and management remain in the US.

CORPORATE INVERTERS

Which offshore companies make the most out of the US government in 2002?

Accenture (accounting): $440.9m

Foster Wheeler (engineering): $292.3m

Tyco (electronics, healthcare, security): $72.9m

APW (electronics): $9.1m

Ingersoll-Rand (equipment, security): $7.6m

AP carried out a computer analysis of federal government contracts to discover which offshore-based companies were winning government business.

Democrats in the US Senate have twice tried to stop such companies from getting contracts with the new Department of Homeland Security, but each time their amendments to budget bills have been blocked by Republicans.

"It's outrageous that we would do business with these folks," said Richard Neal, a House Democrat. "They are shirking their citizenship."

But Republicans including Michael Oxley, chairman of the House Financial Services Committee, say closing the loophole should only happen as part of a wholesale review of corporate tax law.

'Competitive pressure'

The companies concerned often say there are perfectly valid reasons for their actions, and spend millions on lobbying legislators to make sure the loopholes stay open.

The UK government's own offshore deal

US tax law disadvantages them compared to their overseas competitors, they argue.

But some have been forced to change their mind by public outcry, including toolmaker Stanley Works, which rescinded its plans to shift to Bermuda from its Connecticut home when local lawmakers and its own staff began protesting.

And last year, the treasurer of the state of California produced a list of 23 "inverters" which would no longer be allowed to bid for the state's business.