By Walter Alarkon - 11/10/09 11:00 AM EST
Only a handful of companies could benefit from the language, but they could receive a windfall if the Senate legislation is approved.
The provision, inserted in the Senate version of the bill at the request of the Obama administration, would weaken a ban on federal contracts for inverted companies by saying the ban will not apply if it is inconsistent with U.S. obligations under an international agreement.
Before the ban began in 2002, four of the 100 largest federal contractors were inverted, according to a Government Accountability Office (GAO) report.
In 2001, those four companies received $2.7 billion in federal contracts, but they have unable to win the contracts since the ban was put into place.
The largest of those four companies is McDermott International, an engineering and construction company incorporated in Panama that focuses on oil and energy projects.
McDermott, which is lobbying lawmakers on the ban, according to federal lobbying disclosure reports, received nearly $1.9 billion in federal contracts in 2001. Lobbyists for the company did not respond to a request for comment.
Sen. Byron Dorgan (D-N.D.) said last week in a floor speech that the proposed limit to the ban would allow an inverted company in Panama to get federal contracts it can’t acquire now. Dorgan was specifically referring to McDermott, his office said.
Accenture, a consulting, technology-services and outsourcing firm incorporated in Bermuda, has also lobbied on contracting provisions in the Senate financial services spending bill, according to the disclosure reports. It had the third-largest haul in federal contracts in 2001.
John Jaskot, a partner at Jones Walker lobbying for Accenture, said that the firm is monitoring the ban.
Dorgan and a bipartisan group of other lawmakers are looking to protect the ban and keep inverted companies from getting U.S. government contracts.
The Senate bill has yet to hit the floor, while a bill approved by the House does not include the language weakening the ban.
“The only reason you want to invert and get rid of your American citizenship is to avoid paying U.S. taxes,” Dorgan said. “We say: ‘You don’t want to pay U.S. taxes, you know what? You ought not get to do business with the federal government.’ ”
The ban’s supporters include Sen. Carl Levin (D-Mich.) and Rep. Lloyd Doggett (D-Texas), who have introduced a tax reform bill aimed at companies sheltering revenue from taxes in offshore accounts. Supporters also include Sens. Dick Durbin (D-Ill.) and Susan Collins (R-Maine), the chairman and ranking member, respectively, of the Senate Appropriations subcommittee that wrote the financial services bill.
Durbin “will be working ... to see that such inverted companies do not receive federal contracts,” one of his aides said.
Though Durbin helped draft the bill with the proposed change to the ban included in it, he took a closer look at the language after hearing from the ban’s supporters and the administration, the aide said. The aide noted that Durbin has long backed efforts to force offshore companies to pay their taxes.
The prohibition was first instituted in 2002 on Department of Homeland Security contracts. It was later extended to all federal contracts funded through the appropriations process.
The Obama administration proposed the language providing exceptions to the ban because of its concern that the prohibition will conflict with trade agreements.
“The administration recognizes the important tax policy underlying the inverted corporation provision and is working with Congress to find a way to implement the prohibition in a manner that is consistent with our international trade obligations,” said Tom Gavin, a spokesman for the White House Office of Management and Budget.
The European Union in a report on trade-restrictive measures released on Monday listed the language in the Financial Services spending bill, and said it would be monitoring the situation.
Under the government procurement agreement in the World Trade Organization (WTO), the U.S. is supposed to give foreign companies the ability to bid for federal contracts. Those that have signed the agreement agree not to discriminate against foreign companies bidding for contracts.
The administration and the proposed language has a big backer in the U.S. Chamber of Commerce. Chris Braddock, the Chamber’s senior director of procurement policy, argued that the ban in its current form could run afoul of trade agreements. Braddock noted that the proposed language is similar to a provision in the $787 billion stimulus pushed for by the Obama administration to allay its trade partners’ concerns over “Buy American” provisions, requiring that stimulus money go to domestic companies.
Dorgan said that concerns over the ban’s effect on trade agreements is “absurd.” He suggested that the bigger priority should be getting companies to pay their share of taxes when the deficit is reaching record levels.
“My point is when you talk about the need for fiscal policy reform, let’s cut some spending, let’s tighten our belts,” he said. “Let’s also ask some interests that decided they want all the benefits America has to offer but they don’t want to pay taxes, let’s ask them to become paying citizens, corporate tax-paying citizens once again.”