Senate loosens ban on offshore companies with federal contracts

A spending bill moving through the Senate would limit a ban on federal contracts for companies that put most of their operations outside the U.S. for tax purposes.

Language in the Senate financial services and general government appropriations bill would loosen a prohibition first instituted in the 2002 Homeland Security Act.

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The ban applies to so-called “inverted” companies and is meant to ease trade tension in the wake of “Buy American” provisions in the $787 billion stimulus package that prohibited funds from going to foreign companies.

The Senate bill alters the ban by adding language that states the ban “shall not apply to the extent that it is inconsistent with United States obligations under an international agreement.”

The language was lobbied for by business groups such as the U.S. Chamber of Commerce, and is similar to language included in the stimulus bill.

“We don’t want to be violating trade agreements,” said Chris Braddock, the Chamber’s senior director of antitrust. “That’s kind of the genesis of it.”

The proposed language comes after the Obama administration slapped tariffs on Chinese tires imported into the United States. The Chinese government has responded by vowing to look into prices of U.S. poultry sold in China.

The U.S. Public Interest Research Group (PIRG) has criticized the proposed limit as a “big corporate loophole” that would cost taxpayers billions.

“Putting this in as it is — to me it undermines the entire intent of the original legislation,” said Nicole Tichon, PIRG’s federal tax reform and budget advocate.

The original ban had precluded Department of Homeland Security contracts from going to inverted companies. The ban was extended to other government agencies in the omnibus appropriations bill for 2009 that was passed in March.

A bipartisan group of senators pushed for limits on contracts to inverted companies in 2002.

“These companies create phony foreign headquarters in a file folder or a mailbox to escape taxes and then use other people’s taxes to turn a profit,” Sen. Susan Collins (R-Maine) said at the time.

Collins, the ranking Republican on the Senate Appropriations subcommittee that considered the spending bill with the proposed limit on the ban, said Tuesday that she didn’t think the new language would make it easy for companies to circumvent the law and escape taxation.

“That’s not how I interpret it,” she told The Hill when asked about concerns over the new language. “I do support the ban.”

The Senate spending bill has yet to receive a vote on the Senate floor. The House bill, which was passed in July, does not include the new limit on the ban.