Why Are So Many Offshore Companies Winning Lucrative Government Contracts?
Despite the Obama administration’s ongoing efforts to crackdown on American companies moving overseas to avoid U.S. taxes, the Treasury Department is still awarding millions of dollars in federal contracts to these companies.
Tyco International for example, moved their firm from the U.S. to Bermuda in 1997 and currently operates out of Switzerland. Despite operating in a known tax haven, Tyco received $4.8 million in federal contacts from 2012 to 2014 from the Treasury Department. Similarly, the insurance brokerage firm Aon has received $3 million in federal money since moving to London in 2012.
In July Ingersoll-Rand, a leading maker of energy-efficient air conditioners, was award $350 million in contracts from the Department of Energy to update government buildings to become more energy efficient. Ingersoll-Rand had moved to Bermuda in 2001, cutting its U.S. tax bill in half, and yet was still honored by the White House this past summer for their work with the government.
According to a review conducted by Bloomberg, an average of $1 billion a year is given in federal contracts to companies operating overseas.
While there is a loosely written ban on government contracts being awarded to foreign companies, corporations are expected to police themselves and simply not apply for contracts that they are not supposed to win. Also, companies that have new headquarters thanks to a takeover of a foreign competitor, that is companies that have completed a corporate inversion, are still eligible to receive government contracts based on the current law.
In July the Democrats introduced the No Federal Contracts for Corporate Deserters Act, which would ban the government from awarding contracts to companies which are run by less than 50 percent American shareholders.
“The federal government has been subsidizing this bad behavior by continuing to reward inverted companies with lucrative federal contracts,” Representative Rose DeLauro, a sponsor of the bill, said. “These companies take advantage of our education system, our research and development incentives, our skilled workforce and our infrastructure, all supported by U.S. taxpayers, to build their businesses. But when the tax bill comes due, they hide overseas.”
Unfortunately, this legislation has stalled on Capitol Hill, due to skepticism that it is not enough to either prevent companies from moving overseas or a harsh enough punishment for the companies that do. In the meantime, corporate inverters are enjoying not only their tax cuts, but a big government payday as well.
