No one enjoys paying taxes, but it’s our duty as citizens, part of the bargain we make in forming and supporting governments.
By Michael Carroll - Editor
February 2002
Institutional Investor Magazine
That simple fact doesn’t make April 15 any easier, and it doesn’t weaken our desire to fork over as little as possible to Uncle Sam. Yet nothing seems to grate quite as much as when we learn how others, especially the most well-off, are dodging their taxes. We can’t help feeling had, even though most of us feel an obligation to pay for our roads, our bridges and our military.
This taxing dilemma strikes ordinary citizens and companies alike. Lately, some companies have decided that their obligation to shareholders outweighs their duties as tax-payers. This month Senior Editor Hal Lux takes a close look at one of the more disquieting maneuvers U.S. businesses, like the venerable Ingersoll-Rand Co., are taking to avoid paying taxes: They’re moving out of America, often to Bermuda - on paper anyway. As Lux notes in “Nationalities of Convenience,” beginning on page 37, the move is mostly fiction. Everything stays in the U.S., from assembly lines to the CEO’s office. The company simply hoists a Bermuda flag of convenience, and voilö, it no longer pays taxes on income earned overseas. In Ingersoll-Rand’s case, that means a savings of at least $40 million per year. That’s not much, but put enough of these moves together and you’re starting to talk about real money: some Head Start breakfasts here, a few Bradley Fighting Vehicles there.
Sure, some U.S. tax laws can seem off base, and corporations are not the same as individuals when it comes to citizenship status. But post-September 11, as many businesses wrap themselves in Old Glory, it leaves a distinctly sour taste to see companies skipping the country to save a few million.
“There’s a great financial argument to be made for leaving the country, and it’s perfectly legal,” says Lux, “but most Americans will view such moves as unpatriotic, which is why companies don’t want to talk about what they’re doing.”
Of course, they have the right to remain silent. That’s one of the great things about America.
