Limit on Contracts for Inverted Companies Wins in House

The U.S. House of Representatives voted today to prevent companies that moved from the U.S. to Bermuda or the Cayman Islands from winning some federal contracts.

The 221-200 tally, with 34 Republicans joining almost all Democrats, marks the first recorded vote by U.S. lawmakers attempting to stem the tide of companies reincorporating outside the U.S. Still, it probably won’t change much about how companies operate.

If it becomes law, the limit would apply for one year and only to contracts for certain energy and water projects. It wouldn’t affect most of the companies in the latest round of inversion transactions, which are moving to the U.K., Ireland and Switzerland, not Bermuda or the Cayman Islands.

“It’s legal, they can do it, but what we’re not going to do is provide them with the opportunity for federal contracts,” said the proposal’s sponsor, Democratic Representative Rosa DeLauro of Connecticut. “We’re going to shut that down.”

Existing laws designed to prevent such companies from winning U.S. contracts have failed to prevent those companies, including Ingersoll-Rand Co., from getting government business, a Bloomberg News investigation earlier this month found.

House lawmakers today adopted an amendment that would block contracts under the Energy and Water appropriations bill, H.R. 4923, from going to any company that had its headquarters in the U.S. and later moved to Bermuda or the Cayman Islands.

The ban would cover fiscal year 2015 -- from Oct. 1, 2014, through Sept. 30, 2015.

Tax Addresses

U.S. companies, frustrated by the country’s high tax rate and attracted by opportunities overseas, are continuing to explore mergers that locate their tax addresses outside the U.S.

Medtronic Inc., a Minnesota medical device maker with $17 billion in annual sales, announced plans last month to become Irish. Four other U.S. companies are reincorporating abroad, and Pfizer Inc., Monsanto Co. and Walgreen Co. also have flirted with the idea this year.

Ingersoll-Rand moved to Bermuda more than a decade ago in the first wave of inversions. It is now based in Ireland and operates largely from North Carolina.

Without a change to the U.S. tax code, future inversions may cost the government $19.5 billion in forgone revenue over the next decade, a congressional panel estimated this year. That doesn’t count the billions avoided by the 36 U.S. companies that already have shifted their address overseas.

Policy Changes

Democrats have proposed tax policy changes that would make it harder for U.S.-based companies to move outside the country for tax purposes. Republicans, who control the House, have said any changes should be done in the context of a broader revamp of the tax code, which isn’t likely to happen until 2015 at the earliest.

Republicans hadn’t challenged DeLauro’s amendment the last two times she tried it, on the Defense and Transportation-Housing and Urban Development spending bills. Both times, the plan was adopted by voice vote.

Today, Republicans challenged the language and lost a recorded vote. Among the Republicans who supported DeLauro were Dave Camp of Michigan, the House’s top tax writer. Other Republicans in favor included Shelley Moore Capito of West Virginia and Cory Gardner of Colorado, who are running for the U.S. Senate.

“We’re going to try like hell to make it stick,” DeLauro said in an interview after the vote. “Why would you want to reward a tax cheat? Hello?”

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