Study Requested By Senator Collins Finds “Tax Haven Contractors” More Likely To Enjoy Unfair Competitive Advantage When Bidding On Contracts

Washington, DC – A new report by the U.S. Government Accountability Office (GAO), which was requested by Senator Susan Collins, found that corporations whose parent company is one located in tax haven countries may enjoy an advantage over American companies when bidding on U.S. government contracts. Many of these companies are so-called corporate inverters, former American-owned companies that switched ownership in order to relocate – on paper – to a foreign country.

The GAO found that these “tax haven contractors” are able to bid for U.Sgovernment contracts at a lower price because they can avoid paying some federal corporate tax. The companies are able to shift income out of the U.S. to their foreign corporate parents, creating losses on paper when it comes time to calculate what they owe in U.S. taxes. These losses offset the income earned from contracts. By posting such artificial tax losses, tax haven contractors could enjoy a cost advantage over their competitors and could cost the U.S. millions of dollars of in lost corporate income tax collections.

“I am pleased that the GAO has documented what many of us suspected – that there is an unfair playing field between U.S. companies and corporate inverters when it comes to Federal government contracts,” said Collins. “American companies should not suffer a competitive disadvantage because tax haven contractors have inverted ownership to gain an unfair edge by avoiding paying corporate tax.”

GAO concluded that this advantage may contribute to the incentives for companies to move to tax haven countries. It is also likely that when a company with such an advantage wins a contract, the government actually loses money because the savings from a lower bid on the contract is exceeded by the loss of income tax revenue.

There have been a number of corporate inversions in past years. The result has been lost U.S. tax revenue at a time when deficits have been increasing Estimates of lost revenue resulting from inversions run between $3 billion and $5 billion over the next ten years. Companies that inverted after the creation of the Department of Homeland Security are barred from contracting with the Department.

Senator Collins is the Chairman of the Senate Governmental Affairs Committee, which has jurisdiction over government wide contracting policy. Last Congress, Collins cosponsored legislation introduced by Senator Charles Grassley (R-Iowa), S. 2119, which would curtail tax advantages to corporate inverters.