A leading diversified manufacturing company with customers around the globe, Ingersoll Rand Corporation (IR), has announced their intention to incorporate in Bermuda to reduce its worldwide tax rate.

The company is currently based in New Jersey and chairman, president and chief executive, Herbert L. Henkel said in a statement: "Incorporation in Bermuda will enable IR to realise a variety of business, financial and strategic benefits.

"Specifically, we will enhance our global competitive position; create a more favourable corporate structure for worldwide expansion of our current business; improve expected cash flow for use in investing in further earnings growth and in reducing the amount of our debt; reduce our worldwide effective tax rate; enable implementing our business strategy more effectively, and expand our investor base," said Mr. Henkel.

The company, whose products include Bobcat construction vehicles, Schlage residential locks and Thermo King truck refrigeration units, said the change will also create a more favourable corporate structure which will help it to buy more businesses outside the United States.

Under the plan, a newly formed Bermuda corporation - Ingersoll-Rand Company Limited - would become the parent company of Ingersoll-Rand Company.

All shares of IR common stock would be automatically converted into shares of the Bermuda company and the stock would continue to trade on the New York Stock Exchange under the same symbol.

The proposal is subject to approval by IR shareholders at a special meeting in mid-December and the company hopes to complete the conversion by year-end.

A company spokesperson said yesterday that pending shareholder approval, December 31 would be the effective date for incorporation in Bermuda, and although there will be no physical presence on the Island, there will be a registered office.

IR said the move, which will not affect day-to-day operations, has been planned for nearly a year and plans are to maintain its corporate headquarters in Woodcliff Lake, New Jersey.

The move by Ingersoll-Rand comes a week after it warned that its third quarter results would be at the lower end of market expectations. While there are several reasons for a company to move to Bermuda, a more relaxed regulatory environment being one of them, most analysts say that the opportunity to pay lower taxes is the main driver.

"When you do your taxes you are honour-bound to minimise your taxes," argues Scott Hunter, a managing partner at consultants Arthur Andersen. "Its very fair".

"It works better if your organisation is global," says Mr. Hunter, adding that the main driver is to get foreign income out of the US taxman's hands.

Companies also gain flexibility in managing debts of subsidiaries and moving funds wherever required without having to keep track of US credits on income subject to tax elsewhere .

Today over 10,000 international companies and partnerships are registered in Bermuda including subsidiary operations of more than three quarters of the top 100 largest companies in the United States.

By incorporating in Bermuda, Ingersoll Rand will be able to exclude all future foreign earnings from U.S. taxes. While the company is expected to spell out more details of financial benefits on Thursday, those who have done so in the past have achieved significant benefits.

One investment banker points out that industrial group Tyco which shifted its base to Bermuda after effecting a reverse takeover with security company ADT, saved as much as $500 million in taxes in 2000.

Tyco's group tax bill on its profits fell from 36 percent before the ADT deal to 25 percent.

"It is especially effective if you are a global company and you have substantial revenues coming from non-U.S. subsidiaries based in low-tax regimes," the banker said.

Among the other companies that are incorporated in Bermuda but maintain US headquarters is Tyco International Ltd., a diversified manufacturing and service company that makes undersea telecommunications systems, fire protection systems and speciality valves.

IR's shares, which have outperformed the Standard & Poor's 500 index by about 15 percent so far this year, closed at $40.50 on the New York Stock Exchange yesterday, more than 1.5 percent increase as investors reacted positively to the news.

IR also announced last week that it expects to release third-quarter 2001 financial results tomorrow, at 8:00 a.m.

Mr. Henkel will host a conference call for analysts and institutional investors, beginning at noon, to review the company's quarterly results and discuss the move to incorporate in Bermuda.

Ingersoll Rand is a leading innovation solutions provider for the major global markets of Security and Safety, climate control, industrial productivity and infrastructure.

The company's diverse product portfolio encompasses such leading industrial and commercial brands as Schlage Locks and Security Solutions, Thermo King transport temperature control equipment, Bobcat compact equipment, Club Car golf cars and utility vehicles, Torrington bearings and components, Powerworks micro-turbines and Ingersoll Rand industrial and construction equipment.

In addition, the company offers products and services under many more premium brands for customers in industrial and commercial markets.

Local distributors of IR products are TreeCon Ltd.