US industrial giant General Electric Co. is accused of avoiding paying $62 million in taxes in the 1990s by shifting about $310 million in income from leases on old airplanes to a pair of Dutch banks via a Bermuda-based partnership called Castle Harbour LLC, Bloomberg News reported yesterday.

Bloomberg said the arrangement was designed to take advantage of different tax rules in different countries. In the Merck (see related story) and GE cases, the US company essentially generates tax deductions without offsetting income. Foreign partners take advantage of rules in their own countries that don?t tax income earned outside of their borders.

American companies choose foreign partners in places such as the Netherlands because of accommodating banking laws and favourable tax treaty rules.

The Second Circuit Court of Appeals in New York ruled on August 3 that the GE transaction had no business purpose other than to save taxes and was thus a sham, reversing an earlier district court decision that the transaction was legitimate.

At the time, Eileen O?Connor, assistant attorney general for the Tax Division at the Justice Department, called the ruling ?another paving stone in the Department?s path to stopping abusive tax shelters?. GE is appealing.

General Electric paid the $62 million to the IRS in 2001 and subsequently sought a refund through the court, GE spokesman Eric Jones said yesterday in a telephone interview with Bloomberg. Earlier this month, GE filed a petition to the court asking them to reconsider its decision, Mr. Jones said.

He declined further comment on the case.