US companies that move to Bermuda came under fire again last week in the US Senate when a measure was passed that would prevent them from getting contracts with the proposed terrorist-fighting Homeland Security Department.

The Senate, which is debating the creation of the Homeland Security Department, passed the measure in a voice vote. A similar measure was passed by the US House of Representatives last month. It would still have to be passed into law by President George W. Bush.

Democratic Sen. Paul Wellstone of Minnesota, chief sponsor of the tax measure, called offshore relocation "an egregious tax dodge".

He said his amendment is "about people paying their fair share of taxes. This is a big-time shot across the bow."

The contracts ban, similar to one approved by the House last month, was attached by the Senate on a voice vote to the bill that would create a new Cabinet agency dedicated to combating terrorism within US borders. Senate debate was expected to continue for at least another week on the overall bill.

The Associated Press reported that companies that set up shell headquarters in tax havens such as Bermuda but leave most operations in the US currently hold at least $2 billion in federal contracts - many of them related to one of the 22 agencies that would be merged into the new department.

Sen. Wellstone previously won approval of a one-year ban on Defence Department contracts for these companies. Some Republicans contended that the move was mostly political - Sen. Wellstone himself is in a tough re-election fight - as part of a Democratic election-year attempt to link the GOP with corporate wrongdoing.

Republican Sen. Phil Gramm of Texas argued that corporations are forced offshore by a burdensome US tax code that puts them at a disadvantage with foreign competitors. The paper relocations, known in tax parlance as a "corporate inversions", are legal ways to reduce US taxes on foreign income.

"The world must think we have gone mad," Gramm said. "If I've ever seen logic in history turned on its head for political reasons, this is it."

At one point, Gramm said the effort was "right out of Nazi Germany" because of its restrictions on private business. Those comments led to a sharp rebuke from a Republican colleague, Sen. Charles Grassley of Iowa, whose measure to end the practice altogether has cleared the Finance Committee.

"The Finance Committee proposal is hardly 'right out of Nazi Germany'," Grassley said. "It strengthens longstanding tax policy."

Most of the main sticking points in the Homeland Security debate remain unresolved, chiefly the proposal by President Bush for broad powers to hire, fire, reassign and demote the agency's estimated 170,000 workers.

The Democrat-written Senate bill does not include that management flexibility and imposes limits on the president's ability to waive union bargaining rights in matters of national security.

At a rally in Louisville, Kentucky, Bush repeated his insistence for "the flexibility to move people around to address our vulnerabilities."

"The enemy moves quickly, and so should the federal government be able to move quickly," Bush said. "The Senate must hear this."

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