Four months after the "patriot tax" debate began in the US Congress following a New York Times article, a story in yesterday's Wall Street Journal suggested that American companies with valuable intellectual property lower their tax obligations by transferring that property to holding companies in Bermuda.

"Another strain of (tax avoidance) has sprouted that could be costing Uncle Sam billions: companies are stashing their intellectual property abroad to shelter income from overseas sales," wrote Glenn R. Simpson.

The article mentions the case of Columbia Laboratories Inc., a Livingston, New Jersey pharmaceutical company that has transferred patents for medical treatments to a Bermuda subsidiary, Columbia Laboratories (Bermuda) Ltd.

"One reason: Royalties from sales of the products made outside the US would flow to the Bermuda subsidiary and could be parked there tax-free."

But yesterday, Opposition Leader Grant Gibbons said the article had adopted a "narrow view" of the situation.

"It's certainly not all a tax issue," he said.

Dr. Gibbons explained that selling to foreign countries was not always easy from the United States.

"There are a lot of countries that aren't particularly favourable to the United States," he said. "There is a sense of US imperialism in a certain sort of way."

He said products sold from a more neutral jurisdiction, like Bermuda, were sometimes received more favourably. Transferring intellectual property to offshore subsidiaries is therefore beneficial to American companies, he said, because it had the potential to broaden sales. Dr. Gibbons said the issue was not particularly new and that the media attention had resulted from the current debate on the efficiency of US tax law and whether it put American companies at a competitive disadvantage.

But he said the issue was unlikely to draw as much attention as the patriot tax issue because companies had engaged in the practice for years.

John Cunningham, a lawyer with Firstmark Intellectual Property, said there were good business reasons for holding intellectual property offshore.

"It is convenient to have intellectual property in one place. There is certainly a tax advantage to doing it in Bermuda."

Mr. Cunningham explained that many companies that were incubated in Bermuda held their intellectual property here until the company was floated on a stock exchange and investors decided to move the intellectual property back onshore because its primary market was the US or countries engaged in tax treaties with the US.

"You don't want to pay tax on a developing company," Mr. Cunningham said.

For well-established companies incorporated in the US, the Internal Revenue Service (IRS) might find recourse by regulating the prices paid to transfer intellectual property to Bermuda subsidiaries, according to the Journal.

Mr. Cunningham explained that transfer prices are subject to US taxes and keeping it low it is advantageous for companies.

Baruch Lev, an expert on intangible property at New York University's Stern School of Business explained that the IRS argues that offshore operations use the research, development and the brand of the parent company, so they have to pay royalties.

"The question is how to compute these royalties," he said.

But Mr. Cunningham noted that even when the cost of the transfer was minimised, the tax cost of transferring intellectual property offshore was still prohibitive for many companies.

Mr. Simpson also quoted Graham Wood, an intellectual property lawyer at Appleby Spurling & Kempe, one of two such lawyers in the firm's Bermuda office.

A spokeswoman said intellectual property, part of the telecommunications and technology team, was a "developing but important niche practice area" and that intellectual property holding companies comprise "a small niche" within that practice.

The spokeswoman said she did not think that the firm would be adversely affected if legislation were passed in the Washington making it more difficult to move intellectual property offshore.

A spokesman for Conyers Dill & Pearman said the firm would monitor the developments in Washington. "It's too early to say whether there will be a negative impact," he continued.

He said Bermuda was a particularly attractive jurisdiction in which to hold intellectual property because the Island had "the intellectual talent and expertise" to facilitate such transactions.

As the patriot tax debate heated up in May, a Wall Street Journal editorial criticised the US tax system and it said the country's corporate tax rates are among the highest of developed nations.

"To criticise US firms for reducing their tax bill is to lose sight of why we want tax competition," the editorial read.

It said the paper's parent company, Dow Jones, was incorporated in Delaware to take advantage of that state's low corporate tax rate and less burdensome regulations.

"Competition of this sort among the states is beneficial because it encourages the efficient use of tax dollars... These same principles apply internationally."