American companies that move to Bermuda may not lose out on federal contracts after all.

In the latest chapter of the corporate inversion controversy, the House of Republicans on Wednesday passed a bill for establishing a Department of Homeland Security but took the sting out of a hotly contested provision that would have denied federal contracts to companies that move their headquarters offshore.

Companies that invert their place of incorporation while leaving their operations in the US - and so dubbed “corporate inversions” - were targeted by the bill as the companies can trim millions off their US taxes - a practice branded as “unpatriotic” by some politicians and the media.

And Bermuda has found itself in the line of fire since early in the year as it has been the domicile of choice for a wave of companies that have inverted overseas to save on taxes for foreign-earned income.

The revised Homeland Security bill passed in the House by a vote of 299 to 121 but an amendment changed the original clause banning corporate inversions from being given federal contracts to one that states the department would be able to do business with US companies that had inverted, as long as “there is a national security or economic security reason to do so.”

The Homeland Security department would however reportedly not be doing business with the new foreign parent company but the American subsidiary carrying on business in the US. The change was cited in the bill as a “measure that will protect US jobs”.

The revised bill would have been good news for the companies after Treasury regulations earlier in the week put greater requirements on companies shifting overseas including disclosure of any plans to invert their headquarters be given not only to shareholders but also to the Internal Revenue Service (IRS). The new regulations were said, in international news reports, as a measure to ensure the IRS ensuring was paid the capital gains tax that can result from the moves. The tax can be paid by the inverting corporations but is often passed on to shareholders, who can oppose the move in a shareholder vote.

The Homeland Security bill's watered-down clause against corporate inversions did not pass however without disgruntled comment from Democrat Richard Neal, who along with Rep. Maloney, had put forward legislation earlier in the year to crack down on corporate inversions: “This is nothing more than a phony attempt by the Republican leaders to address the serious issue of disloyal corporations,” he said, according to a Dow Jones news report yesterday.

The new bill was reportedly drafted by both the White House and Congressional Republicans, according to the Dow Jones, who said the measure is also being considered in the Senate.

Despite the recent Republican sweep of both the House and Senate, Democrats will still hold sway in the Senate up until the newly elected politicians take up their seats in January. As such, the Homeland Security measure - which still has to be passed by the Senate and then signed off by President George Bush - could be shot down by Democrats in the Senate.

The corporate inversions have come under fire from both the Republicans and Democrats, but by and large Republicans have been more moderate in their criticism of the transactions instead calling for reform of the US tax code, which has been cited as putting US corporations at a disadvantage in the global marketplace. Meanwhile, Rep. Neal said he would still push for legislation to deny benefits to corporate inversions: “The Republican leaders may think this issue is done. It is not. I plan to refile my bill denying tax benefits to these runaway corporations in January,” he said.