Democrats in the US last week resumed efforts to deny contracts from the US Department of Homeland Security to companies that have moved their headquarters abroad to avoid paying US taxes.

On Tuesday, in the House Appropriations Committee, they succeeded in amending a $29 billion annual spending bill for the department to deny such contracts to the parents and subsidiaries of any company that has engaged in a so-called corporate inversion transaction.

A report on the newswires said that "in such a transaction, a US company sets up a subsidiary abroad, typically in a country with which the US hasn't negotiated a tax treaty. The subsidiary then acquires the assets of the parent, effectively becoming the parent, thus inverting the corporate structure and allowing the company to reduce its US corporate taxes."

A flurry of inversions took place shortly before and after the September 11, 2001 terrorist attacks on the US, prompting an outcry from consumers and some lawmakers in the US that the businesses were abandoning the nation in a time of need.

Cooper Industries Inc., Ingersoll-Rand Co. and Nabors Industries Ltd. all moved to Bermuda after September 11, 2001.

Stockholders have generally been supportive of the transactions. For example, a substantial majority of Cooper Industries' shareholders approved the restructuring that moved its place of incorporation from Ohio to Bermuda when it came to a vote in May, 2002.

Of the 93 million shares outstanding and entitled to vote at the meeting, 68.3 percent voted in favour of the proposal. Of the nearly 70 million shares voted at the meeting, 90.8 percent voted in favour of the proposal.

Lawmakers had considered legislation that would have blocked Cooper and other inverted corporations from enjoying any tax benefits from the transactions, but in the face of Republican opposition the legislation stalled.

Republicans argue that corporate inversions are symptomatic of a broken tax system.

They say companies shouldn't be punished, but the tax system should be fixed. Congress did add a contract restriction to the bill creating the Homeland Security Department, signed into law on November 25, 2002.

But Republicans watered down the provision to apply only to the parent corporation located abroad - not to its US subsidiaries - and only to corporations that had inverted after November 25, 2002.

"In the light of day, it isn't hard to find bipartisan support for this provision punishing those companies who run offshore to avoid US taxes," said Rep. Richard E. Neal, Democrat-Massachusetts. "The real test, of course, will occur later when the Republican leaders meet behind closed doors and will be, once again, tempted to kill this common sense provision."