The Bush administration yesterday warned Congress against proposals to stop UScompanies moving their headquarters overseas to avoid taxes.

The Treasury Department's acting chief of tax policy, Pamela Olson, said the plans could hurt the US economy.

"Putting up a block in response to these transactions is something that's unlikely to work and likely to have harmful effects on the US economy,'' she told the tax-writing Ways and Means Committee.

The debate over the so-called "corporate inversions" - as a means for corporations to trim their tax bills - has been at the forefront of American politics and in media reports since early in the year.

Legislators, amid a charged climate of patriotism after September 11 and Enron, have submitted several bills to both the US House and Senate aimed at stopping companies moving offshore, in recent months.

Such legislation could adversely affect companies that have reincorporated offshore, including to Bermuda.

In the furore, Bermuda has indirectly come in for negative press as a number of high-profile companies - including Stanley Works, Ingersoll-Rand, Nabors and Coopers Industries - have moved or made plans to reincorporate to the Island.

Yesterday's hearing into the matter heard testimony from one person although it was slated for presentations from a panel of four including Pamela Olson, acting assistant secretary for tax policy at the US department of treasury.

Ms Olson did give testimony but partisan bickering brought the session to an early close, according to a Reuters report.

Gary Hufbauer, senior fellow, Institute of International Economics, Steven Salch, partner, Fulbright & Jaworski, LLP and Richard Blumenthal, Connecticut attorney general were also appointed to the panel, but did not get a chance to make testimony.

Mr. Blumenthal has been critical of Stanley Works' attempt to move to Bermuda

"Only a few members of the House Ways and Means Committee actually got a chance to ask the senior Treasury official about the issue by the time the panel adjourned in the early afternoon.

"Democrats on the panel fumed over the timing of the hearing, which coincided with House floor consideration of a separate bill to make repeal of the estate tax permanent. Democrats said the schedule was meant to force them to choose whether to attend the hearing or the vote, a charge panel Ways and Means chairman Bill Thomas denied and said it was up to each representative to prioritise their schedules.

"Priority, schmiority, Mr. Chairman. We could have had this hearing yesterday," said Rep. Jerry Kleczka, a Wisconsin Democrat. Also at the hearing was Rep. Charles Rangel from New York City.

Rep. Rangel was reportedly a one-time ally of Bermuda, but recently he has come out against the Island as a "tax haven" and has been a vocal advocate of legislation to stop inversions. Mr . Thomas, at the hearing's outset, said he had "no idea" which was the best approach and anticipated more hearings on the issue, according to Reuters.

In her testimony, Ms Olson called for In her testimony, Ms Olson called for action but also warned lawmakers against attempting to erect a "Berlin Wall" to stop companies from using inversions to lower their tax bills.

She said: "The policy response to the recent corporate inversion activity should be broad enough to address the underlying differences in the US tax treatment of US-based companies and foreign-based companies, without regard to how foreign-based status is achieved.

"Measures designed simply to halt inversion activity may address these transactions in the short run, but there is a serious risk that measures targeted too narrowly would have the unintended effect of encouraging a shift to other forms of transactions and structures to the detriment of the U.S economy in the long run."

Ms Olson continued: "An immediate response is needed to address the US tax advantages that are available to foreign-based companies through the ability to reduce the US corporate-level tax on income from US operations. Inappropriate shifting of income from the US companies in the corporate group to the foreign parent or its foreign subsidiaries represents an erosion of the corporate tax base.

"It provides a competitive advantage to companies that have undergone an inversion or otherwise operate in a foreign-based group. It creates a corresponding disadvantage for their US competitors that operate in a US-based group. Moreover, exploitation of inappropriate income-shifting opportunities erodes confidence in the fairness of the tax system," she said.

Ms Olson said legislation designed to "take the juice" out of corporate inversions would likely be a better short-term approach to stemming the recent increase in so-called corporate inversions, according to Dow Jones newswire.

Several bills have been introduced but favour yesterday seemed to go to a bill already presented by Connecticut Representative Nancy Johnson.

Unlike some of the previously tabled bills which have aimed at imposing penalties on companies that reincorporated offshore even in years past, Rep. Johnson's bill calls for a moratorium on inversions from September 11, 2001 to the end of next year, as well as other proposals aimed at stopping corporate inversions.

Rep. Johnson, who hails from New Britain, which is also the long-time home of Stanley Works, said the moratorium was aimed at the stopping the company's move to Bermuda.

Johnson's likely Democratic opponent, Connecticut Rep. James Maloney, has attacked Johnson's bill as a "copycat" of a similar one he and US Rep. Richard Neal have already introduced.

At yesterday's hearing, Democrats complained that Rep. Maloney was denied a chance to testify about the issue before the committee and employed various tactics that delayed the hearing.

Ms Olson had just completed her testimony when Chairman Thomas banged the gavel down after the Democrats again called for the panel to adjourn.

Chairman Thomas suggested it was unlikely there would be a quick resolution to the inversion issue and said that more hearings would be needed before deciding which path to take.