Americans living abroad may face big tax increases, and a host of companies that reincorporated in Bermuda last year could face steep fees following a controversial tax bill approved last week by the US Senate Finance Committee.

The bill was set up to allow for tax cuts - but was offset by tax raising measures such as taxing US expatriates and levying fees on companies that left the US to save on their tax bills last year.

There is a planned provision to increase taxes on companies that move their headquarters offshore in the tax bill - but few details have yet been made available.

The repeal of the tax deduction for US citizens working overseas would raise $32 billion to help pay for a dividend tax cut in the Senate bill.

The provision would end a 57-year-old exclusion allowing Americans abroad to deduct $80,000, plus housing costs, from the income they report to the Internal Revenue Service.

But US business groups were outraged by the plan, saying it would make it prohibitively expensive to promote American products and ideas.

"We have the simple equation: Americans abroad equal US exports equals jobs at home," said David Hamod, executive director of the Section 911 Coalition, a group of businesses, schools, and organisations that want to keep the tax exemption for workers overseas.

"This is probably the single most important provision for American workers around the world. Without this, we have little hope of being competitive."

The bill would also nix the practice only for US companies that reincorporated abroad after March 20, 2002 to places such as Bermuda and Cayman Islands.

Since the Enron scandal, there has been increased opposition from US politicians and labour unions to so-called inversions, whereby US corporations incorporate a new parent company in a jurisdiction such as Bermuda and Cayman Islands and thereby transfer ownership of the group offshore.

The debate has largely focused on Bermuda-based companies such as Tyco and Global Crossing.

It could affect Weatherford International Ltd., Leucadia National Corporation, Cooper Industries, Nabors Industries and the Arthur Andersen consulting spin off - Accenture to name but a few that set up shop in Bermuda in the past few years. Ingersoll Rand may escape as it started reincorporating in 2001

Stanley Works, the most controversial of the proposed inversions, made a decision not to redomicile following pressure from the American Congress and workers. It announced it was laying off 1,000 staff and last month said its profits had dropped by 61 percent.

The proposals represent the conflicting impulses of Republicans on Capitol Hill, who are trying to respond to president George W. Bush's push for a substantial tax cut this year while keeping the costs low enough to gain passage in the narrowly divided Senate.

The repeal represents a big chunk of the $80 billion worth of revenue-raising measures the Senate tax-writers have identified as ways to lift the 10-year tax cut package to $433 billion without going above the $350 billion net cost acceptable to Republican moderates.

Other revenues are to come from extending customs users fees and curtailing the use of "tax shelters" which came under attack after it came to light some were abused by Enron and other corporations.

The House and Senate tax cut bills take dramatically different approaches to dividend tax relief. Neither goes as far as Mr. Bush would like. He favoured the full elimination of dividend taxes.

The House tax-cut bill, which is to be approved by the full House today, would cut taxes on dividend income only for those who invest in US companies - a provision that has triggered protests from non-US-owned firms.

"For the capital markets in the US, you're not going to see the Nokias or the DaimlerChryslers come here if there's a 23.6 per cent tax disadvantage embedded in the US tax code," said Todd Malan, executive director of the Organisation for International Investment, which represents US subsidiaries of foreign companies.

The Senate bill does not contain the provision. It does, however, include a politically popular provision to shut a tax loophole that allows US companies to reduce taxes by relocating their headquarters to places such as Bermuda.

House Republicans, however, have been less supportive of such penalties, favouring a larger overhaul of US rules on international taxation.

Alarmed business lobbyists descended on Capitol Hill yesterday as it became clear that Republican lawmakers were growing more serious about closing so-called corporate tax shelters and introducing other measures that have significant consequences for foreign and domestic companies.

Behind the scenes there were increasing signs of Republican frustration. Mr. Bush's unwavering commitment to a big tax cut that includes at least some dividend tax relief has forced his party into heated intramural arguments that may well derail prospects for getting any tax-cut agreement at all.

Bill Thomas, the powerful Republican chairman of the House ways and means committee, yesterday declined - through clenched teeth - to comment on the Senate's latest proposal for cutting dividend taxes. He said he would wait until the Senate had a final version of its legislation before making a judgment. But it is hardly a secret that Mr. Thomas and other leading House Republicans think the Senate's approach is far too limited to have much impact.

The House legislation would reduce dividend taxes to a top rate of 15 per cent. Dividends are currently taxed at the individual income tax rate, and most stock owners fall into the top bracket, currently paying 38.6 per cent. As written, the House bill would mean that shareholders in foreign-owned companies would continue to be taxed at the higher rate.

At first, business lobbyists thought the provision was an oversight. But Mr. Thomas made clear he would make no changes in the bill before it passed the House. He appeared to leave open the question of whether it might be changed later, perhaps in a House-Senate conference.

It is not as yet clear how the anti-inversion tax will work, but the change would bring the US federal government about $2.8 billion in annual revenues, according to an analysis by the bipartisan Joint Committee on Taxation.

Representative Richard E. Neal, Democrat of Springfield, has unsuccessfully pushed to require all US companies that have moved overseas to avoid taxes to begin paying them.

The formula that the Republicans devised for partially closing the loophole was "not a fair way at all, but that's what the majority does," Neal said, arguing that closing the loophole would bring as much as $4 billion back to the US Treasury.