A hearing at the Senate Finance Committee will get underway today to discuss legislation for restricting tax shelters, according to the Financial Times.

The report said that the Finance Committee has had its eye on tax abuses for some time, but would meet today and take the proposals on the so-called "patriot tax" a step closer

During this year tax bills have been introduced by US legislators who have introduced two bills to the House of Representatives aimed at stopping US companies from relocating offshore, particularly to Bermuda.

The bills have been proposed by Rep. Richard Neal and Rep. Scott McInnis and several American legislators have indicated they will put forward further bills, including Sen. Paul Wellstone and Sen. John Kerry.

In essence, the bills aim to levy US taxes on all income - including foreign revenues and sales - earned by corporations that reincorporate outside the US. The debate has largely focused on Bermuda-based companies such as Tyco, Global Crossing, Ingersoll-Rand and a company which has not yet "redomesticated", Stanley Works. On Friday last week Weatherford International Ltd also announced plans to move to Bermuda which are expected to be voted on by the end of the month.

The Royal Gazette understands that insurance companies that have moved to Bermuda from the US - which could include PXRe, Scottish Annuity & Life Holdings and Everest Re - may also come under scrutiny.

The Financial Times article also said the moves to restrict "tax dodging" in the US had been going on for some times.

It stated that two years ago, Senators William Roth and Patrick Moynihan, then chairing the committee, instructed staff to produce a legislative proposal to address the problem of shelters.

And the article said that today Senators Max Baucus and Chuck Grassley would follow suit.

It added: "Draft legislation is expected as early as the end of the month."

At hearings in March, Mr. Grassley said: "Probably the most difficult part of tackling this problem is defining tax shelters. It's kind of like defining pornography. As the Supreme Court said, you know it when you see it."

The article said: " Tax avoidance is legal, tax evasion is not. While some shelters meet the smell test, others let savvy taxpayers - individuals and corporations - manipulate the system so that they pay far less than their fair share. The manipulation often entails moving assets offshore. The Internal Revenue Service recently announced that as many as 1-2 million Americans may have accounts in tax havens such as the Cayman Islands, producing a tax shortfall estimated as high as $70 billion."

It also quoted a report in the CCH Federal Tax Weekly, which said the Internet boom, combined with the growing acceptance of credit and debit cards, has generated an explosion in individual offshore banking and said offshore depositors were lured by two attractions.

"First, there is virtually no paper trail when daily living expenses are paid with a card issued by an offshore bank. In addition, the strict bank secrecy laws of many tax havens protect depositors."

It did say, however, that offshore accounts were legal, so long as income is reported and income taxes are paid.

It added: "Such an account might come in handy when seeking to conceal assets from creditors. But concealing assets from the IRS is another story. In fact, it's a felony."

The article, headlined "Uncle Sam upsets the tax shelter game", said a bigger revenue shortfall results from corporations setting up "fictional headquarters" offshore in order to minimise US taxes.

"The practice is not new. For years, the Finance Committee points out, US insurance companies have fled to Bermuda to eliminate US tax on their investments, bypass domestic insurance regulation and gain a financial advantage over US-based insurers."

It said that now the depressed stock market and the recent recession have led to a spurt of paper relocations.The article said that net operating losses built up during the recession were used to shield the corporation from tax when it did a purely paper move to the tax haven country.

"A recession also protects shareholders, required to pay capital gains taxes on profits to the date of re-incorporation even if they continue to hold the shares. The depressed stock market reduces the tax bite."

It also said that Mr. Grassley was particularly irate about fleeing corporations with big government contracts. It pointed out that Ingersoll Rand, the manufacturer, which left the US for Bermuda after September 11, pays less than $28,000 a year to Bermuda and in turn reaps $40 million in US tax savings.

And it added: "Ingersoll Rand had more than 200 government contracts in 2001. Because shelters typically operate in the shade, the Committee's goal is to bring them into the light."

It quotes Mr. Grassley as saying: "Sunshine is the best disinfectant".

The article, published yesterday, went on to say: "Shedding light on shelters, bringing transparency to the transactions, will enable the IRS, the Treasury and legislators to bring them under control.

"A second goal is reforming the use of opinions on tax shelters. Currently, taxpayers may rely on an opinion issued by the peddler of a tax shelter as a defence against shelter-related penalties."

And it said that instead of this `fox in the hen house' approach, the Finance Committee's proposal says taxpayers may rely on opinions but those opinions must be rendered by an independent professional tax adviser.

It also said that a third principle is to make sure that all players in the tax shelter game are in the same net, which means focusing on investment bankers and promoters as well as accountants and lawyers.

The article finished by saying: "As the April 15 tax filing deadline approaches, Uncle Sam wants you to know: tax evasion has consequences."