A US Treasury report released on Friday cited the nation's tax code as being behind the flow of business moving offshore - but free market advocates this week said its policy prescriptions fall short of fixing the problem.

The release of the 31-page Treasury report followed concern over American corporations moving out of the US which has prompted a push from lawmakers seeking to stop companies from moving their company incorporations - including to Bermuda - in order to lower their tax bills.The Treasury report concluded that the American corporate tax code is overly complex and needs to be fixed.

Treasury secretary Paul O'Neill said in releasing the report: “When we have a tax code that allows companies to cut their taxes on their US business by nominally moving their headquarters offshore, then we need to do something to fix the tax code,” he said. “If the tax code disadvantages US companies competing in the global marketplace, then we should address the anti-competitive provisions of the code,” he added.

Andrew Quinlan, a leading free-market advocate and president of the Center for Freedom and Prosperity said that although the report is “an indictment against America's complex and indefensible international tax rules” it may not go far enough. Mr. Quinlan said: “The Treasury needs to turn these good words into concrete action. Unfortunately, the report does not endorse territorial taxation. Even more worrisome, it calls for higher taxes on foreign-based companies that create jobs in America,” he said.

Another supporter of free-market policy Daniel Mitchell, a Senior Fellow at the Heritage Foundation, said: “The Treasury fell short when it came time to make recommendations. “Instead of endorsing territorial taxation and lower corporate income tax rates, it suggested punitive measures against foreign-based companies. The Bush Administration should have learned from the steel tariff fiasco that protectionist policies are never the answer.” In tandem with the release of the Treasury report, a third bill - this one from Connecticut Representative Nancy Johnson - with the intent of stemming corporate inversions was introduced to the US Congress.

The specific aim of the bill was to stop toolmaker Stanley Works going through on plans to reincorporate to Bermuda. Bermuda has been the focal point in the debate with a number of companies moving to the Island. And the Island was named in the Treasury report which cited transactions that have occurred as “interposing a newly-formed holding company located in Bermuda or another low-tax jurisdiction....”