NEW YORK (Bloomberg) — The US Treasury Department said companies such as Ingersoll-Rand and Cooper Industries that incorporate in offshore tax havens are shifting "substantially all of their income out of the United States."

In a report to Congress released today, the department cited "strong evidence" that about a dozen companies are using a technique known as earnings stripping to avoid or minimise taxes on their US profits.

The study examined companies that claimed to have moved their headquarters to offshore tax havens such as Bermuda while continuing to operate primarily out of the US, a practice known as inversion.

"There is strong evidence that inverted corporations have engaged in earnings stripping," the 108-page report said.

Still, the study found no "conclusive evidence" that US subsidiaries of large foreign-based companies used the same practice.

The report may reignite a push in Congress to penalise companies such as Noble Corporation that moved offshore in 2001 and 2002. The US in 2004 put restrictions on the inversion practice, though companies that had already completed the transaction were exempt.

By reincorporating offshore while keeping headquarters in the US, these companies sought to avoid US taxes on their overseas profits.

The strategy became controversial in 2002 when Stanley Works, a toolmaker based in Connecticut for more than 150 years, said it was moving to Bermuda to save on its tax bill. Shareholders rejected the deal in the face of negative publicity.

Lawmakers such as Democratic Representative Richard Neal of Massachusetts were concerned that, once based in a tax haven, the companies would also avoid paying taxes on their US operations. The Treasury study today confirms that may be happening.

The report doesn't identify the companies it examined, referring instead to an article published in the National Tax Journal. That 2004 study — by business professors Jim Seida of the University of Notre Dame in South Bend, Indiana, and William Wempe of Texas Christian University in Fort Worth — cited large increases of debt on the US operations of inverted companies. US law generally allows companies to deduct the interest on such debt.

"In the cases of Cooper, Ingersoll-Rand, and Noble, most of the noted increase in long-term intercompany debt and intercompany interest expense and fees is definitively attributable to US-based entities and may, therefore, shift US earnings to foreign jurisdictions," Seida and Wempe said in their study.

Ingersoll-Rand, the maker of Thermo-King refrigerated trucks, and Cooper Industries, which makes Halo and Lumiere brand lighting, are based in Hamilton, Bermuda, though they operate from Montvale, New Jersey, and Houston, respectively. Noble, the fourth-largest US offshore oil and natural-gas driller, is domiciled in the Cayman Islands and operates out of Sugar Land, Texas.

Jon Safran, director of investor relations for Cooper Industries, didn't immediately return a call. John Breed, director of corporate communications at Noble, and Ingersoll-Rand spokesman Paul Dickard didn't return calls.

Todd Malan, executive director of the Organization for International Investment, a Washington-based trade group that represents US subsidiaries of companies such as Aichi, Japan-based Toyota Motor, London-based Unilever and Tokyo-based Sony, said he was pleased to see the study didn't implicate non-US companies.

"The study confirms what we have been saying since 2002. Earnings-stripping abuse is not a widespread problem but narrowly confined," Malan said.

The Treasury study recommended a series of steps to address abuses, including disallowing interest deductions in cases where debt is excessive. It also said the Internal Revenue Service has created a new form to better determine whether businesses other than those that moved offshore earlier in the decade are dodging taxes using the technique.

Ingersoll-Rand is facing an audit from the IRS over the way it classified some debt in its reincorporation in Bermuda. The agency is seeking $190 million in additional taxes, plus interest, in connection with the company's 2002 financial records.