Bermuda-based reinsurer Overseas Partners Ltd. last night tried to distance itself from a legal battle which could become one of the biggest corporate tax cases ever.

A United States Tax Court judge on Monday ruled Atlanta-based United Parcel Service deliberately avoided paying millions in tax by setting up Bermuda subsidiary Overseas Partners Ltd. in 1984.

But OPL vice president Tom Butler last night stressed the reinsurer is now an independent company.

"The decision in the UPS tax case will have no immediate or direct impact on Overseas Partners Ltd,'' he said.

"We are not a party to the case. It is too soon for us to be able to evaluate even its impact on UPS, since the decision can be appealed. It could have some long-range impact on OPL but it's way too soon to say.

"OPL is privately held and is not owned or controlled by UPS.'' Judge Robert Ruwe handed down the 114-page strongly worded decision ruling that UPS took inflated deductions in 1984 and must pay taxes, penalties and interest that UPS has previously estimated at almost $300 million.

And that is only for penalties and interest on $65 million in taxes between 1983 and 1984 -- the first year of a business practice that has continued.

UPS could also owe some $259 million more in taxes alone to the Internal Revenue Service for the fiscal years from 1985 to 1990.

Yesterday UPS denied it was guilty of tax evasion and said its team of lawyers was considering appealing the decision.

Some analysts have observed that based on the company's past estimates of tax liability, the total amount it could be forced to hand over might quite easily exceed a billion dollars.

At the heart of the case are deductions UPS took for the expense of insurance against lost or damaged parcels worth more than $100.

Packages shipped by UPS are automatically insured for $100, but this charge was an optional 25 cents per $100 claimed above the standard as an "extra value coverage'' to insure against loss or damage until delivery.

The IRS argued UPS charged customers three times the actual cost of the insurance in order to funnel money to OPL and in doing so, blow out its tax deductions.

UPS charged the customers 25 cents for every $100 then took a deduction for the expense and it paid the money to Pittsburgh's National Union Fire Insurance.

In his ruling Judge Ruwe called this a "sham transaction'' and rejected UPS's argument that its main reason for doing so was to avoid possible state regulations against some insurance activities. He said National Union was acting as a front since after it took its own small fee it forwarded the money on to OPL which was owned and controlled by UPS. And he found the rates were as much as three times what UPS -- the world's largest package delivery service -- would have paid in the open market.

Overseas Partners then counted at least 63 cents of each dollar it received as profit for the company -- on which it was not required to pay US income tax.

Judge Ruwe ruled that UPS set up the structure, motivated only by a desire to reduce its US income tax and not by any legitimate business purpose.

The IRS has hailed the ruling as a victory in its efforts to stop companies from taking tax deductions by moving money to offshore subsidiaries.

BUSINESS BUC