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Tax-avoiding company moves in spotlight

NEW YORK (Bloomberg) — In laying out his case last week for a lower corporate income tax, Donald Trump renewed his criticism of the financial manoeuvres known as “inversions” that allow US companies to lower their tax bills by shifting their legal addresses abroad. Hillary Clinton condemns the practice, too.

In fact, virtually everyone in US politics decries inversions, and president Barack Obama has urged Congress to overhaul the tax code to stop them. Yet, his administration isn't answering questions from members of his own party about whether existing laws meant to punish such companies are being enforced.

More than a year ago, seven congressional Democrats including senator Elizabeth Warren urged the administration to investigate how one of the biggest inverted companies, the manufacturer Ingersoll-Rand, is able to score government contracts worth millions of dollars despite a 2002 federal prohibition targeting it and similar companies.

“We are concerned that Ingersoll-Rand is not being held accountable under our existing laws,” lawmakers led by Representative Rosa DeLauro of Connecticut wrote in July of last year. They asked for the inspectors general of the Army and the Department of Homeland Security to investigate.

Neither did. Homeland Security plans to address the matter but hasn't gotten around to it yet, Erica Paulson, a spokeswoman for the department's inspector general, said this month in an e-mail. She cited “staffing requirements.”

The office of the Army inspector general didn't act because contracting issues aren't part of its mandate, according to an Army spokeswoman, Lieutenant-Colonel Jennifer Johnson. She said she didn't have information on whether the inquiry was referred to another office.

A spokeswoman for Ingersoll-Rand, Misty Zelent, referred to previous statements saying the company has always complied with the law and acted with “care and transparency” in government contracting.

DeLauro said in a statement this week that “many in Congress and elsewhere are too beholden to corporations that take all of the benefits the US has to offer and then do everything they can to avoid our tax system. This is wrong.”

The lawmakers' inquiry sprang from Bloomberg News reports in 2014 and 2015 about Ingersoll-Rand's quest to get around the ban. The manufacturer, which traces its roots in the US to 1871, shifted its legal address from New Jersey to the low-tax island of Bermuda in 2001, cutting its tax bill roughly in half in following years. Its senior executives remained in the US, and they currently run the company from a suburb of Charlotte, North Carolina. Products include Trane air-conditioners and Club Car golf carts.

Reacting to the tax manoeuvres by Ingersoll-Rand and a handful of other US companies, Congress in 2002 prohibited such firms from doing business with the new Department of Homeland Security. Later, it expanded the ban to apply to most government spending.

But in 2013, Ingersoll-Rand prepared a legal memorandum that argued, in part, that the ban is invalid because it conflicts with trade treaties — an argument that the Obama administration had previously dismissed. The manufacturer submitted the memo to Homeland Security and asked whether the company is prohibited from doing business with the department.

A Homeland Security lawyer, Joseph Maher, responded in 2014 by writing that “we do not have reason to disagree” with the company's argument. Apparently taking Maher's letter as a green light, Ingersoll-Rand went on to win new contracts, including a major one last year with the Army Corps of Engineers to install energy-saving equipment on military bases.

Ingersoll-Rand's victory at Homeland Security came with the help of the law firm Latham & Watkins LLP, according to e-mails provided to Bloomberg News by the department last month in response to a May 2015 public-records request.

Latham's partners in Washington include Philip Perry, a son-in-law of former Vice-president Dick Cheney. For almost two years during the Bush administration, he served as general counsel at Homeland Security, overseeing Maher and the rest of the department's 1,500 lawyers.

The names of the Ingersoll-Rand representatives who sought the opinion from Homeland Security are mostly redacted from the e-mails provided to Bloomberg News. At one point they refer to the company's 2013 memo as originating from a “Mr Perry.” Philip Perry didn't respond to a call and e-mails seeking comment.

“We engage multiple consultants and advisers, and we are always in full compliance with applicable laws,” Ingersoll-Rand's Zelent said.

Under scrutiny: almost every leading politician in the US decries “inversions” used by companies to lower their tax burden

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Published August 15, 2016 at 9:00 am (Updated August 15, 2016 at 2:06 am)

Tax-avoiding company moves in spotlight

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