Planned US legislation which would stop American corporations moving to Bermuda to avoid income tax stands an outside chance of becoming law because of a wave of post-September 11 patriotism, a leading New York tax expert said yesterday.

Robert Willens of Lehman Brothers said the bill laid before the House of Representatives on Wednesday by Democrat Richard Neal normally would have little chance of success because it was badly drafted and affected more companies than intended.

But he told The Royal Gazette yesterday that because of the current US patriotism and distrust of corporate America following the Enron crash, Rep. Neal's bill could pass the House of Representatives and Congress to become law.

The bill would snag US corporations which moved to foreign jurisdictions to save millions on tax and make them liable for US income tax.

The decision by Connecticut-based Stanley Works to register in Bermuda to save $30 million a year in tax has provoked a patriotic backlash in the US, with allegations the company, and others such as Ingersoll-Rand which wants to move, are turning their backs on the war against terrorism.

The biggest potential threat to Bermuda is that the bill would be retroactive, meaning it could affect US companies which are already on the Island.

It was confirmed yesterday that the bill would hit all US corporations covered by the act - those who move domicile without their shareholding structure changing significantly - who moved to Bermuda, even those who switched before September 11 last year.

Mr. Willens, a tax and accounting analyst who has advised a number of companies moving offshore, told The Royal Gazette: "I would think there is not a real good chance of it getting enacted...but it is possible because they have to take (patriotism) into account.

"The atmosphere for this is not good with September 11 and the feeling that anyone who does this (moves offshore) is blatantly anti-patriotic. Then there is Enron.

"Enron has nothing to do with this, but it creates a mood that corporate America will do anything at all, moral or immoral, to avoid paying taxes.

"The climate is particularly bad at the moment. In a more normal setting it would have almost no chance of passing, but given the current climate you have got to be concerned.

"This legislation doesn't fit with the tax code and if they do something I would hope it would make a little more sense."

He called the retroactive element "very bad and highly unusual".

"It is clearly retroactive and it is not right, because you have to rely on the law at the time of the transaction," he added.

"I hope that cooler heads will prevail. The Internal Revenue Service (IRS) is examining (US companies moving offshore) this and they have not come up with a proposal, they just said we are reviewing this issue.

"But politicians being politicians, they have decided to create a bill very quickly. It has been very badly written and may cover companies that it didn't mean to cover.

"It could cover companies that are foreign but based in the US because of the make-up of shareholders, which is odd."

Mr. Willens said the IRS introduced new rules to hit shareholders who profited from moves to tax havens in 1994 after a company called Helen of Troy moved to Bermuda.

Shareholders would have to pay tax on any increase in share value which resulted from the company moving to another jurisdiction.

"That was working very well, there was maybe only two three a year doing it, then in the last few months we've had five or six companies announcing they are moving to Bermuda, and for some reason its caught the attention of journalists here in New York."

Chamber of Commerce International Companies Division head, David Ezekiel, said a "wait-and-see" approach was needed but there was no need for immediate panic because companies like Stanley Works and Ingersoll-Rand were not Bermuda's "bread and butter".

"This is not a time to panic. We have withstood challenges like this before," he said. "This is free enterprise and overall we have a strong industry that will stand most tests."

United Bermuda Party leader Dr. Grant Gibbons said: "The most disturbing part is clearly the retroactivity and until it is examined more closely, it remains to be seen who it might impact of the companies that have already moved to Bermuda."