One of the key US Congressman who had been resisting efforts to stop US companies from reincorporating in Bermuda yesterday announced that he would write new US tax laws to stem the moves.

Rep. Bill Thomas, chairman of the Ways and Means committees in the US House of Representatives announced at a press conference in Washington, DC yesterday that he was planning broad legislation to stem the flight of companies to offshore tax havens and to bring US corporate tax laws into compliance with world trade rules.

Mr. Thomas said US tax laws hurt the competitiveness of US companies in global markets and encouraged them to move offshore or to sell out to foreign owners.

He said the committee would take up the legislation shortly after lawmakers return from a week-long July 4 holiday break and that he hoped the House would pass the bill by August according to Reuters news agency.

The legislation, which drew criticism from Democrats, would also discourage the use of “abusive” tax shelters and would seek neither to raise nor reduce the overall level of corporate taxes, he said.

“Our goal here is not to create tax breaks,” Mr. Thomas told reporters. “It is to create a tax system which does not punish being a US-owned company and which harmonises the way in which the government legitimately raises revenue but not in a way that unduly damages businesses' being able to go about their business.”

In an outline of the package, Mr. Thomas said he would deal with such relocating, known as “corporate inversions,” by such steps as taxing companies that transfer assets overseas and cracking down on “earnings strippings” where companies make interest payments to a new foreign parent company, and uses these payments to offset their taxable income in the United States.

Mr. Thomas said he would impose excise taxes on the stock options of officers and other corporate insiders at the time of a relocation to equalise treatment with common shareholders.

In total, there would be more than 20 In total, there would be more than 20 changes in the US Tax Code related to companies competing in the global market, including simplifying foreign tax credit rules designed to prevent double taxation, Thomas said.

Bermuda has come under increasing fire from US politicians after a stream of companies have announced plans to reincorporate in Bermuda, saying that they will save millions of dollars in taxes on earnings from outside the US.

Much of the focus has been on hardware manufacturer Stanley Works, based in New Britain, Connecticut which faces lawsuits over its planned move to Bermuda. Other companies include oil drillers Nabors Industries, whose stock began trading as a Bermuda company this week, and Weatherford International, whose shareholders voted this week to move to Bermuda.

Democratic Congressmen have been pushing for legislation that would force the companies to return to the US while some Republicans have proposed a one-year moratorium on any further moves.

Mr. Thomas, described as Congress' chief tax-writer, had been resisting moves to rewrite the US tax laws this year and instead wanted to wait until next year for a more comprehensive tax reform law in 2003.

He can control what tax legislation reaches the floor of the House of Representatives and his decision to introdice the legislation makes it much more likely that a repatriation tax of some kind will be passed by Congress this year.

Reuters reported that Democrats criticised the Thomas proposal saying it would not stop companies from moving offshore and could end up punishing foreign companies, such as DaimlerChrysler, that invest in the United States.

“The Republican rhetoric on the corporate expatriation issue is deplorable,” Rep. Charles Rangel of New York, the top Democrat on the Ways and Means Committee, said in a statement. “They have justified these abusive transactions by blaming our tax laws. Nobody is justified in breaking or avoiding our laws because they disagree with them.”

Rangel also said Mr. Thomas broke a promise to work with Democrats in drafting a plan that would address a WTO decision against the US system of tax breaks for exporters. Washington has to bring the tax system into compliance with the global trade body's rules or face billions of dollars in punitive tariffs on US exports to Europe.

“The Thomas proposal merely muddies the water and shows our disarray to the international community,” Rangel said.

Thomas and other Republicans accuse Democrats of using the tax issue and corporate accounting scandals for political gain.

With the collapse of energy giant Enron Corp. and accounting scandals engulfing long-distance telephone provider WorldCom, corporate responsibility is becoming a major issue for the November congressional elections. Companies such as Stanley Works, which plans to move its headquarters to Bermuda in an effort to reduce its US tax burden, have drawn political fire.

Democrats say companies moving offshore at a time when the United States is fighting a war against terror are unpatriotic and should be stopped.

Senate Majority Leader Tom Daschle, a South Dakota Democrat, said yesterday that the Senate could take up legislation approved by the Senate Finance Committee that would prevent companies from avoiding US taxes by setting up shell headquarters in offshore tax havens. It would also require greater disclosure of tax shelter activities and punish companies that fail to provide the information.