News Archive
US contractors face offshore tax inquiry
Released on 23/04/2008
Henry Waxman is at it again, this time investigating whether government contractors are using foreign subsidiaries to pay overseas workers, thereby avoiding tax.
Waxman, chair of the US Congress committee on oversight, has asked 15 contractors to provide detailed information on their use of overseas subsidiaries.
Committee chairman Henry Waxman has asked specifically for more information about the role of two KBR subsidiaries incorporated in the Cayman Islands: Service Employees International Inc. (SEII), and Overseas Administrative Services (OAS).
In a letter to James H. Andrews, KBR’s director of government affairs based in Arlington, Virginia, Mr. Waxman says that after a briefing given recently to his committee staff by KBR representatives, he understands that the primary purpose of these offshore arrangements is to reduce KBR’s tax obligations.
According to that briefing, SEII and OAS employ thousands of US citizens who work in Iraq and other countries under KBR’s contracts with the US government.
At the same time it was observed that no KBR, SEII or OAS employees perform any significant work on the Cayman Islands.
The committee has now asked KBR for full documentation on the status of the two companies, the names and titles of their current directors and officers, and those who hold an ownership interest in them.
The demands for information are formidable, including a list of contracts under which SEII or OAS provided goods and services to any agency of the US Government from 2002 onwards, whether directly or indirectly.
The committee also wants to know about the activities these two companies perform on the Cayman Islands, their profits and the proportion of profits allocated to the Cayman Islands, plus a description of the number of US and foreign nationals paid by them since 2002.
It has also asked to see any estimates or calculations of the amount of social security, Medicare, unemployment, or other taxes and benefits not withheld from or paid to its US national workers because it is incorporated in a foreign jurisdiction.
The preliminary question sent to the other 14 contractors is this:
“Since January 1, 2002, has your company had any subsidiaries or other affiliated entities that were incorporated in any of the 39 foreign jurisdictions designated as tax havens by the Organisation for Economic Cooperation and Development and that have paid personnel to perform work pursuant to U.S. government contracts?”
If the companies answer “yes” to this question, they are required to submit information about offshore operations on a scale similar to that asked of KBR.
Contractors submitting the requested information have been invited to send a representative to brief committee staff on the role that foreign subsidiaries play in fulfilling the terms of their contracts with the U.S. Government.
