Company Is Foreign at Tax Time, but Seeks Americans-Only Work
Tempest
(approx $170,000):
http://www.opensecrets.org/indivs/search.asp?NumOfThou=0&txtName=Kies%2C+ken&txtState=%28all+states%29&txtZip=&txtEmploy=&txtCand=&txt2004=Y&txt2002=Y&txt2000=Y&Order=N
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Company Is Foreign at Tax Time, but Seeks Americans-Only Work
By DAVID CAY JOHNSTON
http://www.nytimes.com/2003/10/18/business/18SHIP.html?hp=&pagewanted=print&position=
A big oil-well drilling company that has used one law to escape American
taxes by taking addresses in Bermuda and Barbados is now trying
to use another law to qualify for business open only to American
companies.
Competitors are crying foul, saying they cannot survive if the
Bermuda-Barbados company, Nabors Industries, is allowed to vie for
contracts while paying little or nothing in taxes.
The competitors, most of them family-owned businesses, say that unless
Congress acts to level the playing field they will lose so much business
to Nabors that they will go broke within a decade or be forced
themselves to try to become Bermuda companies so they can also escape
taxes.
The issue is part of a much larger debate about how a hodgepodge of tax
laws enacted starting in 1986 give big advantages to multinational
concerns over domestic companies.
The debate comes as official reports show that corporate tax revenues
are plummeting because of a weaker economy and tax shelters, with the
Congressional Budget Office estimating it will raise $136 billion this
year, down from $207 billion just three years ago.
Nabors Industries is the nation's largest operator of oil-well drilling
rigs and has its working headquarters in Houston. But since late 2001
the company has used a Bermuda maildrop as its tax headquarters and a
Barbados office as its legal headquarters.
There is no corporate income tax in Bermuda and under a treaty with
Barbados, profits are taxed at 1 percent. The United States corporate
tax
rate is 35 percent. The savings to Nabors was $10 million last year.
Now Nabors wants to qualify fully for business under the Jones Act,
which since 1916 has required that ships engaged in purely domestic
trade
be built in American shipyards, owned by American companies and operated
by American crews. Nabors owns 33 ships serving oil drilling
platforms, a tenth of the fleet of about 350 ships that ferry supplies
like drill pipe in the Gulf of Mexico.
Nabors argues that its American subsidiary qualifies it for business
under the Jones Act, and that under a 1996 law that allows foreign
financing of such ships, its Bermuda parent is simply providing the
money for these ships.
Competitors call the arrangement improper, and have some support in
Congress.
Minor Cheramie Jr. of Golden Meadow, La., whose family operates 18 Jones
Act ships, called it "grossly unfair that we pay taxes for certain
services and this big corporation goes foreign and they get the benefit
of the same services without paying for them."
He said that because Nabors pays little in taxes it can underbid
competitors, growing until it dominates the industry.
If Congress lets Nabors keep its ships and operate more, Mr. Cheramie
said, "I won't have a choice but to become a Bermuda company."
Each side is seeking a rider to one of the appropriations bills expected
to be voted on in the next few weeks that would put its stance into law.
No bill has been introduced and Congress has not held any hearings,
which is common with special-interest legislation affecting taxes.
Calls to Nabors offices in Houston and Barbados were not returned. A
Nabors lobbyist, Kenneth J. Kies, expressed confidence that Congress
would back the company, but would not say who was taking its case
forward. Some senators and congressmen who rivals said were Nabors's
supporters said they were not involved.
Nabors's opponents are more vocal. Representative David Vitter,
Republican of Louisiana, said Congress never intended to create a
loophole
for foreign companies like Nabors to finance an American subsidiary.
"This was for a bona fide bank" to provide financing, he said, calling
the Nabors arrangement "an abuse."
Representative Gene Taylor, Democrat of Mississippi, said he was "angry
that a company that became foreign so it would not have to pay taxes
still gets all the benefits the taxpayers provide, with the Coast Guard
to rescue their ships if they get in trouble and the Navy Seals if they
are attacked by terrorists.
"They have an advantage against companies that pay taxes."
Last year Nabors paid 7 cents in taxes out of each dollar of profit.
Mr. Taylor said the 1996 law "was presented to Congress as a way for
these ship companies to lower their financing costs, but turns out to
have been cleverly written to give a competitive advantage" to foreign
companies.
Mr. Kies, the Nabors lobbyist, said the Nabors arrangement complied with
the 1996 law. "Those are the guys we like to call the whiners," Mr. Kies
said of the other shipowners.
"There is nothing unfair" about what Nabors has done, he added.
Mr. Kies agreed that Nabors pays a much lower tax rate than the other
companies because of its Bermuda arrangement. He added that he was
certain that the competitors would not be able to lower their tax rates
by making Bermuda their tax headquarters because Congress would enact
a ban on such moves, making it retroactive to last year.
While that may seem unfair, Mr. Kies said, the issue is better viewed as
just "one loony example" of "a corporate tax system that is really
bizarre."
Mr. Kies, who was chief of staff for Congress's Joint Committee on
Taxation in the mid-1990's, said that without fundamental change many
more
such examples will come to light as some companies take advantage of
what the law allows to cut their tax rates, leaving competitors at a
disadvantage. And, he said, foreign companies will continue to expand in
the United States because of tax rules that favor them over
American-owned companies.
The result, he said, will be that American companies will wither,
creating few jobs, while competitors flourish.
A French company, Groupe Bourbon, is financing 10 ships being built in
Alabama that will be owned in part by Larry Rigdon, a New Orleans ship
entrepreneur. He says these ships also qualify under the Jones Act.
Representative Taylor, who represents the Mississippi Gulf Coast, said,
"We could have taxpaying American companies building those ships."
Nabors and Groupe Bourbon can convert otherwise taxable profits earned
in the United States into tax deductible expenses paid to the offshore
parent in the form of interest, royalties and fees.
Laney Chouest, whose family company operates 10 Jones Act ships and
employs 4,000 people in Galliano, La., said he was astonished that
members of Congress would even take up the cause of foreign-owned
companies against family-owned American businesses.
"Should foreign-owned companies like Nabors have these lobbying rights?"
he asked.
"If what's going on is some in Congress want to get rid of corporate
taxes, then, fine, let's debate that, but not just for some
foreign-owned
companies" while companies like his must continue to pay taxes.
Last year, news that companies were using Bermuda maildrops to escape
taxes angered many voters. On Capitol Hill, Republicans and Democrats
competed to make the toughest statements about acting against companies
that moved offshore to escape taxes.
Congress passed a law that appeared to ban companies that acquired a
Bermuda tax address from getting federal contracts. But a close reading
of the law showed that it explicitly allowed American subsidiaries of
the Bermuda companies to hold federal contracts.
Congress did not enact any laws to either stop the Bermuda moves or to
protect domestic companies from those that use a Bermuda mailbox to
operate nearly tax-free.
Bob Alario, president of the Offshore Marine Service Association in New
Orleans, which represents the competing shipowners, said that Gene M.
Isenberg, Nabors's chief executive, told them he was confident Congress
would eliminate any doubt as to the Jones Act qualification of his
company's 33 ships and would allow Nabors to expand.
--
During times of universal deceit, telling the truth becomes a
revolutionary act.
- George Orwell