Looks like I might be able to buy Stanley screwdrivers again.
Headline: Stanley Works Bows to Pressure,
Ditches Plan for Bermuda Move
By PHYLLIS PLITCH and GLENN R. SIMPSON
Staff Reporters of THE WALL STREET JOURNAL
08/01/02
In a reversal likely to have major consequences for numerous companies seeking to avoid taxes, Stanley Works Thursday dropped its plan to reincorporate in Bermuda.
The venerable New Britain, Conn., tool company had in recent months come to be seen as an emblem of big corporations' growing appetite for tax avoidance because of its plan to move its official corporate address to Bermuda. It sought and won shareholder approval for the move, which would have left its headquarters and operations in the U.S. -- but Thursday said it decided against setting up in a tax haven in response to mounting pressure from Congress.
Stanley had predicted it would save $30 million a year by reincorporating in Bermuda, an island nation of some 63,000 people in the mid-Atlantic that does not impose income taxes on corporations. In doing so, the company planned to follow numerous other public and private U.S. companies. Among these, Fidelity Investments, the Boston-based mutual-fund giant, set up there in the 1960s.
The scandal triggered by the collapse of Enron last winter, however, has radically changed how corporate behavior is viewed. Moves that smack of clever accounting, whether lawful or not, are now generating intense criticism. The controversy has even spilled over into tax avoidance, a standard corporate goal. In tax avoidance, shareholders are the beneficiaries and the victim is the government, rarely a sympathetic figure.
Congress is striking back. Unexpected -- and overwhelming -- votes in the House and Senate in recent days to penalize companies that move abroad for tax reasons have caught off-guard executives and lobbyists at numerous companies contemplating such moves. Congressional aides said the lobbying against such legislation this week was as intense as any they had ever seen, but the Stanley decision suggests the political tide may now have turned.
Other companies now are likely to reconsider their own plans. For some firms, continuing with the move will have sharp consequences if Congress retaliates by passing legislation to cut off their government contracts.
Repercussions also could be in store for companies that have moved in recent years, thought to number about a dozen. If condemnation of the Bermuda strategy continues to mount, tough legislation banning government contracts to firms that recently moved their headquarters abroad, which currently is bottled up in the House, could emerge. That legislation could force firms such as consulting giant Accenture Ltd., which set up in Bermuda last year, to either give up millions of dollars in contracts or move back to the U.S. at steep cost in both taxes and legal work.
Other companies that have recently decided to move to Bermuda include oil driller Nabors Industries Ltd. and oil-services company Weatherford International Ltd. Cooper Industries Inc., a maker of electrical products, tools and hardware, and Ingersoll-Rand Co., which manufactures industrial and commercial equipment and components, also last year moved their corporate addresses offshore.
Stanley had revenue last year of $2.62 billion. The maker of tools, doors and hardware received some $5 million in government contracts in 2001. Such contracts would be at risk under the pending legislation. Other Bermuda-based firms face much bigger possible hits. Accenture received $282 million from the government in 2001, and Foster Wheeler Corp., $286 million.
Stanley faced complaints for its decision to move to Bermuda from labor unions and home-state politicians. A May 9 shareholder vote to proceed with the Bermuda move was set aside after Connecticut Attorney General Richard Blumenthal took legal action alleging irregularities in the voting process. Stanley planned a second vote, but hadn't held it pending Securities and Exchange Commission clearance.
In abandoning its plan, Stanley Chairman John Trani, in an interview, cited recent Congressional efforts to address inequities in the tax code. These inequities are seen as putting U.S.-based companies at a disadvantage, given that the U.S. is one of the few countries that taxes corporations for foreign-sourced income. "The Congress appears to be very serious about taking up this issue," he said.
Mr. Trani said that Stanley had been asked by Congressional leadership on both sides of the aisle "to support their efforts toward rectifying this situation by enacting legislation that will create a level playing field for companies incorporated in the U.S."
Stanley and many other firms complain that the U.S. corporate-tax system has placed them at a steep disadvantage to foreign competitors, who generally pay taxes only on their domestic income. The U.S. has sought to compensate with a system of credits, but it has been weakened by a series of rulings by international trade bodies. Now some say it is time for a bigger overhaul to put the U.S. tax regime in line with the rest of the world.
"The real issue here is not whether any particular U.S. company decides to move its headquarters to Bermuda," Sen. Orrin G. Hatch, a Utah Republican, said in a statement following Stanley's decision. "The real issue is that Congress must pass legislation to ensure that our U.S. international tax rules do not provide American firms an incentive to leave our shores. We need to overhaul our tax laws to level the playing field, which is presently tilted in favor of companies headquartered outside the United States."
Critics argue that any reduction in corporate taxes could increase the burden on individual taxpayers.
Despite the drubbing the company and its officials have taken, Mr. Trani said it hasn't affected Stanley's standing in the marketplace. "Our position in retail terms is the strongest since I've been here," he said. "All the way through this, I believe what we did was appropriate," he added. |
