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Financial Times

August 3, 2002

LEX COLUMN: Corporate inversions

Stanley Works, the Connecticut-based toolmaker, is probably sensible to drop its plan to reincorporate in Bermuda. The political backlash against "unpatriotic" companies threatens considerable harm. Congress wants to ban Bermuda-based companies from government contracts and congressmen are queueing up with amendments to the tax code to punish US companies incorporating offshore, and those already there - including two of Stanley's competitors. Moreover, with investors wary of the exotic, this is not good timing for "corporate inversions".

But the notion that it is unpatriotic for companies to minimise their tax bills is nonsense, and invoking September 11 in this context is shameful. The US is one of a handful of countries that taxes the overseas profits of domestic companies. Companies serving their shareholders have a legitimate interest in incorporating abroad and Bermuda-based companies still pay taxes on profits from their US operations. Tax competition should encourage the US to modernise its corporate taxation.

Moreover, for Stanley to give up a plan that could have saved it Dollars 30m a year in taxes has implications for the company's shareholders, employees and customers. Anyone who does not understand that individuals, not companies, pay taxes needs a basic economics class. Politicians should stop demonising companies that incorporate offshore. If not, Delaware politicians should start to worry. It is not because of the weather and the Wilmington civic centre that half the companies listed on the New York Stock Exchange are incorporated in one state.

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