Expat offshore firms slammed as 'unpatriotic'

As the outsourcing debate continues, expatriate services firms have become the latest targets for outsourcing critics, who are branding them 'unpatriotic'. However, in the long run, opponents of the offshore trend may find themselves unable to fend off the impact of globalisation.

Companies including Seagate Technology and Tyco have moved their headquarters from the US to offshore tax havens, and are now being branded as 'unpatriotic' by critics who say they are taking money from the hard-working US tax payer and possibly doing US IT contractors out of a job.

The anger being expressed by both state and government representatives is getting increasingly fierce, as they attempt to expose the next case of supposed unpatriotic villainy.

Accenture is perhaps facing the strongest attack. Incorporated in the sunny island state of Bermuda, its critics argue that it is based there solely to take advantage of the favourable tax breaks. The company has made some enemies among members of the House of Representatives since winning the single largest IT services contract ever awarded to an outsourcer, a $10bn 10-year contract with the Department of Homeland Security to build a virtual border system for the US-VISIT contract.

Connecticut Democrat Rosa DeLauro, who attempted to block Accenture from performing the project, said it is "outrageous and wrong" that such companies are being rewarded for "abandoning" the US.

Others, however, suggest quite assiduously that the tax breaks firms get for being incorporated in overseas locations can enable them to undercut the competition. After all, Accenture won the US-VISIT contract against competition from US-based firms Lockheed Martin and CSC.

Outsourcing by stealth

Of course driving this wave of anger is the continuing loss of US IT jobs to lower cost overseas countries. This is the real sticking point, because a lot of work performed by both US and non-US companies is being sent offshore by stealth. Many workers' unions, like the Organization for the Rights of American Workers, are now lobbying state and federal government to ban such work.

The Hynes bill for example, which aims to block expatriate companies from performing state government work, has already been adopted by North Carolina and California, and states such as Illinois, Massachusetts, Minnesota, Pennsylvania and Texas are also attempting to follow suit.

Being based offshore in Bermuda enables a company to avoid paying the 35 per cent tax that the US government would charge on income earned overseas. This is perfectly legitimate, but what has really caused anger is that some of these companies have been shifting profits from the US over to tax havens to avoid paying tax at all.

Paying their fair share

Accenture insists that it does not do this. On its DHS contract, the company claims that because its US business won the project, its Virginia-based Accenture LLP division will be paying tax on any profit it makes from the deal. In any case, many states have already closed so-called loopholes that may have enabled such profit migration to occur in the past.

Nonetheless, Accenture claims that it was never a US company, and that it pays a fair share of taxes in each of the countries in which it operates. The company paid 35 per cent tax in 2003, and said it expects effective tax to be 34.8 per cent in 2004. This is comparable to its US based rivals. Perot Systems paid 37 per cent in its most recent fiscal year, ACS paid 38 per cent and BearingPoint paid 58 per cent, but CSC apparently paid as little as 28 per cent.

When faced with such discrepancies the arguments of tax dodging lose some of their weight. Indeed, when the arguments descend into accusations of 'unpatriotic' acts and public officials berate the perceived lack of favoritism for local companies and workers, the overall strategy becomes clear: the US is putting up barriers to stifle competition from overseas, a contrived defence against the globalisation process that will surely only do it harm in the long run.

Source: ComputerWire/Datamonitor

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