WASHINGTON -- Stanley Works, criticized by lawmakers, unions and Connecticut officials for seeking to shift its legal address to Bermuda, yesterday acknowledged for the first time that the move would reduce its taxes on U.S. profits.
The toolmaker says it will save $30 million in taxes annually by maintaining a legal address in Bermuda while keeping its base of operations in New Britain, Conn., its home for 158 years. Chairman and chief executive officer John Trani said the savings involve more than just foreign income.
"Stanley will do what it has to do to be competitive," he said in an interview when asked about tax savings from U.S. operations. The company, the largest toolmaker in the U.S., is following its rivals and "will do exactly the same as they do -- no more, no less," he said.
Members of Congress have criticized "corporate inversions," in which companies reincorporate in low-tax jurisdictions outside the United States, as unpatriotic tax dodges. While reincorporating offshore technically puts only a company's non-U.S. income outside the reach of the Internal Revenue Service, lawmakers say that once Stanley and other businesses are set up offshore, they will shelter U.S. income from tax. The issue was examined in a House Ways and Means Committee hearing.
Cooper Industries Ltd., maker of rival Crescent wrenches, moved its legal residence from Ohio to Bermuda last month. Oil drillers Nabor Industries Inc. and Weatherford International Inc. are planning to move their legal addresses from the United States this month. About a dozen other companies have moved since 1997, including Ingersoll-Rand Co., another Stanley competitor.
One reason for the barrage of criticism against Stanley was the all-American image it cultivated in an advertising campaign emphasizing its small-town roots.
Stanley Works shareholders face a second vote on the move after a May 9 proxy vote approved it by less than 1 percent. Trani said he expects to win approval, but the revote hasn't yet been scheduled.
Since May 9, Stanley Works shares have declined 11 percent. Its shares rose 13 cents to $41.32 yesterday.
At the Ways and Means Committee hearing, Pamela Olson, the Treasury's top tax official, said Congress should take "urgent" steps to keep U.S. firms that reincorporate in offshore tax havens from "inappropriately" avoiding taxes on their U.S. income.
The Treasury recommended limiting the ability of newly reincorporated companies from leveraging the U.S. subsidiary and deducting the interest, reviewing tax treaties designed to avoid double taxation so they can't be exploited to avoid taxes altogether and ensuring that assets can't be sold by the U.S. firm to its foreign parent at artificially low prices.
"Exploitation of inappropriate income-shifting opportunities erodes confidence in the fairness of the tax system," Olson said. She also said Congress also should review the way the United States taxes companies on their foreign income, to be competitive with the laws of the U.S.'s major trading partners, a point reiterated by Trani.
The Treasury maintains that the U.S. tax code hurts some companies because it taxes all income, while most other countries use a territorial system that doesn't tax foreign income.
Connecticut Atty. Gen. Richard Blumenthal was scheduled to testify, at the invitation of committee Democrats, about allegations he has made that Stanley Works rigged the outcome of the May 9 vote, but the the hearing was adjourned before Blumenthal could appear.
Critics say moving offshore to reduce U.S. taxes while the United States fights a war on terrorism is unpatriotic. Stanley counters that the move will help the company compete with its lower-taxed international competitors, prevent the company from being acquired by a non-U.S. firm and boost shareholder value by reducing its effective tax rate to 24 percent from 32 percent.
Stanley says the transaction will increase revenue for the U.S. government because the move will trigger capital gains taxes as shares in the U.S. company are redeemed before new shares in the Bermuda entity are issued.
"From a tax-revenue-generating standpoint, our reincorporation will generate U.S. taxes, not diminish U.S. taxes," said Trani, who was in Washington to oppose legislation that would ban his company's anticipated tax savings.
