Stanley Works: to Bermuda or not to Bermuda, that was the question
| Date | 01 April 2004 |
| Published date | 01 April 2004 |
| DOI | https://doi.org/10.1108/13590790410809112 |
| Pages | 186-194 |
| Author | Jackie Johnson,Mark Holub |
| Subject Matter | Accounting & finance |
Journal of Financial Crime Ð Vol. 11 No. 2
Stanley Works: To Bermuda or Not to Bermuda,
That was the Question
Jackie Johnson and Mark Holub
INTRODUCTION
In the middle of the eighteenth century Benjamin
Franklin is reported to have stated that `in this
world nothing is certain but death and taxes'. He
obviously had no idea of what was to come, for in
today's corporate world companies have achieved
perpetuity and there is nothing certain about their
taxes.
Globalisation and the removal of trade barriers and
exchange controls means that companies are able to
take advantage of the global marketplace not only
to expand their operations and increase pro®t but
also to exploit complex and elaborate corporate
structures and oshore ®nancial centres to avoid
and at times evade tax. Some US companies have
taken to `moving' their legal domicile without chan-
ging their physical operations, an action speci®cally
designed to minimise their US tax bill. Although
this started over 20 years ago, it has become more
popular in the last ®ve years. The most recent rein-
corporations, those since the terrorists' attacks of
11th September, 2001, have received a hostile press,
particularly as the use of oshore ®nancial centres
(OFC) is also linked to the laundering of terrorists'
funds.
Shareholder groups, labour unions, politicians and
the press have openly condemned this form of tax
avoidance and during 2003 seven companies will
face shareholder resolutions asking management to
reverse their previous decision and once again make
the USA their legal and therefore tax domicile.
1
Only two companies have been in¯uenced by the
current debate: McDermott International, a
company that reincorporated in Panama over 20
years ago, which has promised to work with two of
the largest US pension funds and re-examine the o-
shore incorporation issue;
2
and Stanley Works
which, in response to public criticism, reversed its
decision to reincorporate in Bermuda.
This paper provides an overview of the expatria-
tion debate in which Stanley Works played a prom-
inent part discussing their reasons for deciding to shift
their legal domicile from the USA to Bermuda, the
responses of various stakeholders, the condemnation
of the press and labour unions and their ®nal decision
to remain a US incorporated company.
HARMFUL TAX PRACTICES
Historically tax policies were developed to address
domestic economic and social needs. The form that
taxation took and its level depended on the amount
of publicly provided goods and services and the
redistribution aims considered appropriate by the
government of the day. The impact of a country's
tax policy was principally domestic, with little inter-
national spillover.
But globalisation of trade and investment has
changed the relationship between domestic tax
systems. Some tax incentives are speci®cally aimed at
diverting business away from other jurisdictions.
OFCs with low or zero tax rates promote their low
tax status with the speci®c aim of poaching from
another country's tax base. Many low tax jurisdictions
rely heavily on their favourable tax status for govern-
ment revenue. Annual registration fees rather than
taxes amount to a considerable sum when thousands
of companies are involved. Fees are easier to police
and collect and do not require the level of expertise or
oversight that a jurisdiction needs if it is to levy and
collect taxes.
The Organisation for Economic
Co-operation and Development (OECD)
In 1998 the OECD released a report on harmful tax
competition in which was discussed the eect such
competition has on the location of ®nancial services
activities, its erosion of the tax base of other countries,
its distorting eect on trade and investment patterns
and its eect in undermining taxpayer con®dence in
the integrity of the tax system.
Countries with high compliance costs lose out as
pro®ts are diverted to low tax jurisdictions. This
means capital ¯ows are distorted around company
tax arrangements. As companies reduce their taxes
they correspondingly increase their pro®t. This shifts
what was previously tax revenue into the hands of
company managers and/or shareholders Ð moving
Page 186
Journal of Financial Crime
Vol.11,No. 2, 2003,pp.186 ±194
#HenryStewart Publications
ISSN 1359-0790
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