WASHINGTON, May 13 (UPI) -- A shareholder vote by manufacturer Stanley Works to reincorporate in Bermuda in order to avoid U.S. taxes has caused a rippling stir not only in its home state of Connecticut but also in the nation's capital where the company's potential move has been denounced as unpatriotic and as "exploiting a loophole" in the U.S. tax system.
On Monday the company changed its earlier full year earnings estimates, which had been based on the expected reincorporation, to exclude any offshore tax benefits.
The shareholder vote has been called into question by state authorities on technical grounds and Stanley Works Chief Executive Officer John M. Trani -- who orchestrated the original vote in favor of moving -- has said that a new vote will be held, though he defended the legitimacy of the Thursday vote.
"Stanley's integrity is the most important asset of our company. Even the appearance of impropriety is unacceptable. That is why the decision was made to proceed with a revote," said Trani in a statement.
"However, our strategy has not changed. Enabling our company to better compete by leveling the global playing field is strategically important and highly beneficial for our shareowners, employees, customers and all our other stakeholders," the CEO added.
The company has not set an exact date for the revote yet.
The New Britain, Conn.-based company is an old-line New England manufacture with over 150 years of history in central Connecticut were it has produced its well-known line of tools and doors.
Sen. Joseph Lieberman, D-Conn., condemned the decision to reincorporate Stanley Works in Bermuda, adding that he is co-sponsoring legislation that would close the particular tax loophole being used by the company to prevent other companies from voting similar measures.
"What Stanley Works has done not only hurts the residents of Connecticut, but shakes our national faith in the ethics of enterprise," Lieberman said. "Unfortunately Stanley Works only asked themselves 'is it legal?" instead of asking 'is it right?' If they had asked that question, they would see it is just plain wrong."
Lieberman said the company's move reflected bad corporate citizenship.
"All the hard working residents of Connecticut who play by the rules should be outraged by Stanley Works going to such great lengths to exploit a loophole in our tax system," he said. "We should hold our companies and ourselves to a higher standard, and strive for capitalism with a conscience, not capitalism that thrives on loopholes."
According to Stanley Works, its plan to reincorporate in Bermuda, and hold corporate "residency" in Barbados, would slash its tax bills by nearly 30 percent, or $30 million a year. A large selling point to the company board and shareholders was the expectation that the increased cash flow would lead to a marked jump in the value of the stock.
While a move in the technical sense only -- with Bermuda only requiring a mailing address and Barbados requiring that the company hold all of one board meeting there a year -- Stanley Works would no longer owe U.S. income taxes on profit earned abroad, and could ship its U.S. profits offshore and turn them into deductions under a U.S. treaty with Barbados. Stanley would owe only 1 percent of profits in taxes to Barbados.
Lieberman said the Stanley Works reincorporation plan points to flaws in international tax rules.
The Connecticut senator, along with Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, are co-sponsoring bipartisan legislation that would close the tax loophole that Stanley is using. This bill is similar to a House measured sponsored by Reps. Jim Maloney, D-Conn., and Richard Neal, D-Mass.
"Unfortunately, Stanley Works is not the first company to evade responsibility by setting up a post office box and a fax machine overseas," Lieberman said. "But this bill could make them one of the last. By closing this loophole in the tax code, we can make sure that companies owe up to their responsibilities and pay their fair share."
In midday trading, shares of Stanley Works were trading at $43.22 share, down 33 cents or 0.76 percent.
The company's current full year forecast -- excluding any offshore tax benefits -- is for earnings of between $2.70 per share to $2.81 per share, an increase of 18 to 22 percent from 2001 earnings results.
