Here we go again. Kellogg Brown & Root (KBR), who was a subsidiary of Halliburton until last year, is the largest contractor in Iraq with over $16 billion in contracts. It has been found that KBR is exploiting a tax loophole by setting up offshore-skeleton companies in the Cayman Islands to employ its more than 10,000 American employees working on overseas contracts for the U.S. government, allowing them to avoid paying payroll taxes to the U.S. government. Payroll taxes are aimed at the Social Security fund and Medicare. This practice is also allowing KBR to avoid paying unemployment taxes to its state of incorporation – Texas.
KBR acknowledges that they have set up the offshore offices to reduce their tax obligations. The Department of Defense (DOD) is aware of KBR's methods but has done nothing about it. Their position is that KBR’s tax savings are passed on to the US military.
It is no wonder that they are the largest contractor as they are able to outbid everybody else due to their lower cost structure. While the DOD rewards KBR’s behavior, they are depriving other taxpaying companies a fair shot at contracts. When considering the DOD position, one must also consider that Vice President Dick Cheney was the Secretary of Defense prior to becoming Halliburton’s chief executive, after which he became the Vice President.
A glimmer of hope: Of the many contractors working overseas for the US government, only one other - besides KBR, is exploiting this unethical loophole to avoid paying their fair share. It apears that all the other contractors pay all required payroll taxes for their overseas employees, giving KBR a major advantage over these competitors.
Source: Boston Globe; March 6, 2008; Farah Stockman (check out article: www.boston.com/news/world/articles/2008/03/06/top_Iraq_contractor_skirts_us_taxes_offshore/?page=1)
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