WASHINGTON – The House of Representatives yesterday passed a bill that would stop federal contractors from avoiding payroll taxes by hiring American employees through offshore shell companies.
The bill was filed after The Boston Globe reported that KBR, a former Halliburton subsidiary, had avoided paying hundreds of millions of dollars in Social Security and Medicare taxes for American employees working in Iraq by hiring them through Cayman Island shell companies.
The bill amends the Internal Revenue Code and the Social Security Act to treat foreign subsidiaries of US contractors as American employers for the purpose of payroll taxes.
The measure, backed by Representatives Rahm Emanuel of Illinois and Brad Ellsworth of Indiana, both Democrats, passed last night by a vote of 238 to 197. It was part of the Taxpayer Assistance and Simplification Act of 2008, which also revokes the authority of the IRS to use private contractors to collect back taxes from delinquent taxpayers.
During the debate on the bill, Emanuel recited the post office box address of the Cayman Island company. “The only purpose they are there for is to avoid paying their fair share of taxes,” he said.