legislation aims to stop an accounting technique known as ``earnings stripping'' to avoid US taxes ... Bush threatens veto ...

Democrats Propose Bill to Curb Companies' Tax Havens (Update1)| By Ryan J. Donmoyer and Alison Fitzgerald

July 25 (Bloomberg) -- House Democrats proposed legislation that would make it harder for overseas companies to use tax havens to avoid taxes on U.S. profits, drawing immediate opposition from the Bush administration.
...
``This bill requires international tax dodgers to pay their fair share,'' said Doggett, a long-time critic of U.S. companies that establish nameplate offices in countries such as Bermuda to reduce their tax burden while continuing to operate in the U.S.

Doggett's proposal drags foreign companies with extensive operations in the U.S., such as Bermuda-based Accenture Ltd., Tyco International Ltd. and Transocean Inc. into a broader battle between the Democratic-controlled Congress and the Republican White House over a $300 billion farm bill that will be considered by the House of Representatives later this week.

His legislation aims to stop an accounting technique known as ``earnings stripping'' in which foreign companies make high- interest loans to their American subsidiaries, who are able to deduct interest. Debt service payments are routed to another unit of the corporation that is based in countries with no corporate tax rate, such as the Cayman Islands. A similar technique is used to route royalty payments for the use of intellectual property such as trademarks and copyrights.
...
Kenneth Dam, then-deputy Treasury secretary, told an audience of tax professionals on Nov. 14, 2002, that ``opportunities for earnings stripping through artificial deductions and income shifting'' may ``exploit the network of tax treaties the United States maintains around the world.''

North Dakota Representative Earl Pomeroy, a Democrat, said the Treasury Department identified the technique as a tax abuse five years ago. ``This `tax abuse' for foreign corporations became a `tax increase' as they scurried for reasons to kill the House farm bill,'' Pomeroy said in a statement. ...
...
Similar proposals have enjoyed Republican backing in the past. Former Ways and Means Committee Chairman Bill Thomas, a California Republican, in 2003 supported legislation to stop companies from stripping earnings from their U.S. subsidiaries.