WASHINGTON - October 6 - If action is not taken immediately, a big corporate loophole will be slipped into the rules governing how and to whom U.S. government agencies contract out their work, the U.S. Public Interest Research Group (U.S. PIRG) discovered this week.

Each year, Congress must renew its commitment to prohibiting government agencies from awarding contracts to inverted corporations. (Inverted corporations are those that were once U.S.-based, that reincorporate in another country, but conduct very little substantial business in their new foreign base. For more information see U.S. PIRG’s Tax Shell Game.) This restriction began as part of the Homeland Security Act of 2002 and has been renewed by subsequent appropriations bills.  

But this year, a loophole has been slipped into the language of the 2010 Senate’s Appropriations bill for Financial Services and General Government that would severely limit the scope of this law.

In Section 740 (d) of the 2010 bill, a sweeping exception is made to the current law, opening the door wide to inverted or “shell” corporations ­who do business in the U.S. but don’t pay U.S. taxes, costing taxpayers billions of dollars a year.

In reference to prohibitions against granting public contracts to inverted companies, the bill reads: “The prohibition… shall not apply to the extent that it is inconsistent with the United States obligations under an international agreement.” 

 “This bill undermines a bipartisan, commonsense law, undoing the good that’s been done,” explained Nicole Tichon, Tax and Budget Reform Advocate for U.S. PIRG. “The taxpayers, who’ve been carrying the financial rescue on their backs, will take on even more burden if this loophole becomes law.” 

On Tuesday, Tichon and U.S. PIRG took immediate action, sending a letter to the Senate Appropriations Subcommittee on Financial Services and General Government leadership outlining its key concerns, which include the potential for any inverted company in a country with which the U.S. has any kind of “international agreement” to be exempt from the restriction on contracting with the U.S. government. 

“Though ‘agreement’ is a nebulous term, it is presumed to mean the World Trade Organization’s Government Procurement Agreement, but could be interpreted as wide as Trade Agreements, Trade and Investment Agreements or even Tax Treaties,” Tichon’s letter reads.

“The original law does not provide for any preferential treatment of any particular country. The original law in no way impacts true foreign companies. Instead, it keeps contracts and tax dollars out of the hands of companies that have renounced their U.S. citizenship to avoid paying their fair share of taxes,” the letter continues. (Download the letter for full details.)

Tichon added, “The existing law provides for one of the few checks taxpayers have against blatant corporate greed and one of the few checks businesses that pay taxes have to help level the playing field.”

The bill has not yet been taken up on the floor of the U.S. Senate, but will be considered in the coming weeks.