It’s been a while since we’ve heard any new Halliburton-related outrages, so I suppose we were due. The latest is evidence that Halliburton subsidiary KBR used a creative Cayman Islands-based scheme to avoid paying employment taxes. (thanks to reader E.S. for the tip)
Kellogg Brown & Root, the nation’s top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.
More than 21,000 people working for KBR in Iraq – including about 10,500 Americans – are listed as employees of two companies that exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Caribbean. Neither company has an office or phone number in the Cayman Islands.
The Defense Department has known since at least 2004 that KBR was avoiding taxes by declaring its American workers as employees of Cayman Islands shell companies, and officials said the move allowed KBR to perform the work more cheaply, saving Defense dollars.
But the use of the loophole results in a significantly greater loss of revenue to the government as a whole, particularly to the Social Security and Medicare trust funds. And the creation of shell companies in places such as the Cayman Islands to avoid taxes has long been attacked by members of Congress.
A Globe survey found that the practice is unusual enough that only one other major contractor in Iraq said it does something similar.
Sen. John Kerry, who has introduced legislation to close loopholes for companies registering overseas, added, “Failing to contribute to Social Security and Medicare thousands of times over isn’t shielding the taxpayers they claim to protect, it’s costing our citizens in the name of short-term corporate greed.”
The closer one looks at this, the more scandalous it appears.
Social Security and Medicare taxes amount to 15.3 percent of each employees’ salary, split evenly between the worker and the employer. While KBR’s use of the shell companies saves workers their half of the taxes, it deprives them of future retirement benefits.
In addition, the practice enables KBR to avoid paying unemployment taxes in Texas, where the company is registered, amounting to between $20 and $559 per American employee per year, depending on the company’s rate of turnover.
As a result, workers hired through the Cayman Island companies cannot receive unemployment assistance should they lose their jobs.
In interviews with more than a dozen KBR workers registered through the Cayman Islands companies, most said they did not realize that they had been employed by a foreign firm until they arrived in Iraq and were told by their foremen, or until they returned home and applied for unemployment benefits.
It’s worth noting, of course, that KBR is by far the largest contractor in Iraq — with an estimated $16 billion in contracts, the former Halliburton subsidiary has “eight times the work of its nearest competitor.” Then again, other top contractors, including Bechtel and Parsons, don’t set up shell companies in the Cayman Islands to avoid employment taxes.
What’s more, Amanda notes that the Bush administration “has aided this tax dodging.”
One of KBR’s shell companies is Overseas Administrative Services, which was set up two months after Cheney became Halliburtion’s CEO in 1995. Since at least 2004, the Pentagon has known about KBR’s practices, but chosen to ignore the issue.
Of course, KBR is more than happy to claim workers as its own in one instance: when seeking “legal immunity extended to employers working in Iraq.”
The mind reels.