Cayman Islands Subsidiary Allows Pentagon Contractor Assisting War In Iraq To Avoid Millions In Taxes

kmonweb.jpgThe Boston Globe recently revealed that two Defense Department contractors operating in Iraq — KBR and MPRI — have avoided paying hundreds of millions of dollars in federal Social Security and Medicare taxes by hiring its employees through “shell companies” based in Bermuda and the Cayman Islands.

Today, the AP reveals a third contractor assisting the U.S. military’s mission in Iraq that is also dodging Social Security and Medicare taxes. Immediately after winning a DoD contract worth more than $2 billion nearly ten years ago, Combat Support Associates established CSA Ltd. in the Cayman Islands allowing it to avoid paying the taxes and evade scrutiny from the U.S. government:

The subsidiary, CSA Ltd., now employs about 2,000 American citizens in Kuwait, where they support U.S. forces moving in and out of Iraq. Yet as a foreign corporation doing work outside the United States, CSA Ltd. does not pay Social Security and Medicare taxes for these workers.

In fact, according to the AP, “company officials” have acknowledged their immunity from U.S. law, noting that CSA Ltd. “is outside the jurisdiction of U.S. courts, so federal labor rules and anti-discrimination laws don’t apply either.” Indeed, the Globe noted that because of such practices, “workers cannot receive unemployment compensation when their jobs end and may be deprived of other protections under US law.”

But Congress has taken notice of these contractors’ unethical practices. The House passed a bill last month — despite Republican opposition — to “stop federal contractors from using foreign subsidiaries to evade Social Security and other employment taxes.”

In the meantime, companies such as KBR, MPRI and CSA Ltd. continue to avoid paying millions in taxes:

The Joint Committee on Taxation estimates shutting the employment tax loophole would bring in about $846 million in revenue over 10 years. That figure could be higher, lawmakers say, since it’s unclear how widespread use of the opening is.

Indeed, assuming that the American employees of CSA Ltd. make only $30,000 per year (online job ads place salaries much higher), the company would still “owe about $4.6 million in employment taxes.”