U.S. Companies Seek New Tax Havens

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To what extent executives will be downing pints of Guinness or eating Swiss chocolates after the move depends on the company. Some, such as offshore driller Transocean (RIG) and oil-services provider Weatherford (WFT), have moved or plan to move their CEOs and senior management to Switzerland. Health-care products maker Covidien (COV), on the other hand, is building out the financial staff at its Dublin location and calling it the principal office, but senior management will remain in Mansfield, Mass. "We will have a physical presence," says Eric Kraus, a Covidien spokesperson.

One thing these migrant companies are likely to have in common is a more substantial local presence than they had in the islands. "They're not going to be able to get away with just brass plates," Schmidt says. Some companies may hold their board meetings in Dublin and have some kind of manufacturing base there. Many others are likely to set up separate entities to meet any requirements. "How that's interpreted in practice is looser than one might expect," Schmidt says.

Tax experts predict that the trend will continue among companies that are still incorporated in the islands—according to Capital IQ, Bermuda, the Caymans, and the British Virgin Islands are still home to 55 companies with market capitalizations over $500 million. And insurers are likely to be the next to flee, expects Begley.

U.S.-based companies would face "exit charges"

Despite the potential public relations boost that might be had from leaving a so-called tax haven—Accenture (ACN) specifically noted in its proxy that "continued criticism" and "negative publicity" of Bermuda-based corporations could have adverse effects—most departees are wary of having their executives talk further about the moves. "We've already covered all the information we're going to talk about," says Ingersoll-Rand spokesman Paul Dickard.

Indeed, PR controversies are just one reason why companies currently based in the U.S. are unlikely to pull up roots in the same way. International tax experts think the exit charges—taxes based on lost revenue to the IRS for future earnings—will be so astronomical that U.S.-based multinationals are unlikely to leave. And some could be scared off from relocating by the prospect of being removed from the Standard & Poor's 500-stock index. Several companies that have "redomiciled" have been dumped from the index, so there's potential share-price pain if some mutual fund managers are forced to unload non-S&P 500 shares.

Still, some U.S.-based CEOs won't rule out the possibility of pulling up stakes. J. Erik Fyrwald, the CEO of $4.2 billion water-treatment and chemicals company Nalco (NLC), says he knows of fellow CEOs who are evaluating it. "Even though there are strict penalties, in the long run you've got to have your business competitive," Fyrwald says. While he has no interest in doing the same himself, Fyrwald worries that changes to corporate tax law could also make U.S.-based companies targets for foreign acquisition. "If it got to where we were unable to effectively compete globally, we would have to evaluate our options."

McGregor is BusinessWeek's management editor.