Defense Contracting: Recent Law Has Impacted Contractor Use of Offshore Subsidiaries to Avoid Certain Payroll Taxes
Abstract
Many federal contractors establish offshore subsidiaries to take advantage of labor and market conditions. GAO has found that they also use offshore subsidiaries to reduce their U.S. tax burdens. In 2008, Congress passed the Heroes Earnings Assistance and Relief Tax (HEART) Act, which resulted in contractor offshore subsidiaries paying certain payroll taxes for U.S. personnel working abroad. Fiscal year 2009's National Defense Authorization Act required GAO to report on the rationales, implications, and costs and benefits of defense contractors' use of offshore subsidiaries. GAO did the following: (1) assessed trends and purposes for contractors' offshore subsidiaries; (2) identified how contractors use subsidiaries to support defense contracts; and (3) assessed DoD's oversight of contractors' use of offshore subsidiaries. To conduct its work, GAO reviewed data for the 29 U.S. publicly traded contractors with at least $1 billion in DoD spending in fiscal year 2008, reviewed several illustrative contracts selected based on categories of DoD services most often performed overseas, reviewed audit documents, and interviewed DoD officials about oversight. Congress should consider whether further legislative action is needed to address contractor avoidance of unemployment taxes for U.S. workers.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 2010
- Accession Number
- ADA514441
Entities
People
- Amelia Shachoy
- Ami Ballenger
- Emily Gruenwald
- Jennifer Dougherty
- John K. Needham
- Ken Patton
- Noah Bleicher
- Susan Neill
- W. W. Russell
Organizations
- United States Government Accountability Office