AP IMPACT: An islands tax haven for US defense contractor

Indeed, the House Oversight and Government Reform Committee has asked 15 Defense and State Department contractors for information about any foreign entities they may have in tax-friendly countries.

The request followed a meeting with representatives from KBR Inc., which had over $6 billion in government contracts in 2006 alone. According to the committee, KBR has two subsidiaries in the Cayman Islands that are used to reduce the company's tax payments.

The panel is trying to determine how much these contractors earn, how much they pay their U.S. workers holding overseas jobs and how much in taxes goes unpaid.

It can be hard to keep track of company names.

One of the businesses on the committee's list is AECOM Government Services of Fort Worth, Texas. In 1998, AECOM and two other little-known companies -Research and Analysis Maintenance of El Paso, Texas, and Space Mark Inc. of Alaska -set up Combat Support Associates as a privately held joint venture.

Then CSA set up CSA Ltd. in the Caymans.

Gary Lewi, a spokesman for Combat Support Associates, said CSA Ltd.'s nearly 2,000 U.S. employees in Kuwait are roughly 30 percent of the company's work force there. The rest are Kuwaitis and third-country nationals, who are usually less expensive to recruit and retain. The company did not respond to additional questions from AP, however, about its business operations and employee compensation.

For a U.S. employee making $55,000 a year -the salary stated in a recent online ad for one CSA Ltd. job for emergency services -an employer would pay $4,208 in Social Security and Medicare taxes.

Pinpointing total savings depends on how much workers are paid. If, for example, the American employees of CSA Ltd. make an average of $30,000 a year, the company would owe about $4.6 million in employment taxes.

John Krieger of U.S. PIRG, a federation of public interest groups, said companies with overseas outposts have lower overall expenses and therefore an unfair advantage when competing for work against American businesses that don't.