Riding a wave of post-September 11 patriotism, legislators in the United States began assessing the patriotism of US companies this year.

When it came to Bermuda, they often didn't like what they saw - corporations domiciled in the US that reincorporated here and turned their US companies into subsidiaries of a Bermuda parent to avoid paying certain taxes. The legislators referred to the practice as "corporate inversion" and deemed it unpatriotic for American firms to dodge American taxes, especially during wartime. Companies like Ingersoll-Rand, Cooper Industries and Tyco claimed that moving offshore is necessary to compete in the global marketplace.

They cited American tax laws that require companies to pay tax on their worldwide income, wherever in the world that income was generated. Companies claim that the scheme puts them at a disadvantage relative to other foreign multinationals, whose home government only impose taxes on income earned domestically. This year, companies which have "inverted" in the past few years have come under intense scrutiny in Washington. Regulators paid attention to companies like Ingersoll-Rand, Tyco, Global Crossing and, most notably, Stanley Works. The Connecticut toolmaker was subjected to so much political pressure that it scrapped its plans to reincorporate here altogether. Stanley had estimated that it would reduce its $80 million annual tax bill by $30 million.

In addition to their concern about lost government revenue, legislators took issue with more relaxed company law in Bermuda. Unlike in the US, shareholders cannot file suit against a director here because the director is responsible to the company, not the shareholders.

Several lawmakers, including Reps. Richard Neal and Scott McInnis, proposed legislation that would make corporate inversions illegal, or at least eliminate the tax savings the practice creates. There was also a proposal to ban redomiciled companies from carrying out contracts for the Federal Government..

None of the bills were passed, although regulations were introduced requiring companies who redomicile offshore to warn shareholders that they may be required to pay capital gains tax when their shares in the old US company are converted into shares in the new offshore holding company.

Some people who have been monitoring the situation closely said that the issue may have become less prominent, but that didn't mean it had gone away altogether. But according to political economist Andrew Quinlan, the president off the Washington-based Center for Freedom and Prosperity, the White House may have chosen Treasury Secretary John Snow because of a possible preference for tax reform rather than punitive legislation. Mr. Quinlan frequently advocated reforms to what he considered a "draconian" tax system in the United States that would eliminate the incentive for companies to move offshore.

Nevertheless, some state governments have remained firmly opposed to the practice. The California Public Employees' Retirement System demanded several companies who had reincorporated offshore to move their corporate address back to the US - or face the threat of having their stock divested by the system. California's state treasurer banned the state from owning the debt of redomiciled companies. He claimed that companies were using the arrangement not only to avoid taxes on offshore earnings, but also to strip the US subsidiaries of profits and shipping them offshore.

The Bermuda Government and local insurers spend tens of thousands of dollars this year lobbying the US government and to remain abreast of develoments on the corporate inversion issue and insurance regulation. Government alone paid its lobbyist in Washington $33,208 for the six months ending April 29.

Many exempted companies with substantial operations here are opposed to corporate inversions. Brian Duppereault, the chairman and chief executive of ACE Limted, strongly criticised government for allowing foreign enterprises to set up shell enterprises in Bermuda. David Ezekiel, the head of the Association of Bermuda International Companies agreed.

"Corporate inversions are not our bread and butter and the benefit (to Bermuda) has always been minimal," Mr. Ezekiel said. "And the adverse publicity has cast a pall over the rest of the business we do."