WASHINGTON (Bloomberg) - US Senate leaders approved legislation excluding companies based in overseas tax havens from bidding for billions of dollars in homeland security contracts.

The provision would shut out Tyco International Inc., Ingersoll-Rand Co. and other companies from more than $8 billion in contracts with the Department of Homeland Security over the next fiscal year, beginning October 1.

Senator Carl Levin, a Michigan Democrat, sponsored the measure as an amendment to an appropriations bill, and it was accepted without a vote.

“It is unfair to the US companies that pay their taxes and have to compete with these tax scofflaws, and it is unfair to all the other honest taxpayers forced to make up the difference,” Levin said in a statement.

The House of Representatives approved a similar provision in June. President George W. Bush opposed the House's action and may try to strip the contract ban during House-Senate negotiations on a final bill.

The General Accountability Office, the investigative arm of Congress, said in a June report that US subsidiaries of corporations with headquarters in tax havens such as Bermuda and the Cayman Islands are able to shift income to their parent companies to reduce income subject to US taxes.

That enables the companies to offer lower bids on government contracts than their US competitors, the General Accountability Office said.

The report “confirms what we suspected all along,” said Senator Charles Grassley, an Iowa Republican and chairman of the Finance Committee.

“Expatriated companies pay less taxes and might get more government contracts than companies that stay on US soil. That's 100 percent unfair.”

Ingersoll-Rand, which makes construction equipment, is incorporated in Bermuda and run from Woodcliff Lake, New Jersey. Bermuda-based Tyco, the world's biggest maker of security systems, industrial valves and duct tape, is run from West Windsor, New Jersey. Company officials didn't return phone calls seeking comment on the Levin amendment.

Lawmakers are considering separate tax legislation to end so- called “corporate inversions” in which US companies incorporate abroad to reduce their tax bill. The practice will cost the US $5 billion in lost revenue during the next decade, according to the congressional Joint Committee on Taxation.

Democratic presidential nominee John Kerry, a four-term senator from Massachusetts, said he would close the tax loophole. Bush proposed tax changes to discourage companies from using offshore tax havens, stopping short of backing an outright ban.

Accenture Contract

In June, House Democrats attempted to cancel a $10 billion Homeland Security Department contract awarded to Bermuda-based Accenture Ltd. The contract was maintained, though Democrats obtained a provision to prohibit future contracts from going to such companies.

Bush said the provision may prompt trading partners to question US compliance with World Trade Organization rules and other agreements. Accenture said its US-based subsidiary, which employs about 25,000 people and pays US taxes, would handle the contract to build a programme that collects data on foreigners entering the country.

The US Chamber of Commerce, which lobbied against the Levin amendment, defended the Accenture contract.

“The terms of the contract dictate that all work will be done in the United States by United States companies, and that no jobs will be outsourced to foreign workers,” Bruce Josten, vice president of government affairs at the chamber, said in a letter to senators.