Fruit of the Loom votes to change its base

US multinational Fruit of the Loom is to be controlled through the Cayman Islands following overwhelming shareholder approval for the move. Corporate regulations there will allow the clothing manufacturer, which employs 2,500 in Ireland, to dramatically cut its annual tax bill. It will also make it a more attractive take-over target. A Fruit of the Loom spokesman said the transfer - which the company will be re-organised under a Caymans holding company - is unlikely to have any bearing on its decision on the scale of job losses at its Donegal-based plants. Renewed discussions between senior Fruit of the Loom executives and IDA Ireland have concluded.

A fresh round of negotiations is due to begin next week. This will centre on what decisions the company is considering in relation to its Irish workforce and when any job losses will happen.

The company was expected to cut up to 700 jobs in Donegal, transferring the T-shirt sewing operations to its sister company in Morocco. There are now growing fears that the scale of the job losses may be bigger-than-expected and could involve the transfer of other jobs to Morocco.

Fruit of the Loom will, in the coming months, become a subsidiary of the Cayman Island's based Fruit of the Loom Limited, and will benefit from a range of business, tax and financing advantages that are not available in the US. Unlike the US, which imposes corporate income tax on the worldwide income of US corporations, the Cayman Islands generally imposes no corporate income taxes on foreign income. The deal is expected to trim the group's corporate tax rate from 28 per cent to 11 per cent, reaping estimated savings of $100 million a year.

This low-tax environment also makes it a potential take-over target. Possible suitors include VF, which manufactures Vanity Fair sleepwear, and the Warnaco Group, a supplier to Fruit of the Loom.

It also provides Fruit of the Loom chairman and chief operations officer, Mr Bill Farley, with substantial personal tax advantages. He holds 7 million Fruit of the Loom shares, which is equal to around 10 per cent of the company, but controls 30 per cent of its voting stock.

Fruit of the Loom's review of its Irish operations is in line with the group's stated policy of moving labour intensive segments of its manufacturing process to lower cost locations. In recent years, it has laid off thousands of workers in the US, transferring its clothing manufacturing businesses to the Caribbean, where it now has extensive operations in Mexico and Honduras.

This has yielded substantial savings and healthier profits. The company has announced the closure of its Dungloe sewing plant at the end of the month, with the loss of 50 jobs. The sewing plants at Malin Head and Raphoe are also under threat. The 300 workers have already been put on short-time, working for two days a week, with a further 800 throughout its other plants working a three day week.

A Task Force has begun working with those employees, trying to evaluate what new skills they should acquire to help them find alternative work in the locality. Morale among the workforce is said to be very low, given the prolonged uncertainty over their future.