WASHINGTON - When the Pentagon announced an obscure California company had won a lucrative military contract, no one mentioned any plans for a Caribbean outpost - a tropical shell the company quickly created that allowed it to duck millions in taxes and deflect U.S. lawsuits.

It’s legal, at least for now. Contractors large and small have been heading offshore to shield piles of taxpayer dollars, according to an investigation, but irate lawmakers are thundering that they’ll put an end to it.

Almost a decade ago, a few months after winning the deal that has totaled more than $2 billion, Combat Support Associates established its subsidiary in the Cayman Islands, a British territory and tax haven.

The subsidiary, CSA Ltd., now employs about 2,000 American citizens in Kuwait. Yet as a foreign corporation doing work outside the United States, CSA Ltd. does not pay Social Security and Medicare taxes for these workers. Also, company officials maintain the subsidiary is outside the jurisdiction of U.S. courts, so federal labor rules and anti-discrimination laws don’t apply either.

In fact, there’s scant evidence that CSA Ltd. exists - at least physically. There’s no listed office address or phone number in the Cayman Islands.

The House of Representatives passed tax legislation a few weeks ago that would treat foreign subsidiaries of U.S. government contractors as American employers. Then they would have to pay the taxes that finance Social Security and Medicare programs. The Senate is now considering the legislation.

“Companies that avoid this responsibility undermine the country,” says John Kerry, D-Mass., chairman of the Senate subcommittee on social security, pensions and family policy. “If everybody avoided their responsibility, where would we be?”

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