Newspaper article The Christian Science Monitor

IRS Cracks Down on Foreign Firms

Newspaper article The Christian Science Monitor

IRS Cracks Down on Foreign Firms

Article excerpt

FACING gargantuan budget deficits and antitax sentiment on the part of American voters, the United States government is stepping up its taxation of foreign-owned corporations as a seemingly painless way to raise billions of dollars in federal tax revenues.

By closing tax loopholes, demanding more detailed information, and increasing enforcement efforts, the US Treasury hopes to wring as much as $20 billion from foreign-controlled multinationals each year, according to some congressional estimates.

Congress is prodding the Internal Revenue Service to crack down on international tax-evaders with the same vigor with which the agency once pursued gangster Al Capone. To make the foreign firms pony up their "fair share" of taxes, US lawmakers have given tax collectors more money, manpower, and muscle.

The tax agency is accepting Congress's mandate, promulgating a slew of new regulations and Draconian penalties. "We believe that the US government is being shortchanged billions of dollars annually," says Fred Goldberg, the IRS commissioner.

A report by a congressional subcommittee last year disclosed that, of 36 foreign multinationals it investigated (25 of which were Pacific Rim companies while 11 were European), more than half paid little or no taxes during a recent 10-year period.

Consider the case of Yamaha Motor Corporation, the Japanese motorcycle-maker. In 1982, the company paid a mere $123 in taxes - a far cry from the $27 million that the IRS is suing to recover in tax court. The report also noted that, in 1987, 14 of the 18 electronics companies that were studied reported $20 billion in total sales. Yet they paid a scant $38 million in taxes, not even 0.2 percent on sales.

These 36 foreign companies chiefly used a mechanism known as "transfer pricing" to limit their US profits. US government investigators charge that, by inflating the costs that foreign-owned US affiliates pay their parent companies for VCRs, fax machines, computers, autos, and other consumer goods, the companies have been able to keep Uncle Sam's tax bill to a minimum. Other methods used to shield income from the taxman include piling on "excessive freight, insurance, interest, and other fees or charges," congressional investigators said.

These tax issues have gotten more attention as global corporations are gaining in size and importance. …

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