US Study Reveals Multinationals Avoided Paying Billions In Taxes

by Mike Godfrey, Tax-News.com, New York

23 November 2001

According to the Associated Press news agency, a new study released by Senator Byron Dorgan D-ND, has claimed that multinational corporations avoided paying $45 billion in US taxes last year because they artificially fixed prices for transactions with foreign affiliates.

The practice is known as transfer pricing. It shifts company profits out of the States by either overpricing products sole to US operations by foreign affiliates or by underpricing goods that are bought by the same foreign affiliates, thus company profits are moved away from the reach of the Internal Revenue department.

Authors of the study, Simon J Pak and John S Zdanowicz who are both finance professors at Florida International University, claim that artificially high prices have been recorded to be as much as $5,655 for a toothbrush, $5,000 for a flashlight and $2,306 for a hypodermic syringe. Examples of underpriced goods include $1.58 for a ton of soybeans, $528 for a bulldozer and 82 cents for a prefabricated metal building.

The study estimated that in 2000, the total tax loss came to about $45 billion with earlier reports by the professors revealing past tax losses of $42.7 billion in 1999 and $35.7 billion in 1998.

'Every individual and company is forced to make up the differences with income taxes that are higher than they would need to be if the international corporations who are avoiding their tax responsibility were paying their fair share,' Dorgan said.

Although the companies involved were not identified in the study, it did disclose which countries the companies sent their money to. The top five are: Canada with $15.8 billion; Japan, $14 billion; Mexico, $9.9 billion; the United Kingdom, $8.8 billion; and Germany, $8.3 billion.

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