Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, July 11, 1990                   TAG: 9007110059
SECTION: BUSINESS                    PAGE: A-3   EDITION: METRO 
SOURCE: Cox News Service
DATELINE: WASHINGTON                                LENGTH: Medium

U.S. LOSING TAX MONEY

Foreign multinationals, including some top Japanese automobile manufacturers, have set up U.S. subsidiaries which they use to grossly underpay owed taxes through "a hocus-pocus bookkeeping system" known as "transfer pricing," according to the House Ways and Means oversight subcommittee, chaired by Rep. Jake Pickle, D-Texas.

"The plain fact is that the IRS and taxpayers are not evenly matched in the transfer pricing arena," Internal Revenue Commissioner Fred T. Goldberg Jr. told the subcommittee.

Goldberg said that both "foreign and U.S.-controlled companies devote far greater resources to the effort and have a monopoly on information that the IRS must have - but all too often cannot obtain."

As a result, said Goldberg, losses to the U.S. treasury "are running into the billions."

Pickle said that some of the foreign companies investigated by his subcommittee "have been operating in the United States for years, and have never sent a check to Uncle Sam for one thin dime in corporate income taxes."

One such company "sold more than $3.5 billion worth of goods in America over a 10-year period," said Pickle, "had gross profits of almost $600 million and paid only $500 in federal income tax."

Because U.S. tax laws protect the privacy of alleged tax dodgers before they are brought into federal court, Pickle ordered the doors closed during a two-hour portion of Tuesday's hearing so that various IRS officials could provide subcommittee members with names and precise data on suspected foreign tax cheats.

One of the officials, David A. Lowry of Florida, later testified in open session that Japanese automobile manufacturers commonly inflate prices and costs "in order to remove profits from the United States."

Lowry - an international examiner for the IRS, assigned to the Fort Lauderdale district - said he has found Japanese manufacturers routinely selling vehicles "at substantially lower prices" to unrelated U.S. distributors than the prices they charge off to the U.S. companies they control.

Rep. Richard Schulze, R-Pa., ranking minority member on the Pickle subcommittee, complained that "if foreign-controlled subsidiaries are paying little U.S. income tax, then our domestic companies face unfair competition in trying to pursue sales and market share in a given line of products."

Schulze suggested that the United States consider establishing an import tariff known as a "border tax" for major imported goods. In that way, "we would provide taxes and at the same time set up `a paper trail' to track the goods.

"I think we're the last major importing nation in the world that does not have a border tax," Schulze said.

Meanwhile, IRS Commissioner Goldberg and investigators for the subcommittee said that the multinationals are able to successfully delay probes and court action for years by refusing to provide financial documents and by buying the expensive talents of private tax attorneys who can shelter them from U.S. government probes.

Although there are 44,000 foreign-controlled U.S. subsidiaries, the Pickle subcommittee has limited its investigation so far to the tax records over the past 10 years of just 36 subsidiaries of foreign corporations that manufacture automobiles, motorcycles and electronics equipment.