IRS: Foreign Firms in U.S. Pay Lower Tax Than Typical Family

Foreign companies operating in the United States chalked up $686 billion in U.S. sales in 1987 but paid a far lower federal income tax rate than did the average middle-income family, the Internal Revenue Service said today.

U.S. subsidiaries together paid $5.6 billion in tax, a rate of less than 1% of their income. By contrast, the typical $35,000-a-year family paid at the rate of about 10% during the same period, according to IRS estimates.

The IRS submitted the new information to the House Ways and Means oversight subcommittee, which for nine months has been investigating the extent of tax dodging by some of the nearly 45,000 foreign companies that operate subsidiaries in this country.

The subcommittee zeroed in on 36 U.S. distributors of foreign cars, motorcycles and electronics, which accounted for a combined $35 billion in retail sales in 1986.

“Some of the companies investigated 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,” said Rep. J. J. Pickle (D-Tex.), chairman of the subcommittee.

“They have failed to pay taxes despite the fact they have profited from selling billions of dollars of cars, motorcycles, stereos, televisions, VCRs, microwaves and other products to the American consumer,” Pickle said.

Subcommittee investigators said the main factor in the companies’ ability to avoid taxes was “transfer pricing”--a practice in which a subsidiary typically pays an artificially inflated price for goods purchased from its overseas parent. The result is a lower taxable profit in the United States.