More Foreign Companies
Avoid U.S. Taxes
Our Buy American Mention of the Week!
by Roger Simmermaker
June 16, 2002 - for the American Reformation Project
I have long argued that one of the primarily-overlooked areas
of the "Buy American" picture is that foreign companies operating in the
United States don't pay their share of funding the costs of the American
government. This means less money is available for Social Security,
public schools, Medicare, Medicaid, police and fire protection, as well
as funding for the military, national security and the war on terrorism.
In the June 11 issue of the Wall Street Journal, British-based
GlaxoSmithKline PLC is being targeted by the IRS for evading tax
payments due on literally billions of dollars in profits in drug sales
in the United States. The IRS contends that Glaxo is using a popular
strategy employed by foreign multinationals. That strategy involves the
British parent overcharging its U.S. subsidiary for drugs, which lowers
profits declared in the U.S. and therefore tax payments to the IRS.
To be fair, GlaxoSmithKline PLC's profits are already taxed in
Britain, so taxing Glaxo at an equal rate here along with U.S.-based
companies would amount to double taxation. The argument should not be
whether or not to tax foreign multinationals the same as U.S.
multinationals. The argument should be highlighting the fact that
foreign investment creates no net jobs for Americans and reduces tax
payments to fund the necessary (and increasing) costs of government.
It is fairly easy to argue that increasing globalization (and
increasing foreign investment) makes the tax-collection issues much more
complex. With the increased complexity, it becomes easier for companies
based in distant lands that operate here to be accurately monitored by
U.S. regulations. All this complexity and tax-avoidance makes any
potential benefit to foreign investment turn decidedly negative.
Britain's Inland Revenue department has sided with Glaxo, as
expected. Glaxo's lawyer rightly asserts that the complex tax case
involves "issues about where value is created." If Americans would
support companies based here more often, we would ensure that the
majority of the value is created here, and the taxes will be paid here