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More Foreign Companies Avoid U.S. Taxes
Our Buy American Mention of the Week!
by Roger Simmermaker
June 14, 2002

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 as well.


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