With last year’s tax cut leaving the budget surplus but a fond memory, the nation’s lawmakers are now scrambling for ways to supplement federal coffers. A logical place to start might be a crackdown on corporate tax trickery. In 2000 alone, according to a recent study conducted by two Florida International University researchers at the behest of Senator Byron Dorgan (D-ND), multinational corporations shirked more than $45 billion in U.S. taxes through an increasingly popular scheme known as transfer pricing.
The practice works something like this: The U.S. branch of a multinational imports goods from a foreign subsidiary at wildly inflated prices — say, $935 a pop for watch batteries. The U.S. arm might then export goods to its sister outfits offshore for drastically discounted prices — say, rocket launchers at $40 apiece. The net effect? The U.S. branch appears to bleed red ink, while the multinational parent rolls in profits safely out of Uncle Sam’s reach.
The examples of such “abnormal transactions” listed here are culled from Commerce Department trade data. (Note to the IRS: Enforcement might be easier if next time the department includes the names of the corporations involved.)
Disposable razor blade: $461
Vinyl record: $5,670
Ink-jet printer: $179,000
Fine diamonds: $3/carat
Automatic teller machine: $36
Prefabricated metal building: 82 cents
Military aircraft: $20,000