Foreign companies that reap big profits on operations in the United States but pay little or no income tax to the federal government are being targeted by the Internal Revenue Service and Congress. It's about time.
Rep. Robert Matsui, D-California, a sponsor of a new bill to correct the problem, says that examination of the U.S. tax code shows that foreigners doing business in the U.S. receive better treatment than do American businesses.That's intolerable. U.S. companies face enough of an uphill fight against overseas competition without their own government giving an advantage to foreign firms.
Matsui's bill came after the IRS confirmed that it was checking whether foreign companies underpaid U.S. taxes by billions of dollars in the 1980s.
The congressman's legislation would expand the IRS' authority to investigate whether foreign companies have manipulated U.S. tax laws in dealings with their American subsidiaries and operating arms. Also, the bill would tax the capital gains realized when a foreigner sells stock in a U.S. corporation.
The tax would not affect residents of countries with which the U.S. has treaties prohibiting such taxation. But individual Americans and U.S. corporations already must pay taxes on such gains.
According to the IRS, more than 50 percent of the 36,800 foreign companies that filed tax returns in 1986 reported no taxable income. Foreign-controlled corporations reported $542 billion in receipts and $1.5 billion in net income and paid $3 billion in U.S. income taxes in 1986.
Foreign auto manufacturers had $7.7 billion in sales and paid less than $12 million in tax. "No wonder . . . (U.S. automakers) have had a hard time competing," says House Majority Leader Richard Gephardt, D-Mo.
While foreign corporations should be treated fairly, they should not be exempt or receive preferential treatment in paying taxes. They should be on an equal footing with U.S. firms - no more, no less.