IRS Could Better Protect U.S. Tax Interests in Determining the Income of Multinational Corporations.
Abstract
When multinational corporations price transactions with their subsidiaries, they often have the opportunity to take advantage of disparate corporate tax rates by shifting income. Ideally, such prices are adjusted by IRS under Code Section 482 to those for similar transactions between unrelated parties--the so-called 'arms's length standard.' However, IRS often has difficulty identifying a true arm's length price on which to base adjustments. In its review of current IRS examination data on 519 U.S. multinationals, each having assets over $250 million and having engaged in transactions with its foreign subsidiaries, GAO found that only 3 percent (12 of 403) of IRS' total recommended section 482 adjustments to reported income were based on a true arm's length price. The remaining adjustments were based on estimated prices constructed by IRS using complex guidelines prescribed by the Department of the Treasury--guidelines which have caused administrative burden and uncertainty both for IRS and taxpayers. The number and volume of complex international intercorporate transactions as well as the amounts of income involved continue to grow.
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 30, 1981
- Accession Number
- ADA108546
Entities
Organizations
- United States Government Accountability Office