The New York Times > Opinion > Taxing Global Profits
http://www.nytimes.com/2004/09/17/opinion/17fri2.html?th

Summary:

A new study showing that American multinational companies booked a record $149 billion of profits in tax-haven countries in 2002 is further evidence, if any were needed, that the corporate tax structure is much in need of repair.

The research, done by a former Treasury Department economist and published in a journal that is the tax industry's bible, Tax Notes, looks at American subsidiaries that are located in countries with low or no corporate taxes, like Ireland, Bermuda, Luxembourg and Singapore.

Take a simplified example: Say a company has a subsidiary in Ireland that manufactures a computer part for $10 to be sold to customers in the United States for $50.

The study concludes that the more that American companies can use foreign subsidiaries to lower taxes, the greater their incentive to invest and employ staff abroad.

In a world where capital flows freely, they say, nothing can stop the sheltering of profits.

In 1998 and 1999, for example, business interests successfully lobbied Congress to block Internal Revenue Service regulations that would have curtailed the abuses.

In addition, past and present Congresses and administrations have been lukewarm, at best, in supporting efforts by the Treasury Department and the I.R.S. to enforce existing law.

Global capital presents a big challenge for tax collectors, and there are no easy answers.

After careful study and debate, it might make a lot of sense to enact some other type of tax, like a European-style value-added tax, that could more efficiently capture the profits that currently escape the United States tax system.

What is unacceptable is for antitax forces and their allies in Congress to allow the current system to fail so they have an excuse to "reform" it, often in ways that are as much ideological as they are economic - by, for instance, eliminating taxes on profits, thus shifting the burden to wage earners.

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