[Congressional Record Volume 141, Number 134 (Thursday, August 10, 1995)]
[Senate]
[Pages S12200-S12201]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                          INCOME TAX TREATIES

  Mr. DORGAN. Mr. President, today I rise to share my thoughts about 
several income tax treaties now pending before the Senate. I'm very 
must opposed to the income tax treaties that are now awaiting action in 
the Senate. But my opposition stems more from the Treasury Department's 
stated interpretation of the pending treaties than the actual language 
in the treaties themselves.
  Treasury Department officials interpret one article in each of these 
treaties as preventing the United States from scrapping its outdated 
arm's length enforcement approach on corporate income tax and replacing 
it 

[[Page S 12201]]
with the simple and time-proven formula method, which is now the norm 
between the States. In my judgment, this interpretation by the Treasury 
Department is wrong-headed and is ill-advised.
  I believe that the Federal Government is losing billions of dollars 
in revenues because the IRS uses the so-called arm's-length method to 
enforce our corporate tax laws. In my judgment, this IRS enforcement 
tool is unworkable and results in massive tax avoidance by 
international firms operating here. It keeps our tax officials in the 
Dark Ages as they work to ensure that multinational firms doing 
business here pay their fair share of U.S. taxes.
  There is evidence to suggest a massive hemorrhaging of tax revenues 
because of transfer pricing abuses and because of the flawed arm's-
length pricing method employed by the IRS. The General Accounting 
Office [GAO] has reported that more than 73 percent of the foreign 
firms doing business in this country pay no U.S. taxes, despite 
generating hundreds of billions of dollars in revenues every year.
  There are also several independent studies of the problem that 
estimate U.S. revenue losses ranging from $2 billion to $40 billion a 
year. I happen to think that this country is losing between $10 and $15 
billion in revenues from foreign-based firms alone. But I recognize 
that there hasn't been a comprehensive and official government study 
that attempts to pinpoint the true size of the U.S. tax gap caused by 
transfer pricing abuses and to map out the best approach to plug the 
gap.
  I have in recent days been working with Treasury officials on this 
matter. In response to my request, Treasury Department has now agreed 
to formally conduct a joint conference and study with the State 
governments to evaluate the U.S. tax revenues lost due to transfer 
pricing abuses, especially from foreign firms doing business in the 
United States. In addition, this initiative will examine the issue of 
implementing a Federal formulary apportionment system to enforce our 
international tax laws.
  This joint Treasury/State initiative will, I hope, finally answer the 
questions of how much money we are now losing from transfer pricing 
abuses, and how we can take steps to prevent it.


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