President Bush and Congress gave companies a big tax break two years ago, allowing them to repatriate billions of dollars in foreign profits and pay only minimal taxes with the justification that companies then would create more jobs in the U.S.
But the companies didn't create many jobs, reports the New York Times in a front-page article July 24. Instead, drug companies, which were the biggest beneficiaries of the program, have laid off tens of thousands of workers. And they "are once again using complex strategies, many of them demonstrably legal, to shelter billions of dollars in profits in international tax havens, according to their financial statements and independent tax experts," says the Times.
"With a few narrow exceptions, the drug companies are supposed to be paying as much as 35 percent of their worldwide profits in United States federal taxes," says the Times. "In reality they pay much less."
Transfer pricing is one way they can lower their U.S. tax bill, and it is one of the biggest challenges for tax enforcement. "Outsiders have a difficult time determining if companies have properly assessed the value of patents, trademarks and other intangible properties" for transfer pricing, says the Times.