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GGD-81-81 1 (1981-09-30)

handle is hein.gao/gaobabcmz0001 and id is 1 raw text is: BY THE COMPTROLLER GENERAL Report To The Chairman, House Committee On Ways And Means OF THE UNITED STATES IRS Could Better Protect U.S. Tax Interests In Determining The Income Of Multinational Corporations When multinational corporations price transactions with their subsidiaries, they often have the opportunity to take advan- tage 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 par- ties--the so-called arm'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 I RS using complex guidelines prescribed by the Department of the Treasury--guidelines which have caused administrative burden and uncertainty both for I RS and taxpayers. The number and volume of complex international intercor- porate transactions as well as the amounts of income in- volved continue to grow. So that IRS will be able to make more informed decisions in deploying its limited resources, GAO recommends ways for IRS to pet a better measure of corporate compliance regarding arm s length pricing. GAO further recommends that reasury begin a study to ascertain whether the process of enforcing section 482 can be made easier to administer and more certain for all concerned. lOcoU & SEGG D-8 1-81

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