U.S. Firms Dodge Billions in Taxes by Moving Profits Overseas

'Transfer Pricing' Allows Companies to Avoid Tax on Profits -- Legally

As America struggles with record deficits, tax dodgers apparently are taking billions of dollars out of the country.

Photo: U.S. Firms Dodge Billions in Taxes By Moving Profits Overseas: 'Transfer Pricing' Allows Companies to Avoid Tax on Profits, Legally
As America struggles with record deficits, tax dodgers apparently are taking billions of dollars out... Expand
(Getty Images)

A new report from the business giant Bloomberg News finds hundreds of companies skirting $60 billion in taxes, and the practice is completely legal.

Thirty million prescriptions were filed last year for the anti-depressant Lexapro, made by the U.S. pharmaceutical company Forest Labs. According to a story in Friday's Bloomberg Businessweek, most of the profits from that drug were transferred overseas, thus avoiding having to pay taxes in the United States.

The news is shocking to Lexapro customers like Tyler Hurst, who buys the drug at a Phoenix pharmacy.

"It does not say, 'The profits of this go outside the country,' anywhere," said Hurst as he looked at the drug bottle. "It is shady."

Companies Engage in 'Transfer Pricing'

It may seem shady to Hurst, but hundreds of U.S.-based multi-national companies engage in the legal practice known as "transfer pricing."

"The most recent estimate for how much tax revenue gets lost in the U.S. is $60 billion a year," said Bloomberg reporter Jesse Drucker. "But there are some reasons to believe those estimates are conservative."

The figure, $60 billion, is more than the budget for the entire Department of Homeland Security.

"We are obviously now in a time of enormous deficits, and we should be broadening our tax base," said tax economist Martin Sullivan. "This phenomenon is moving exactly in the opposite direction."

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