Question

Companies do use their profits in the US legally without paying tax on those profits. To...

Companies do use their profits in the US legally without paying tax on those profits. To avoid repatriation, companies engage in intercompany loans and the buying/selling of goods and services from each other under Sec. 482. Effectively, they have access to all the cash without paying taxes on the profits since they have not paid themselves dividends. How could the US Government stop the use of untaxed profits?

Homework Answers

Answer #1

The US government can initially amend the section 482 to disallow inter company transfer pricing deals which prove detrimental to the taxpayers. The tax authorities can alternatively set a threshold limit for inter company sale of goods or services and have a law in place where any transaction exceeding the limit will invite tax scrutiny. The law can be amended to cover both domestic and cross border transactions to keep a check on tax evasion. The government can propose a law to levy taxes on excees profit if they are used for repatriation purposes.

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