College Professors Release Study That Shows U.S. Government Cheated Out of $42.7 Billion in Tax Revenues in 1999

    MIAMI, May 31 /PRNewswire/ -- According to an in-depth computer analysis
 conducted by two Florida International University College of Business
 Administration finance professors, the United States government lost more than
 $42 billion in tax revenues in 1999 due to the artificial overpricing and
 underpricing of products entering and leaving the United States.  The practice
 of abnormal trade pricing results in profits being shifted abroad, thus
 enabling individuals and firms to avoid or reduce their U.S. tax liability.
     The College of Business Administration professors, Simon Pak and John
 Zdanowicz, released a study today showing that a conservative estimate of tax
 loss during 1999 due to abnormal pricing in international trade was
 $42.71 billion -- more than $117 million per day.
     "It appears that tax revenue lost through abnormal pricing in
 international trade is increasing.  Using the same research methodology, our
 1998 estimate of lost tax revenues was $35.6 billion," Pak said.
     In addition to the dollar value increase in lost tax revenues in 1999, the
 professors discovered that these tax losses, as a percentage of total U.S.
 trade, increased from 2.23% in 1998 to 2.49% in 1999.
     Zdanowicz said he believes that losses in U.S. tax revenues will continue
 to be a growing problem due to increased tax evasion and money laundering
 activities being facilitated by false invoicing in international trade.
     "Criminals and tax evaders have discovered that laundering money through
 the banking system is dangerous, but it is virtually undetectable in
 international trade," he said.  "Law enforcement agencies do not have the
 capability of analyzing every U.S. trade transaction."
     The FIU researchers began analyzing U.S. trade figures eight years ago
 after reading that then-presidential candidate Bill Clinton predicted that the
 government would lose $45 billion in corporate income taxes during the four-
 year period between 1992 and 1995 due to international transfer pricing
 manipulations.  Clinton argued during his first presidential campaign that the
 federal government could help reduce the national deficit by actively pursuing
 corporate tax cheaters.  The FIU professors' research demonstrates that
 Clinton's economists greatly underestimated the extent of the problem.
     Pak and Zdanowicz have developed and perfected the computer software
 necessary to analyze every U.S. trade transaction contained in the U.S.
 Department of Commerce's "Merchandise Trade" data base.
     As a result, they can detect every single abnormally-priced import and
 export transaction.
     In their study, Pak and Zdanowicz assumed that import and export prices
 were abnormal if they deviated above or below the inter-quartile range of all
 prices, as defined in the 1994 "Inter-company Transfer Pricing Regulations
 Under Section 482" of the Internal Revenue Service tax code.  They also
 assumed that every dollar of taxable income shifted out of the United States
 would have been taxed at 34%.
     Canada tops the list of countries with the highest amount of estimated
 U.S. tax losses due to abnormal trade pricing in 1999.  Trade with other
 countries that resulted in large U.S. tax losses include Japan, Mexico, and
 Germany (see Chart A.).  Examples of abnormally priced transactions that were
 uncovered in the study include safety razor blades being imported from
 Singapore for $2,952 each; apple juice imported from Israel for $2,052 per
 liter; dump trucks exported to India for $2,866 each, and missile/rocket
 launchers exported to Venezuela for $59.50 each (See Charts B and C.).
 
     For more information about the study, call the FIU Center for Banking and
 Financial Institutions at (305) 348-2771.
 
                        Florida International University
 
               Chart A: TOP 10 

SOURCES OF LOST U.S. TAXES DUE TO
                             ABNORMAL TRADE PRICING
 
       1999 Income Shifted and Federal Income Tax Losses -- ($ millions)
 
                                         Tax Loss          Income
                                             @34%         Shifted
 
     All Countries                        $42,712        $125,624
     Canada                                $5,289         $15,555
     Japan                                 $4,151         $12,207
     Mexico                                $3,707         $10,904
     Germany                               $3,316          $9,754
     United Kingdom                        $2,920          $8,589
     China                                 $2,462          $7,242
     Taiwan                                $1,666          $4,900
     France                                $1,416          $4,166
     Korea, South                          $1,351          $3,973
     Australia                             $1,331          $3,916
 
                        DAILY LOST U.S. INCOME TAX REVENUES
 
                     $42,712,106,652/365 = $117,019,470 per day
 
 
                     Chart B:  ABNORMALLY HIGH U.S. IMPORTS
 
     Hacksaw Blades (Base Metal)         Canada           $ 7,000.00/unit
     Mineral Water                  Netherlands          $ 3,050.00/liter
     Apple Juice                         Israel          $ 2,052.00/liter
     Plain Cotton Handkerchiefs           Italy          $ 1,120.00/dozen
     Clothespins                        Germany            $ 720.00/gross
     Unrecorded Magnetic Disks           Sweden           $ 4,201.00/unit
     Plant Cuttings                    Colombia             $ 512.77/unit
     Christmas Tree Lights               Canada             $ 815.00/unit
     Disposable Plastic Gloves            Japan              $ 46.22/pair
     Wood Molding                     Indonesia            $ 281.94/Meter
     Telephones -- One Line,
      No Features                       Denmark           $ 2,480.00/unit
     Wine                                Russia            $ 464.56/liter
     Typewriter Ribbons                   Czech             $ 377.67/unit
     Safety Razor Blades              Singapore           $ 2,952.00/unit
     Unwrought Silver                    Canada           $ 9,995.00/gram
     Nitric Acid                         Mexico             $ 5,977.00/kg
     Ball Point Pens                   Trinidad           $ 8,500.00/unit
     Aluminum Cans (4-20 liters)           U.K.           $ 8,000.00/unit
     Silver Powder                       Brazil           $ 7,382.00/gram
     Flashlight Lamps                    Taiwan           $ 3,875.00/unit
     Wrist Watch Batteries                China           $ 8,252.00/unit
 
 
                      Chart C: ABNORMALLY LOW U.S. EXPORTS
 
     Prefabricated Buildings                 Mexico              $ 1.71/unit
     Human Blood Plasma                     Belgium          $ 1.57/kilogram
     Electrical Tape                         Mexico           $ .01/sq meter
     Radial Tires - Tractor                 Germany             $ 10.46/unit
     Dump Trucks                              India          $ 2,866.00/unit
     Gas Pumps                               Brazil              $ 2.40/unit
     Television Antennas                     Panama               $ .38/unit
     Knives -- Not Fixed Blade                Italy               $ .01/unit
     Bulldozers                           Venezuela            $ 387.83/unit
     Seats for Aircraft                       China               $ .10/unit
     Automatic Teller Machines             Dom.Rep.             $ 45.25/unit
     Single Lens Reflex Cameras           Venezuela              $ 3.53/unit
     Missile and Rocket Launchers         Venezuela             $ 59.50/unit
     Tractors                                Canada            $ 448.41/unit
     Passenger Motor Vehicles               Ecuador             $ 17.13/unit
     Venetian Blinds - Plastic              Germany              $ .012/unit
     Wrist Watches - Precious Metal       Hong Kong              $ 7.05/unit
     New Military Aircraft                     U.K.         $ 40,000.00/unit
     Gold Compound                         Colombia          $ 4.76/kilogram
 
 

SOURCE  Florida International University