Overvalued Imports Cost US Billions in Tax Revenue, Study Says
U.S. companies skirted billions in tax liabilities in recent years by inflating the costs of imported products, according to a study (here) from Florida International University College of Business professor John Zdanowicz. Zdanowicz, who also runs an international trade consultancy…
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
called International Trade Alert, reviewed all transactions from 2003 through 2014 to seek out abnormal pricing of imports or exports potentially used to reduce tax exposure. Between those years, overvalued imports cost the U.S. more than $900 billion in missed tax revenue, the study said. "The inclusion of over-invoiced imports and under-invoiced exports in business or individual tax returns artificially lowers taxable income and federal income tax liability," the study said. While the customs duties paid on imports might offset some of that, the U.S. corporate tax rate is usually far higher than the duty rate, Zdanowicz said in an interview. Such pricing can also provide for criminal money laundering in addition to tax evasion, he said. Zdanowicz analyzed transactions that include quantifiable products with units of measure and used Internal Revenue Service regulations to determine abnormality and the amount of tax revenue lost. Based on the data, "abnormal pricing in international trade grew from $168.31 billion in 2003 to $230.58 billion in 2014, a more than 30 percent increase," an FIU press release on the study said (here). The efforts by CBP and the IRS to go after such misreporting are inefficient and a lowered tax rate in the U.S. will be the only way to really address this problem, Zdanowicz said. CBP didn't comment.