Matsushita reaches accord on calculating U.S. taxes New method is intended to reduce disputes involving multinational firms

November 11, 1992|By New York Times News Service

TOKYO -- Japan's largest consumer electronics company has reached an agreement with the U.S. Internal Revenue Service on a formula for calculating its American taxes. The accord uses a new method for reducing disputes over the taxation of multinational corporations, company officials and Japanese tax authorities said yesterday.

The agreement comes as President-elect Bill Clinton and members of Congress have been accusing foreign companies that operate in the United States of avoiding taxes by shifting their profits offshore. In his campaign, Mr. Clinton said he could collect $45 billion in additional taxes from foreign companies over four years by clamping down on this practice.

While some question whether the Clinton estimate is realistic, the IRS says foreign companies owe $32 billion in such tax payments.

The Japanese company that reached the agreement, Matsushita Electric Industrial Co., said its decision was unrelated to Mr. Clinton's candidacy. The company, known for its Panasonic, Technics, Quasar and National brands, has been negotiating for two years with the IRS and with the Japanese National Tax Administration, which is also party to the agreement.

The charge against multinational companies is that they

artificially inflate the price of goods sold to their American units by their overseas units. That deflates the profits of the American units that are subject to U.S. taxes.

Under the new accord, tax authorities in the United States and Japan will agree in advance on a range of prices that Matsushita's American marketing arm should pay for the videocassette recorders, compact disc players and other products it imports from factories in Japan to sell in the United States.

So long as the American marketing arm, known as Matsushita Electric Corp. of America, stays within the guidelines, it would not be subject to further disputes over the issue from the revenue agency. The agreement requires Matsushita to disclose confidential corporate information to the tax agency to allow it to determine the prices.

Japanese tax officials said Matsushita was the first Japanese company to adopt this formula, which is known as an advance pricing agreement and was introduced by the IRS in March 1991 as a way of reducing disputes over transfer pricing.

Robert Ackerman, director of the advance pricing agreement program at the IRS, said that five American and foreign multinational companies in all had completed such agreements and an additional 33 were in negotiations. He said he was not allowed to name the companies.

In one case, the IRS said it had reached an advance pricing agreement with a foreign company that by retroactively adopting the same formula resulted in payment of back taxes of $28 million due over the previous six years. The company was not named.

A Matsushita official at company headquarters in Osaka said the company had entered the agreement to avoid additional costly and time-consuming disputes over its taxes. He said he did not think the company would have to pay more U.S. taxes under the new formula.

Last year, Matsushita paid a few million dollars in additional U.S. taxes to settle a dispute with the IRS over the pricing of videocassette recorders imported to the United States in 1981 and 1982. The company is still in discussions with the revenue service over its taxes for 1983 to 1990, he said.

The new formula will be applied to the taxes for the 1991 and 1992 fiscal years and will probably be renewed for the future as well, the Matsushita official said.

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