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MIAMI, Fla. – (Nov. 21, 2001)
– The 2002 Treasury-General Government Appropriations bill just signed into law by President Bush has designated Professors
Simon J. Pak, Ph.D. and John S. Zdanowicz, Ph.D. as principal investigators and awarded them a $2 million grant to continue their work in uncovering international pricing schemes –
schemes which cost the U. S. Treasury $45 billion in income tax revenues in 2000. The research grant was included in the bill
by Sen. Byron L. Dorgan (D-ND).
According to Dorgan, he included $2 million in the
2002 Treasury-General Government Appropriations bill to expand
the study and to help Drs. Pak and
Zdanowicz build on their previous work, which will help determine
policies that will allow the Internal Revenue Service to collect
taxes due, but avoided under such pricing schemes.
Zdanowicz is a professor at Florida International
University’s (FIU) College of
Business Administration (CBA). In January, Pak will be assuming
the position of associate professor at Penn State University.
Together, they have conducted studies on international pricing
schemes since 1992.
The practice of abnormal international trade pricing
shifts profits and enables individuals and firms to avoid or reduce
their U.S. tax liability. From toothbrushes imported from the
United Kingdom for $5,655 each and flash lights imported from
Japan for $5,000 each to diamond s exported to Belgium for $3.08
a carat and bulldozers exported to Mexico for $528 each, Pak and
Zdanowicz’ studies uncovered numerous commodities that were
abnormally priced.
“If these suspicious transactions were investigated
by the Internal Revenue Service, a significant amount of lost
tax revenue could be collected,” Zdanowicz said.
According to Zdanowicz, 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.
“Tax evaders and criminals know that their
activities are virtually undetectable because government agencies
do not have the capability to analyze every U.S. Trade
transaction,” he said.
Among the 230 countries that trade with the United
States, Canada tops the list with more than $44.5 million in tax
losses. Trade with other countries that resulted in large U.S.
tax losses include Japan, Mexico, United Kingdom and Germany.
“It appears that tax revenues lost through
abnormal pricing in international trade continues to increase,”
said Pak. “Using the same research methodology, our 1998
estimate of lost tax revenues was $35.7 billion and our 1999 estimate
of lost tax revenues was $42.7 billion.”
Pak added that the lost tax revenue estimate is
conservative because the researchers only analyzed quantifiable
commodities.
“If we assume the same proportion of over-
and under- invoicing for the commodities that do not specify quantities,
our estimated tax loss would be significantly higher,” he
said.
In their study, the researchers determined that
import and export prices were abnormal if they deviated significantly
above or below the pricing norms or the inter-quartile range,
which is specified by IRS tax code. They also assumed that every
dollar of taxable income shifted out of the United States would
have been taxed at 34 percent. Their research is based on the
U.S. import and export data produced by the U.S. Department of
Commerce, Bureau of Census, the same database used to determine
the U.S. balance of trade.
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” database. In March, they will launch a web site through
their consulting firm, Trade Research Institute, Inc., which will
provide price range analysis for all commodities traded by the
U.S. with every country.
Florida International University’s College
of Business Administration (CBA), South Florida’s business
education leader with unique expertise in international business
and information technology (IT), is the second largest of FIU’s
12 professional schools, enrolling approximately 3,800 undergraduate
and more than 900 graduate students each year. It also is South
Florida’s top-rated business research school and one of only
405 business schools in the world accredited by the AACSB International—The
Association to Advance Collegiate School of Business. The College
offers the 8 th- largest part-time MBA program among this group,
and its IT faculty has been ranked among the top 20 (11 th ) in
the U.S. in terms of research productivity. The September 13,
2001, issue of America Economía, a premier Pan-regional
bus iness journal published by Dow Jones, listed the College of
Business Administration at FIU among the top 50 business schools
from around the world for Latin American business students. Its
Executive MBA and full-time International MBA
programs were ranked at or near the top in recent Executive MBA
Council and AACSB International benchmarking studies respectively.
It is one of only 28 business schools to have received a Department
of Education grant to establish and support an international business
center.
For additional information about the College, please
call Assistant Dean Sally
Gallion, (305) 348-6631.
CONTACT:
Lesley Pritchett/Lauri Oliva
O’Connell & Goldberg, Inc.
450 North Park Road, Suite 600,
Hollywood, FL 33021
(954) 964-909
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