U.S. subsidiaries are paying more taxes.

Federal income taxes paid by U.S. subsidiaries of foreign companies increased substantially in 1992, according to a study by the Barents Group LLC of KPMG Peat Marwick, Washington, D.C. The study, based on the Internal Revenue Service's most recent data, showed that the tax liability for U.S. subsidiaries increased by $1 billion in 1992, a 17% increase over 1991 levels.

The study blamed the 1991 drop from 1990 levels on the severity of the recession. "Even though the recession extended into early 1992, for the year as a whole it was the beginning of the recovery," the report said. The increase was widespread, with a large jump in each sector, according to the report. The U.S. subsidiary finance, insurance and real estate taxes increased by 29%; wholesale trade sector taxes increased by 22%; and the manufacturing sector anted up 6% more.

"The data are being discussed because there have been recent debates on whether foreign corporations are paying their fair share of taxes," said Linden C. Smith, managing director of the Barents Group. "The data show how these companies have worked their way out of the recession, and I expect the numbers in the 1993 and 1994 data also to show an increase in taxes and net income for foreign companies."

The effects of recession

The impact of the 1991 recession became more apparent when analyzing pretax net income, the study said. In 1992, the net income of U.S. subsidiaries of foreign companies increased to $5.7 billion, up from a $4.9 billion loss in 1991.

The recession also slowed the growth in the total assets of U.S. subsidiaries of foreign companies. In 1992 the growth in assets was 3.1%, less than the 1991 increase of 11%. The study said the recession decreased the 1991 net income of U.S. subsidiaries and left fewer funds available for investment. "This is in sharp contrast to the historical rate of growth in U.S. subsidiary assets, which averaged about 15% over the last 10 years," said the study.

Economic Recovery in 1992 Leads to Higher Tax Payments by U.S. Subsidiaries of Foreign Companies is the latest in a series of annual reports done by the Barents Group for the Organization for International Investment in Washington, D.C. Free copies are available from the OFII by calling 202-659-1903.