Sen. Frank Church (D-Idaho) asked President Carter yesterday to "reverse the present practice" of the Internal Revenue Service that permits multinational oil companies to escape U.S. tax liabilities on their operations within oil cartel countries.
In a letter hand-delivered to the White House, Church charged that the IRS policy "is contrary to the Internal Revenue Code" and inconsistent with Carter's "declared objective of reducing the dependence of the United States and its major allies upon the OPEC [Organization of Petroleum Exporting Countries] cartel."
Church, chairman of the Senate Foreign Economic Policy Subcommittee, referred to an article in The Washington Post on Sunday that said that four major oil companies had paid no U.S. taxes on $2.8 billion in profits derived in 1975 from operations in Saudi Arabia.
The companies are the four in the Aramco partnership - Exxon, Texaco, Mobil and Standard Oil of California. An Aramco spokesman said that no U.S. taxes were paid because payments claimed as income taxes to Saudi Arabia exceeded the U.S. tax liability. U.S. taxes can be reduced dollar for dollar for foreign income taxes paid.
In his letter, Church said that the tax loss to the U.S. Treasury "is an estimated [one] third of a billion dollars."
Church wrote the President that the oil companies should not be allowed a credit because the payments claimed are not income taxes but "fixed perbarrel charges", or royalties.
"I would urge you to direct the IRS and Treasury officials that the issue is too important to be 'kicked around' any longer, and to come to a conclusion disallowing the creditability of payments to the OPEC countries which are, in reality, royalties or excise taxes," Church's letter said.
His letter reviewed the history of an original IRS tax ruling in 1956 that allowed payments to the oil-producing skeikdoms to be considered income taxes instead of royalties.
He cited testimony before his subcommittee that indicated that the National Security Council at that time deirected the Treasury to adopt this precedure as an alternative to foreign aid to Arab countries, which would have been impossible to get through Congress.
"But those considerations are no longer, if they ever were, valid," Church wrote. "The OPEC cartel countries no longer need foreign aid given through backdoor Treasury channels."
American national interest, Church said, is to "redirect incentives for oil companies to develop non-OPEC oil resources."
IRS Commissioner Jerome Kwity met yesterday with Church staff aides to discuss the issue. In a brief telephone conversation, Kurtz said that a revenue ruling "has been in process for some time, but I've got gotten into it, today."
Kurtz said that "this obviously is an important issue." He defined the issue "as whether, in fact, the payments made (by the oil companies) are income taxes. It's not an easy question."
Jerome Levinson, one of the Church adies who met with Kurtz, said he was satisfied that Kurtz is treating the problem "as a serious one that must be addressed."
At the Treasury, officials said the matter was being studied by Laurence Woodworth, assistant secretary for tax policy. White House officials queried by The Post said they had not yet seen letter.
White House deputy Press secretary Rex Granum said that although Carter had not yet seen the letter, "I am certain that the President welcomes the senator's concern."
Granum said that Treasury Secretary Michael Blumenthal had told the President after The Post story was, published Sunday that the Treasury has the matter under review.