WASHINGTON -- The federal tax collector lost a billion-dollar fight with Texaco Inc. yesterday as the Supreme Court refused to look into the profits the company made on global sales of Saudi Arabian crude oil.
The court's action could also be good news for Exxon Corp., which has an identical tax case pending in a lower court.
The Internal Revenue Service contended in its unsuccessful appeal that the dispute was not just about the Saudi crude sales, but about the ability of multinational companies to insulate major portions of their international profits from U.S. taxes.
A lower court ruling siding with the industry, the IRS appeal argued, "offers a blueprint for the evasion of U.S. taxes" by allowing multinational companies to "channel profits earned by U.S. taxpayers into the accounts of their foreign affiliates."
The Supreme Court gave no reason for turning down an IRS appeal seeking to force Texaco to pay $1.8 billion in taxes. The result is also likely to affect directly a separate attempt by the IRS to collect $4.5 billion in taxes from Exxon Corp. in a case still pending in lower courts.
A federal appeals court ruled last fall in the Texaco case that the IRS had no authority to allocate $1.8 billion of the company's international profits to its domestic operations, placing the profits within reach of U.S. tax law. Texaco sales of Saudi crude in the years in question -- 1979 through 1981 -- were done under a directive of the Saudi government controlling the prices at which the crude could be sold in world markets, the appeals court decided. The effect of that directive was to forbid Texaco from assigning the profits to its U.S. operations, the court added.
The tax dispute with both Texaco and Exxon arose at a time when Saudi Arabia's government was refusing to go along with a sharp price increase agreed to by other oil-exporting countries in the wake of shortages following Iran's 1978 revolution.
Saudi Arabia sold crude to the Arabian American Oil Co. -- a combine of Texaco, Exxon, Mobil and Chevron -- at below market prices. The companies were forbidden to resell it at prices above those set by the Saudis.
The companies sold the crude to their foreign affiliates, which then processed the crude into refined products. Since Saudi Arabia's price limits did not apply to refined products, those were sold at world market prices, bringing hundreds of millions in profits to the foreign subsidiaries of the U.S. companies.
The IRS contended that those profits actually belonged to the parent companies in the United States, and they owed income taxes. That claim was rejected by the lower court, a result that the Supreme Court left intact yesterday.
In other action, the court agreed to decide how much legal protection federal law provides for an older worker forced to give up a job in return for severance pay.
A New Orleans woman was told that her low ranking in a performance evaluation would lead to her firing, but that she could leave with a severance payment in return for surrendering all legal rights against the company.
After the woman accepted the deal and signed away her rights, she then sought to sue her employer, claiming that her low evaluation and the threat of losing her job were due to age discrimination, in violation of federal law.
The company, Entergy Operations Inc., persuaded lower courts that the woman had waived any claims against the company, even though her waiver did not satisfy a 1990 law.
Pub Date: 4/22/97