International Taxes

Rand Paul blocking tax treaties over fears of government snooping

Sen. Rand Paul (R-Ky.) is holding up a trio of international tax treaties over concerns that the pacts give the federal government too much power to invade personal privacy.

The Obama administration says the three treaties — with Luxembourg, Hungary and Switzerland — will help the United States battle tax evasion by reining in the use of offshore accounts to hide assets from the IRS.

But a Senate aide said the libertarian-leaning Paul thinks the treaties go too far and has placed a hold on them to prevent floor votes. 

Paul, an outspoken critic of the Patriot Act because of privacy concerns, thinks the agreements “allow the government to obtain a wide array of records without evidence that people may be hiding money,” the aide said.

{mosads}Supporters of the treaties have yet to offer changes to address Paul’s concerns, the Senate source added, leaving the issue at an impasse. The Senate Foreign Relations Committee cleared the three treaties, all of which were signed well over a year ago, by voice vote in July. 

The pacts would allow the United States and the three European countries to more freely and broadly share tax information — and also bring the countries’ information-sharing agreements in line with standards developed by the Organization for Economic Cooperation and Development (OECD), a key forum of market economies.

Treasury officials have called the pacts an important tool in fighting tax evasion, as the United States works to close a tax gap — the difference between what’s owed the IRS and what’s paid on time — that grew to $450 billion in 2006.

“Because access to information from other countries is critically important to the full and fair enforcement of U.S. tax laws, information exchange is a top priority for the United States’ tax treaty programs,” Manal Corwin, the deputy assistant Treasury secretary for international tax issues, told a Senate panel in June.

Catherine Schultz of the National Foreign Trade Council (NFTC) said the tax treaties are critical to U.S. businesses and argued Paul is objecting to boilerplate treaty language.

She noted that the information-sharing provisions in the tax agreements are similar to what the United States has included in many previous tax treaties, and added that the stalled deals in large part grew out of a global movement to increase the disclosure of tax information between countries.

Switzerland and Luxembourg are known for having strict banking secrecy laws, though both moved to become more open several years ago to avoid being branded tax havens by the OECD.

“Not only is this standard policy for the U.S., and has been for years and years, but this is stuff we’re forcing the rest of the world to do, too,” said Schultz, NFTC’s vice president for tax policy.  

The United States signed updates to existing tax treaties with Switzerland and Luxembourg in 2009, around the same time the federal government was pressing UBS, the Swiss banking giant, to hand over the names of American clients suspected of tax evasion.

UBS agreed in August 2009 to identify about 4,450 Americans suspected of tax evasion.

Switzerland also signed tax agreements with Great Britain and Germany last year, in which Swiss banks agreed to pay an upfront fee to their European counterparts. 

The agreement between Hungary and the United States, which builds on a 1979 treaty and was signed in 2010, also includes protections against so-called “treaty shopping,” where citizens from a third country try to use a tax pact to their advantage.

Paul — who has hit the presidential campaign trail in recent weeks in support of his father, Rep. Ron Paul (R-Texas) — has taken a firm stand on other privacy and constitutional rights issues during his first year in the Senate.

Late last year, the senator was one of a handful of Republicans to vote against a provision in the defense authorization bill that would allow the military to indefinitely hold individuals suspected of terrorism. 

And in June, Paul grilled John Pistole, the head of the Transportation Security Administration, over pat-downs at airport security stations.

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