Senate approves long-delayed tax treaties in win for business

Senate approves long-delayed tax treaties in win for business
© Greg Nash

The Senate on Wednesday took long-sought action on three tax treaties, a win for the business community. 

The Senate ratified protocols updating tax treaties with Switzerland, Japan and Luxembourg. The votes come one day after the chamber ratified a protocol updating a tax treaty with Spain.

The overwhelming majority of senators voted for the treaties. Sens. Rand PaulRandal (Rand) Howard PaulSenate Democrats pump brakes on new stimulus checks Tim Kaine tests positive for COVID-19 antibodies Trump urges GOP to vote against bill reauthorizing surveillance powers MORE (R-Ky.) and Mike LeeMichael (Mike) Shumway LeeHouse punts on FISA, votes to begin negotiations with Senate House cancels planned Thursday vote on FISA This week: Surveillance fight sets early test for House's proxy voting MORE (R-Utah) voted "no" on all four treaties, and were joined by Sen. Dick DurbinRichard (Dick) Joseph DurbinFrustration builds in key committee ahead of Graham subpoena vote  Senate Democrat introduces bill to protect food supply Democratic unity starts to crack in coronavirus liability reform fight MORE (D-Ill.) in voting against the treaty with Luxembourg.

Paul had long held up the treaties over concerns about taxpayers’ privacy.

The votes came after years of delays and highlighted a divide between Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellThe Hill's Morning Report - Presented by Facebook - George Floyd's death sparks protests, National Guard activation COVID-19 workplace complaints surge; unions rip administration Senate Democrats pump brakes on new stimulus checks MORE (R-Ky.) and his fellow Kentuckian.


The four protocols the Senate ratified this week update treaties that are designed to prevent companies doing business in the U.S. and abroad from facing double taxation and to prevent taxpayers from avoiding taxes. Several of the treaty updates involve lower withholding taxes, and several include provisions designed to resolve disputes more quickly.

Businesses had been seeking ratification of the treaties, which were negotiated and signed years ago. Some have faced double taxation while the treaties have languished.

“Tax treaties effectively reduce barriers to investment in the U.S. and abroad, encouraging manufacturing growth, and we strongly support this expansion,” said Chris Netram, the vice president of tax and domestic economic policy at the National Association of Manufacturers.

A spokeswoman for Business Roundtable, a trade group for CEOs of major companies, said that “tax treaties create greater certainty, reduce dispute and facilitate cross-border investment.”

Daniel Bunn, director of global projects for the Tax Foundation, said that ratification of the agreements will help U.S. companies plan how they’ll invest abroad and help foreign governments plan investments in the U.S.

“Any time you can create certainty for businesses and allow them to know under what rules they will be taxed, that will allow businesses to plan,” he said. Tax experts also say that ratification of the agreements is valuable for tax administration purposes.

“It is a terrific feat for the Senate to pass these protocols that have been in limbo for many years,” said Jennifer Acuna, a former aide to Congress’s tax committees who is now a principal in KPMG’s Washington national tax practice. “It is so important to have a modernized treaty system for the administration of our tax treaty network.” 

The Senate Foreign Relations Committee has voted to advance the treaty updates on multiple occasions in the past. But the main obstacle for years to ratifying the agreements has been Paul — who has objected to the Senate approving them unanimously, meaning the chamber needed to devote floor time to the treaties. 

Paul said he supports the gist of the treaties but has expressed concerns that information-sharing provisions will infringe upon taxpayers’ privacy rights. 

The treaties contain provisions “that would violate the fundamental right to be free from unreasonable search,” he said on the Senate floor Tuesday.

Paul said that he’s been working with the Trump administration to negotiate more privacy protections and criticized McConnell for scheduling votes on the treaties while those negotiations were ongoing.

“This process has been severely damaged and short-circuited by the Republican leader, choosing to push this forward and destroy the negotiations that we were having at the time,” Paul said.

McConnell responded to Paul’s comment on Wednesday.

“I don’t know why the senator believes he was close to a breakthrough after his years of effort,” McConnell, who is up for reelection next year, said on the Senate floor. “Hope springs eternal, I suppose.” 

The majority leader said that Paul has tried to persuade people of his ideas for years but that he has not convinced people “partly because the changes he demanded don’t solve a real problem, partly because they would have forced reopening the treaties for even more negotiations, and partly because everybody else was actually listening to the job creators who have been pleading with us for years to get this millstone off their necks.”

McConnell said that his patience is “not inexhaustible” and decided to bring the treaty agreements to the floor after consulting with Treasury Secretary Steven MnuchinSteven Terner MnuchinCoronavirus guidelines sent to every American cost USPS M The Hill's Coronavirus Report: Unemployment claims now at 41 million with 2.1 million more added to rolls; Topeka mayor says cities don't have enough tests for minorities and homeless communities House Democrats press Treasury on debit cards used for coronavirus relief payments MORE and Senate Foreign Relations Committee Chairman Jim RischJames (Jim) Elroy RischHillicon Valley: Lawmakers demand answers on Chinese COVID hacks | Biden re-ups criticism of Amazon | House Dem bill seeks to limit microtargeting Senate panel approves Trump nominee under investigation Hillicon Valley: Trump threatens Michigan, Nevada over mail-in voting | Officials call for broadband expansion during pandemic | Democrats call for investigation into Uber-Grubhub deal MORE (R-Idaho).

Businesses with facilities in McConnell and Paul’s home state of Kentucky had been pushing for votes on the treaties, including Kentucky-based North American Stainless, which has ties to Spain. The company said that it had faced double taxation because the agreement with Spain hadn't been ratified and that ratification of the protocol will allow it to invest more in its plants and employees.

“At a time when Chinese stainless steel producers are engaged in unfair trade practices and market uncertainty exists, this treaty victory gives a leg up to the American workers who produce quality stainless slabs in Ghent, Kentucky,” North American Stainless CEO Cristobal Fuentes said in a statement Tuesday evening.

Durbin explained his "no" vote in a series of tweets.

"It reflects my frustration with a process that has the Senate considering this matter 10 years after it was signed," Durbin wrote.

"This is not an example of due diligence but rather unnecessary & embarrassing delay," he continued. "Scheduling this & other tax treaties for floor votes was also unwarranted and I’m afraid it is part of Sen. McConnell’s attempt to divert the Senate from matters of significance to Americans."

In addition to the four updates to treaties the Senate approved this week, three new or effectively new treaties are still pending. The Treasury Department is aiming to clarify that those treaties aren’t inconsistent with a provision in President TrumpDonald John TrumpMinneapolis erupts for third night, as protests spread, Trump vows retaliation Stocks open mixed ahead of Trump briefing on China The island that can save America MORE’s tax law.

Business groups urged the Senate to take action on the other treaties.

“This action will reduce double taxation of businesses operating internationally, enhance the global competitiveness of U.S. companies, and make the United States a more attractive destination for investment," said Neil Bradley, executive vice president and chief policy officer of the U.S. Chamber of Commerce, in a statement. "The Chamber commends Leader McConnell for his leadership on this vital effort, and we hope to see new tax treaties with Chile, Hungary, and Poland secure approval soon."

“Passage of these protocols signals to the world that the U.S. can once again be looked at as a trusted treaty partner, and we look forward to putting years of treaty holds behind us and to the Senate resuming a regular schedule of approving tax treaties that strengthens our economy and ensures fair tax treatment for our companies around the world,” said Cathy Schultz, vice president for tax policy at the National Foreign Trade Council, in a statement praising the vote.

Senate Finance Committee Chairman Chuck GrassleyCharles (Chuck) Ernest GrassleyFormer Romney strategist joins anti-Trump Lincoln Project Frustration builds in key committee ahead of Graham subpoena vote  Rosenstein to testify as part of Graham's Russia investigation probe MORE (R-Iowa) said Tuesday that there could be a need for the U.S. to update a host of tax treaties if ongoing negotiations that the Treasury Department is participating in with the Organization for Economic Cooperation and Development on digital taxes are successful. Senior officials in the Group of Seven are discussing issues with digital taxes this week in France.

U.S. policymakers have been critical of countries such as France that are pursuing unilateral action on taxes of technology companies. The Trump administration last week launched an investigation into the digital tax approved by France’s legislature.

Updated at 2:02 p.m.