Finance

Senate approves long-delayed tax treaties in win for business

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 Paul (R-Ky.) and Mike Lee (R-Utah) voted "no" on all four treaties, and were joined by Sen. Dick Durbin (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 McConnell (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 Mnuchin and Senate Foreign Relations Committee Chairman Jim Risch (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 Trump'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 Grassley (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.

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