On June 9, Rep. Paul Ryan (R-Wisc.) and Sen. Orrin Hatch (R-Utah) penned a letter to the Department of Treasury, expressing concern and some skepticism about how it has handled negotiations with the Organization for Economic Cooperation and Development over its project to combat base erosion and profit shifting, or BEPS—in particular, a new disclosure requirement the organization recently finalized.

Ryan and Hatch—chairman of the two Congressional tax-writing committees—asked Treasury to explain its assurances that it will be able to implement this new disclosure program, a country-by-country reporting requirement and information exchange system, using existing laws. 

The letter is yet another indication that the BEPS project, after years of dominating the tax world but barely registering as an afterthought on Capitol Hill, is becoming a political football. And while the letter by Ryan and Hatch is hardly incendiary, it raises the prospect that this issue could be the next confrontation between Congressional Republicans and the Obama administration over the scope of federal power.

What is this new reporting requirement? It would require taxpayers to create and submit a global blueprint of their operations, outlining—by country—the location of their employees, revenue, expenses, sales and other important business details. Through existing information-sharing treaties and agreements, this data would be provided to every country in which a corporation does business, and it would be used by tax administrations to better target their audits and examinations. (It wouldn’t be made public, however.)

Why is it meeting resistance? The answer may seem obvious at first. Corporations are always protective of their privacy, especially when it would be provided through an exchange that seems to have a huge potential for leaks.

But there’s something else at work here. The country-by-country regime has received attention and pushback due to fears having to provide this information will in fact drive corporate behavior—and, fundamentally, undermine the existing principles of the international corporate tax system. 

To take a step back, the current international system is primarily transaction-based. Countries are empowered to examine sales between related parties in a corporate group, to ensure that their prices are comparable to what independent parties would pay for similar items. In theory, this prevents tax avoidance—a company can’t move more taxable income out of a high-tax country than the market would allow—while also ensuring that corporations aren’t taxed on the same income twice by two different countries.

In such a system—again, in theory—it shouldn’t really matter what a corporation does in other countries. If a transaction moving assets outside of the U.S. is priced correctly, why does it matter if those assets eventually end up in France, Ireland or low-tax Bermuda? It’s kind of like obsessing over the fact that your ex-wife is now married to a millionaire.

But, in reality, it matters politically—the existence of tax havens is a media firestorm. It matters policy-wise too—for instance, many of the policy proposals from both parties floating around D.C. right now specifically target low-tax jurisdictions, under the theory that they put too much pressure on the tax system.

In this context, what would be the function of requiring companies to produce global blueprints of their operations? To many, it seems like an admission that a transaction-based system is inadequate, and that tax policy is moving toward viewing corporations holistically, allocating their taxable income based on agreed-upon factors such as employee head count, operations or sales.

Giving a tax administration information showing a huge percentage of your taxable income is in a country with few employees and a low tax rate is like waiving a red flag in front of a bull. While that report can’t be used in a tax examination—at least, not under the OECD’s plan—it gives a tax administrations a target to shoot for based on whatever factors they might decide is relevant. (If that country has 25 percent of a corporation’s employees, a government might decide it deserves 25 percent of the taxable income—and will make that result the goal of its examination.)

What no one quite wants to say out loud is that the international taxation system is so subjective, putting a framework like this underneath it is bound to influence outcomes.

It’s like a formulary system--something that has long been advocated by critics of the current system, and long been feared by those who have spent their careers operating under transactional rules.

The domestic debate over whether Treasury is authorized to require this information essentially goes to the same issue. Current law gives the administration fairly broad powers to require information from taxpayers, but that information must be relevant to the enforcement of U.S. tax laws. Critics argue it’s not, given that the U.S., like every other country except Brazil, uses a transactional approach (the arm’s-length standard) to allocate income.

One ex-Treasury official compared it to “lifestyle audits,” a 90’s-era IRS practice that looked at a person’s spending habits as a starting point to search for tax fraud. Congress eventually banned that approach.

Most legal experts I’ve talked to believe that the administration is likely on solid ground if it tries to implement this standard unilaterally, as it appears to be planning. Tax laws in general are written in a way that gives Treasury wide latitude, and the IRS already requests comparable data from U.S. taxpayers.

That doesn’t mean that we aren’t in for yet another political fight over the Obama administration’s use of executive authority. The only thing holding it back may be that it wouldn’t make much difference, from the taxpayers’ perspectives—every other country is going to be implementing this standard, so there’s nothing to stop the rest of the world from getting at the info. Given other initiatives to require public disclosure of tax data, many are simply resigned to the notion that the days of tax secrecy are numbered.