Can Senate Reach Compromise on Tax Treaty Logjam? Maybe

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By Alison Bennett

Dec. 1 — Seven stranded tax treaties could see daylight under the new administration, business groups said—an outcome multinational corporations desperately want.

Sen. Rand Paul (R-Ky.) has been blocking the accords for years on the grounds they infringe on U.S. citizens’ constitutional right to privacy, steadfastly rejecting pleas from businesses, pressure from fellow senators and a call by President Barack Obama to lift the holds.

Despite his six-year refusal to yield on the holds, Paul might be willing to compromise with a Republican president and a GOP Senate, as multinationals face double taxation and dozens of unresolved disputes, officials from prominent business groups told Bloomberg BNA.

“We hope to see a revolution in the coming year,” said Rachel Alexander, government affairs head for the Organization for International Investment, which has lobbied heavily on treaties. “We don’t think there’s any political reason for the administration not to work with Sen. Paul,” she said Nov. 29.

Paul’s office didn’t respond to a request for comment Dec. 1.

Multinationals Struggling

Inaction on the tax pacts with Chile, Hungary, Japan, Luxembourg, Poland, Spain and Switzerland is leaving multinationals with double tax bills they can’t effectively challenge , said Catherine Schultz, vice president for tax policy at the National Foreign Trade Council.

With “a lot of money at stake,” progress is critical, Schultz said. The future depends on Treasury Department international tax officials who haven’t been appointed yet, but there’s a ray of hope in the new political world, she said.

“I’m optimistic that they could come up with some kind of compromise that Sen. Paul will agree to,” Schultz said Dec. 1.

Carol Doran Klein, vice president and international tax counsel for the United States Council for International Business, said the road ahead would be difficult, but companies desperately need to see movement.

Call for ‘Arm-Twisting.’

“The atmosphere right now is a really difficult atmosphere for companies operating internationally,” she said.

“If it’s important to the new administration, maybe they can do some arm-twisting,” Klein said Nov. 28. “There’s a question of, if the Trump administration said, `We’d really like to get these treaties going,’ would it put pressure on the Senate? I think if we had a vote, they would be approved.”

In addition to Paul’s hold, another roadblock could be Congress’s expected push to overhaul the tax system, Klein said. “If tax reform becomes this all-consuming thing, it’s hard to see that they would have time for tax treaties,” she told Bloomberg BNA.

Tax and Trade Implications

As multinationals face tax trouble abroad without their pacts in effect, there could be implications for tax and trade under the new administration. With a president-elect who threatened to pull out of the North American Free Trade Agreement and take a sharply America-focused approach to trade, some are concerned about the interaction between the two.

John Harrington, a partner at Dentons US LLP who specializes in international taxes, said trade negotiators can put tax rules in their agreements that don’t mesh with existing treaties.

Their decisions can often be country-centric, he said in a Nov. 28 interview, taking the viewpoint that “I as a country should be able to decide what I want to do on tax. We want to be able to do what we think makes economic sense.”

He said Trump took a position of “economic nationalism” in the presidential campaign and it remains to be seen how that will be reflected going forward.

Threat to Model Treaty?

On another tax accord front, several of those interviewed said the incoming administration is likely to spell trouble for the Obama Treasury’s brand-new model treaty.

The Treasury pact has unique provisions that have attracted big criticism from the business community. One provision would refuse treaty benefits to taxpayers taking advantage of “special tax regimes”; another sharply tightens limits on benefits.

Even though the final treaty softened some proposed changes, some rules are “hard even for people in legitimate businesses to satisfy,” Klein said.

It’s likely the Trump administration will take action against the treaty, she and others said.

To contact the reporter on this story: Alison Bennett in Washington at abennett@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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