Update (7/16/19): The Senate is set to take up four tax treaties this week: bilateral treaties with Spain, Switzerland, Japan, and Luxembourg. ATR urges passage of each treaty.
For the past 80 years, the U.S. has pursued bilateral tax treaties with foreign trading partners.
These treaties promote investment and certainty for American businesses operating abroad by mitigating double taxation on investment.
Although the U.S. is part of roughly 60 such treaties, there are several pending before the U.S. Senate that must be approved including treaties with Chile, Hungary, Japan, Luxembourg, Poland, Spain, and Switzerland.
These seven countries invest $1.2 trillion in foreign investment in all 50 states, so hundreds of thousands of jobs are directly or indirectly tied to ratification of these treaties.
They should be swiftly taken up and ratified by the Senate through unanimous consent, as previous treaties have been.
Tax Treaties Reduce Taxes for American Businesses and Foreigners Investing in the U.S.
Tax treaties reduce withholding taxes on a reciprocal basis when U.S. taxpayers invest overseas and when foreign taxpayers invest in the U.S.
They protect against double taxation by clarifying which country has the right to tax types of income such as interest, dividends, and royalty income. This promotes economic efficiency by allowing U.S. businesses to operate overseas and grants certainty to foreign investors doing business in the U.S.
Each treaty will be substantially beneficial to American businesses. For instance, the proposed treaty with Chile is an new treaty that will help American businesses compete in South America. This agreement is especially important because Chile has a higher corporate rate for businesses from countries that it does not have a tax treaty with.
Other treaties, such as the proposed treaties with Hungary and Poland, update treaties that were ratified decades ago in order to stimulate increased investment with the U.S.
Tax Treaties Are Consistent with the Fourth Amendment
While some have raised concerns that the pending tax treaties do not contain adequate Fourth Amendment protections, the standards in these treaties are similar to domestic U.S. law and are identical to existing treaties.
They contain provisions allowing the sharing of taxpayer information only under certain, clearly defined circumstances and contain stringent controls that explicitly prevent information sharing for non-tax purposes and safeguards against unlawful disclosure.
In addition, these treaties are unrelated to the broad and burdensome information exchange provisions contained within the Foreign Account Tax Compliance Act (FATCA).
The Senate must move quickly to pass all seven tax treaties. Failure to ratify the pending tax treaties could leave the U.S. behind by making it harder for American businesses to operate overseas and jeopardize new investment opportunities into the U.S.