By Diane Ring
I have been wondering for the past few years why the business community has not put more pressure on the Senate to resolve the tax treaty roadblock created by Senator Rand Paul (R-KY). In 2011, newly-elected Senator Paul announced objections to the ratification of tax treaties and protocols and sought to block Senate consideration of those tax agreements in the pipeline. Senator Paul contended that the exchange of information provisions in the treaties violated taxpayers’ 4th amendment rights to privacy in their banking and financial data and that U.S. disclosure of such data to treaty partners would violate the due process rights of taxpayers. He succeeded in blocking the agreements (none have been ratified since 2010) and the result is a backlog of negotiated but unratified U.S. tax treaties and protocols.
A single senator can delay vote on a treaty and keep debate open. Negotiation with Senator Paul has not proven fruitful because he fundamentally objects to the information exchange provisions. However, other senators do have procedural recourse to end debate on a treaty and bring it to a vote. Under a process known as “cloture” (see Senate Rule XXII), a vote of 60 senators can force the end of debate. But this procedural path also requires an additional 30 hours of debate and the Senate can conduct no other business during this time. Thus, the cloture option puts a significant price tag on efforts to end the ratification impasse.
In a 2016 article (When International Tax Agreements Fail at Home: A U.S. Example), I mapped the historical and Senate procedural factors leading to the standstill on tax treaty ratification in the U.S. and the business community’s failed efforts to lobby ratification of tax treaties. For example, in 2013 several major U.S. business trade groups (including the Technology Industry Council, the National Association of Manufacturers, the National Foreign Trade Council, the U.S. Chamber of Commerce, and the United States Council for International Business) sent a letter to Senator Bob Corker stressing the importance of approving pending tax treaties and protocols. Senator Paul remained unmoved by business community pleas and apparently, the problem had not been considered serious enough to warrant commencement of cloture.
But it now appears that the business community has been reviving its public efforts to pressure the Senate to act:
This Monday (April 29, 2019) over 80 multinational corporations (including Amazon, Chevron, Cisco Systems, Coca-Cola, Conoco-Phillips, ExxonMobil, Ford Motor, General Electric, Hewlett-Packard, Microsoft, PepsiCo, and Walmart) signed a letter to the Senate Foreign Relations Committee Chair (James Risch, R-Idaho) and Senate Majority Leader (Mitch McConnell, R-KY) urging “expeditious action on” tax treaties and protocols. This letter follows on the heels of an April 11, 2019 letter sent by 11 business trade groups (including the Business Roundtable, the National Foreign Trade Council, and the U.S. Chamber of Commerce) to Senator Risch reiterating the need for Senate movement on tax treaties. This longer April 11th letter highlighted some of the key tax agreements sitting in limbo in the Senate, including the first income tax treaty between the U.S. and Chile, and “Swiss and Luxembourg treaty protocols, both signed in 2009, [that] would among other measures update our information exchange provisions with those countries to override their bank secrecy laws.”
Tax treaty ratification is not a particularly divisive issue along party lines (the primary pressure for ratification has come from the multinational business community) but it is unclear whether anything has changed that will resolve the stalemate. Specifically, it is not obvious that senators will either: (1) be able to offer Senator Paul (who was re-elected to another six-year term in 2016) something sufficient in exchange for ceasing to block tax agreements, or (2) conclude that the time has come to devote Senate resources (i.e. key floor time) to “cloture”.
But the world is watching and noticing. Around the globe, tax officials, policy makers and advisors are aware of the U.S. Senate standstill on treaties, even if they do not follow the details of Senate procedure. Just this week I was attending an international tax symposium (“Taxation and the Digital Economy”) at the IBFD in Amsterdam (part of its annual event for doctoral and postdoctoral research). Not surprisingly, the issue of U.S. tax treaty ratification was raised. The problem is not just the failure to move the already-negotiated agreements to the implementation stage, but it is also the disincentive the road block creates for countries to allocate their limited tax administration resources to negotiation of a tax agreement with a country that cannot move any resulting deal through its Senate.
From a U.S. perspective, it has been hard to know how to respond to questions from other countries about the prospects for U.S. tax agreements. It has been 9 years since the last agreement was ratified, but perhaps the renewed business community pressure represents the start of a path towards resolution. It is not clear what has prompted businesses to renew their more public call for Senate action on tax treaties. Certainly, the December 2017 tax reform has put U.S. tax treaties in the spotlight as new tax provisions have raised questions and concerns about treaty overrides. But it is not obvious that these tax reform issues would prompt movement at the Senate level on treaty ratification. Moreover, given that the hold out is a single senator (rather than a party-line split), it is less clear how any changing dynamics within the Senate might contribute either to a decision to pursue cloture now or to Senator Paul’s acquiescence on treaty votes. Regardless, the coming months will let us know.
The Surly Subgroup 