In a speech on the Senate floor, Finance Committee Chairman Orrin Hatch (R-Utah) outlined ongoing concerns regarding the Base Erosion and Profit Shifting project that is being developed by the Organization for Economic Cooperation and Development and called on the Obama Administration to work with Congress to ensure proposals considered under the project keep America competitive and benefit American workers and job creators.
“Congress is the steward of American taxpayer resources. Those resources are not bargaining chips for international agreements that may or may not advance our nation’s interests,” said Hatch. “Make no mistake, international cooperation and consensus are important. I don’t object to unified actions toward common goals and shared objectives. But, when the resources of U.S. taxpayers are on the line – as they appear to be with the BEPS project – Congress must play a significant role.”
Noting Congress needs more, detailed information regarding the costs relative to the benefits of the BEPs proposals, Hatch today askedthe nonpartisan Government Accountability Office (GAO) to work with him to develop an in-depth analysis of issues, such as whether the IRS is capable of sharing sensitive tax information with foreign tax authorities without violating the confidentiality of American businesses, among others. Hatch further asked the GAO to look into how such policies would impact the U.S. economy.
“Before any additional steps are taken and before we can even consider moving on any of the BEPS action items, we need more information,”said Hatch. “I urge Treasury to work more closely with Congress on this and to not tie our hands as we move toward tax reform by consenting to bad outcomes. I urge them to consider the interests of U.S. taxpayers and to not make any commitments that would impose unnecessary burdens on American companies and put them at a competitive disadvantage.”
The complete speech, as prepared for delivery, is below:
Mr. President, I rise today to express serious concerns about an ongoing project at the Organization for Economic Co-operation and Development, or OECD. It’s called the Base Erosion and Profit Shifting, or BEPS, project.
BEPS is a program that is intended to address perceived flaws in international tax rules that have allowed multinational companies to shift profits – but not necessarily corresponding economic activity – from high-tax to low-tax jurisdictions. These strategies, in some cases, have had a negative impact on the tax bases of OECD countries, creating a need for solutions.
Unfortunately, it appears that the project has moved well beyond its original mandate, and many U.S. companies are rightly concerned that they may be facing significant negative consequences. This should concern all of us in government as well.
Let’s talk for a minute about how we got where we are today.
In 2012, the G-20 tasked the OECD with developing a comprehensive and coordinated approach to addressing certain aggressive tax-planning strategies. As we all know, the G-20 is an international forum for governments and central bank officials from 20 major economies around the world, which meets periodically behind closed doors to discuss financial matters and, even though it has no formal charter, arrive at agreements.
The G-20’s direction resulted, at least in part, in the BEPS project. It was originally supposed to be limited in scope, with a focus on discrete actions to address inappropriate tax avoidance. The idea was to find ways to possibly arrive at consensus on how to prevent those strategies that result in very little or no taxation of profits, or what some have come to call “stateless income.”
The OECD released what it called its “BEPS Action Plan” in 2013. The plan identified 15 action items for changes in tax policy.
Among those action items were recommendations to modify domestic laws to 1) strengthen controlled foreign corporation, or CFC, rules and limits on interest deductions; 2) prevent tax treaty abuse; 3) increase taxpayer reporting requirements and information sharing among governments; and 4) develop a multilateral instrument to implement certain BEPS actions.
Discussion drafts have been released on many of the action plan items and final reports are anticipated to be finalized and delivered to the G-20 later this year.
The Obama Administration’s Treasury Department has been actively involved in the BEPS project.
Last summer, Deputy Assistant Treasury Secretary for International Tax Affairs Robert Stack stated that: “Failure in the BEPS project could well result in countries taking unilateral, inconsistent actions thereby increasing double taxation, the cost to the U.S. Treasury, and the number of tax disputes.”
Given this and other statements from Treasury officials, it appears that Treasury believes its role in the BEPS project is to protect the U.S. tax base from erosion and to protect U.S. multinational companies from actions from other countries that could lead to double taxation and time-consuming disputes. In that regard, Treasury has been actively negotiating on behalf of the U.S. government to reach consensus on the BEPS action items.
These are laudable goals, Mr. President. However, I do not believe these goals have been achieved. Indeed, just last month, Deputy Assistant Treasury Secretary Stack himself faulted the U.K. and Australia for taking unilateral actions targeting U.S. multinationals, possibly contrary to the commitments those countries have made in their treaties with the U.S.
More importantly, I am very concerned that there are bigger issues at play here and that the BEPS project has far exceeded its original mandate.
Once again, BEPS was meant to be limited in scope, focusing on the prevention of tax-strategies that yield inappropriate results. Instead it appears to have become a mechanism for rewriting global tax strategies – potentially including those commonly used by U.S. companies – behind closed doors without the input or consent of Congress.
As we all know, only Congress can make changes to U.S. tax law. Yet, no representatives from Congress have been offered a seat at the table in any of the BEPS negotiations.
Sure, the OECD has been quite forthcoming in meeting with members and congressional staff, but, in the actual BEPS deliberations, all the decisions are being made by unelected bureaucrats in Paris, and not by anyone from the Senate or House of Representatives.
The Senate Finance Committee, which I chair, is currently engaged in an effort that we hope will eventually lead to comprehensive tax reform. This has been a long-term effort and members of both parties and both chambers of Congress have been engaged in this endeavor for quite some time.
Yet, while Congress continues to work toward this long-term goal, the Treasury Department is negotiating the BEPS action items – which may attempt to commit the U.S. to make changes to our domestic tax laws – without any substantive input from Congress or its tax-writing committees.
We know that this is a problem, Mr. President. Indeed, certain positions already agreed to by Treasury Department as part of the BEPS project could materially damage U.S. tax reform efforts.
Congress and the administration need to work together on these issues.
And, when I say “work together,” I do not mean that Treasury officials should only periodically come to the Hill in order to brief congressional staff on decisions that have already been made. I mean that administration officials should not make any commitments that could impact U.S. tax policy without adequate consultation and explicit agreement from Congress.
We all remember when, years ago, then-Treasury Secretary Geithner decided to reach an agreement with other officials in the G-20 regarding funding for the International Monetary Fund, or IMF. After reaching this agreement – without any significant input or consent from Congress – the Obama Administration presented – and continues to present – the issue of altered IMF funding as a quote-unquote international commitment that the administration made and Congress must honor.
Put simply, that is not an appropriate model for pursuing and achieving changes to U.S. law. And, if the administration intends to use a similar model for the changes recommended by the BEPS project, that, as the saying goes, is a dog that just won’t hunt.
Mr. President, I’m going to put this as simply as I can: Congress is the steward of American taxpayer resources. Those resources are not bargaining chips for international agreements that may or may not advance our nation’s interests.
Make no mistake, international cooperation and consensus are important. I don’t object to unified actions toward common goals and shared objectives. But, when the resources of U.S. taxpayers are on the line – as they appear to be with the BEPS project – Congress must play a significant role.
Once again, some of the BEPS action items would commit the resources of U.S. taxpayers, either in the form of alterations to tax rules governing the taxation of U.S. multinationals or in the form of resources American taxpayers will have to expend in order to abide by the terms of the BEPS action items.
Last month, the OECD held a conference on the BEPS project here in Washington, DC. Prior to the conference, House Ways and Means Committee Chairman Paul Ryan and I sent a letter to Treasury Secretary Lew outlining our concerns with several of the actions proposed under the BEPS project, including country-by-country reporting, “master file” documentation, potential limits on interest deductibility, and others. Those specific proposals could have far-reaching, negative consequences for U.S. multinationals and the United States government.
For example, consider the master file documentation scheme envisioned in the BEPS project. Under this proposal, companies would have to provide additional, detailed, and intricate information about their tax-planning and business models to foreign tax authorities.
If we impose this requirement on U.S. businesses, what assurances do we have that these foreign governments would keep the information confidential?
I don’t know, and no one from Treasury has told me.
What about countries with prevalent state-owned enterprises that would greatly benefit from this type of information? Wouldn’t the BEPS proposal force U.S. companies to reveal sensitive information to foreign governments that either own or substantially back competing enterprises?
I don’t know, and no one at Treasury has told me.
Mr. President, I could go on for quite a while about these proposals, especially given the broad scope of the BEPS project, the breadth of possible tax effects, and the potential negative impact these proposals could have on our companies and our economy.
Needless to say, as the Chairman of the Senate’s tax-writing committee, I have many concerns.
Before any additional steps are taken and before we can even consider moving on any of the BEPS action items, we need more information. In fact, the President’s lead negotiator on BEPS, Deputy Assistant Secretary Stack, stated that we need to slow down the pace of the BEPS work substantially.
We need to know more about the costs relative to the benefits of the BEPS proposals.
We also need to know whether the IRS is capable of sharing sensitive tax information with foreign tax authorities without violating the confidentiality of American businesses. After all, the IRS doesn’t have the best track record. Between the fraud and overpayment rates on various refundable tax credits and other breaches of trust at that agency, we have more than enough reasons to be concerned about whether the IRS can effectively and appropriately implement a plan for global information sharing.
To address these questions, I sent a letter today to the Comptroller General asking that the Government Accountability Office engage with me and my staff to begin an in-depth analysis of these issues so that we can at least get a sense as to how the OECD’s proposals might impact the U.S. economy, including employment, investment, and revenues. In the coming months, I’ll be reaching out to other experts as well.
It is difficult to imagine that the analyses and discussions that would have to accompany consideration and adoption of BEPS-related rules and schemes could be completed by September, when the OECD has stated its hopes to render final action plans, or by the time of the next G-20 meeting.
But, as I stated, Mr. President, even if final reports from the BEPS project are released on schedule, many, if not all, of the action plan items would need congressional action in order to be implemented in the U.S.
So, again, I urge Treasury to work more closely with Congress on this and to not tie our hands as we move toward tax reform by consenting to bad outcomes. I urge them to consider the interests of U.S. taxpayers and to not make any commitments that would impose unnecessary burdens on American companies and put them at a competitive disadvantage.
The U.S. has always recognized the right of other countries to tax income earned within their borders, to the extent such taxation is consistent with treaty obligations. However, regardless of what some in other countries may think, the U.S. tax base should not be up for grabs in an international free-for-all, and I expect officials at the U.S. Department of Treasury to remember that.
Mr. President, I will have much more to say on these matters in the coming weeks and months. For now, I yield the floor.