Republican leaders of Congress’s two tax-writing committees are questioning recommendations from the Organization of Economic Cooperation and Development aimed at stopping multinational corporations from shifting their profits to low-tax countries.
[IMGCAP(1)]In advance of the OECD’s 2015’s conference on Base Erosion and Profit Shifting, or BEPS, in Washington, D.C., this week, Senate Finance Committee chairman Orrin Hatch, R-Utah, and House Ways and Means Committee chairman Paul Ryan, R-Wis., sent a
“As your BEPS discussions continue and proposals are considered, we strongly encourage you to continue engagement with us and to solicit input from the tax-writing committees,” they wrote. “We have been monitoring, and continue to monitor, the BEPS project, and we understand the significance it carries in the global community and its potential impact on U.S. workers and their multinational employers. We stand ready to work with you as the BEPS discussions conclude and final reports are issued this year so that we reach good outcomes for the United States and U.S. companies and provide an atmosphere within which we can continue to work towards U.S. tax reform.”
They pointed out that Congress is tasked with writing U.S. tax laws, including those associated with cross-border activities of U.S. companies. “Regardless of what the Treasury Department agrees to as part of the BEPS project, Congress will craft the tax rules that it believes work best for U.S. companies and the U.S. economy,” Hatch and Ryan noted. “Close consultation between Congress and the Treasury Department should inform the BEPS discussions. We expect that as we move forward on U.S. tax reform, U.S. tax policy will not be constrained by any concessions to other nations in the BEPS project to which Congress has not agreed.”
Hatch and Ryan acknowledged they support some elements of the OECD’s BEPS project, especially efforts to defend and advocate certain long-standing tax principles, such as the arms-length transfer-pricing standard. However, they are troubled by some positions the Treasury Department appears to be agreeing to as part of the BEPS project, particularly country-by-country reporting standards that could contain sensitive information on a U.S. multinational’s group operations. They said they are also concerned that the Treasury Department has appeared to agree that foreign governments will be able to collect the so-called “master file” information directly from U.S. multinationals without any assurances of confidentiality or that the information collection is needed.
“The master file contains information well beyond what could be obtained in public filings and that is even more sensitive for privately held multinational companies,” said Hatch and Ryan. “We are also concerned about interest-deductibility limitation proposals on the basis of questionable empirics and metrics.”
They pointed to recent press reports indicating that the Treasury Department believes it currently has the authority under the Tax Code to require country-by-country, or CbC, reporting by certain U.S. companies and that IRS guidance on this reporting will be released later this year.
[IMGCAP(2)]“We believe the authority to request, collect, and share this information with foreign governments is questionable,” wrote Hatch and Ryan. “In addition, the benefits to the U.S. government from agreeing to these new reporting requirements are unclear, particularly since the IRS already has access to much of this information to administer U.S. tax laws.”
Before any decisions are finalized, Hatch and Ryan asked the Treasury Department and the IRS to provide their committees with a legal memorandum detailing the Treasury and IRS’s authority for requesting and collecting this country-by-country reporting information from certain U.S. multinationals and master file information from U.S. subsidiaries of foreign multinationals. They also requested a document identifying how the country-by-country reporting and other transfer-pricing documentation obtained by the IRS on foreign multinationals operating in the United States will be used, and that the Treasury and the IRS provide the justification for agreeing that sensitive master file information on U.S. multinationals can be collected directly by foreign governments.
“In the event we do not receive such information, Congress will consider whether to take action to prevent the collection of the CbC and master file information,” they wrote.
Hatch and Ryan said they also have significant concerns about many of the provisions included in several other proposals of the BEPS project, including modifying the permanent establishment rules, using subjective general anti-abuse rules in tax treaties, and collecting even more sensitive data from U.S. companies to analyze and measure base erosion and profit shifting.
“These are but a few of the areas where we recommend that we work together to find consensus and identify a path forward for consideration as part of the BEPS negotiations and, if necessary, Congressional actions,” they wrote.
Hatch and Ryan pointed out that the Treasury Department has the ability to refrain from signing on to the BEPS final reports until the matters are resolved, and they expect Lew to do that if doing so protects the interests of the United States and of U.S. persons.
“Many of the OECD’s BEPS project objectives are sound, and international cooperation—as well as competition—in tax policies is desirable,” said Hatch and Ryan. “We trust that you agree, however, that precipitous decisions to impose constraints on U.S. tax policy and added burdens on U.S. companies, especially on the basis of weak empirics and metrics, are not desirable.”
