Rand Paul holding up U.S.-Taiwan tax legislation

Sen. Rand Paul, R-Kentucky, plans to block legislation aimed at reducing double taxation for employees and businesses involved in U.S. and Taiwan cross-border investment.

Leaders from both parties of Congress's main tax-writing committees, the House Ways and Means Committee and the Senate Finance Committee, unveiled a discussion draft of the legislation in July (see story). Senate Finance Committee chairman Ron Wyden, D-Oregon, and ranking Republican Sen. Mike Crapo, R-Idaho, announced in July the committee would meet in September to mark up the legislation. However, with Senator Paul expressing his opposition ahead of that session, as he has been to previous tax treaties, lawmakers had considered the possibility of bypassing the Senate Foreign Relations Committee and bringing the legislation directly to the floor of the Senate. Paul is a member of the Foreign Relations Committee, but not the Finance Committee.

Paul has opposed other tax treaties for over a decade because of privacy concerns stemming from the Foreign Account Tax Compliance Act, also known as FATCA, which was passed in 2010 as part of the HIRE Act. He reportedly considers the U.S.-Taiwan Expedited Double-Tax Relief Act to be an attempt at a tax treaty and has privacy concerns relating to the "may be relevant" standard in tax agreements. 

"While I support the goals of the tax treaties considered by the Senate in recent years, they contain a provision encouraging bulk suspicionless searches of Americans' financial account information," Paul said in a statement emailed Tuesday to Accounting Today. "For years, I tried to improve these treaties by offering a solution that would allow us to enjoy the benefits of the tax treaties and protect the privacy of Americans abroad. Without adequate protections of Americans' financial information, I could not support this or any other tax treaty."

Aaron P. Bernstein/Bloomberg

Senate Foreign Relations Committee chair Robert Menendez, D-New Jersey, and ranking member Sen. Jim Risch, R-Idaho, already proposed a U.S.-Taiwan tax agreement through the Senate Foreign Relations Committee, and Paul temporarily held it up. He offered a reservation clause as an amendment, but it was rejected by most other members of the committee. 

The dispute comes at an awkward moment for U.S.-Taiwan relations, with Taiwan Vice President William Lai scheduled to visit New York and San Francisco next week amid deteriorating relations between the U.S. and China. 

The bill would create a new section of the Tax Code providing substantial benefits to Taiwan residents, similar to those that are provided in the 2016 U.S. Model Income Tax Convention. Provisions include reduction of withholding taxes, application of permanent establishment rules, treatment of income from employment and determination of qualified residents of Taiwan, including rules for dual residents. It would not come into full effect until Taiwan provides the same set of benefits to U.S. individuals with income subject to tax in Taiwan, similar to the reciprocal operation of a tax treaty.