Senate passes tax treaties with Spain, Switzerland, Japan and Luxembourg

Capitol building in Washington, D.C.
The U.S. Capitol building stands in Washington, D.C., U.S., on Friday, July 29, 2011. House Republican leaders, four days before a threatened U.S. default and facing stiff resistance within their ranks to raising the U.S. debt ceiling, are planning to make a second try at passing legislation that is headed for a Senate roadblock. Photographer: Andrew Harrer/Bloomberg

The Senate ratified four long-awaited tax treaties with Spain, Switzerland, Japan and Luxembourg, overcoming objections from Sen. Rand Paul, R-Kentucky, who had held up the treaties over fears that the information-sharing provisions could jeopardize U.S. taxpayers’ privacy.

Three other long-awaited tax treaties with Chile, Hungary and Poland have not yet been approved. The American Institute of CPAs urged passage of those treaties as well.

“The AICPA is pleased with the actions taken by the United States Senate yesterday to ratify four important international tax treaties,” said AICPA Vice President of Taxation Edward Karl in a statement Wednesday. “The AICPA has advocated for the ratification of these treaties for many years and we look forward to continued progress as the Senate works to pass the remaining three treaties. The ratification of these treaties is essential to U.S. taxpayers to provide certainty and important support to the U.S. economy.”

Several influential Senate leaders overcame objections to the international treaties. “Senate approval of tax treaties with Spain, Switzerland, Japan and Luxembourg is welcome and long overdue,” said Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, in a statement Wednesday. “These treaties will promote trade with our allies, attract foreign investment and combat tax fraud by improving information sharing. It’s unfortunate that the Senate did not also move on three additional treaties with Chile, Hungary and Poland. The Senate had an opening to get all seven treaties approved, but the administration made the process unnecessarily difficult by pushing last-minute changes.”

The Republican chair of the committee, Sen. Chuck Grassley, R-Iowa, also expressed his support in a floor speech Tuesday. “I rise today to express my support for passage of the resolutions of advice and consent that the Senate is considering this week with respect to the protocols to our tax treaties with Spain, Switzerland, Japan and Luxembourg,” he said. “Tax treaties are an integral part of the architecture of our tax system. For example, they help define the rules of the road for cross-border investment and trade for U.S. individuals and companies doing business in one of our treaty-partner countries, like Spain, and for individuals and companies in those countries doing business in the United States. The protocols before us today provide important updates to the tax treaties with these four countries. In general, several of them lower withholding taxes and include provisions to prevent double taxation. Several provide mechanisms for resolving disputes in a timely manner through mandatory binding arbitration. In addition, they provide important updates to the exchange of information provisions in the underlying treaties.”

Sen. Paul had tried to include language last month offering a reservation to each treaty to ensure the U.S. could only request, accept or share a taxpayer’s deposit account information if there was a reasonable basis to believe the person may not have complied with tax laws, but the Senate Foreign Relations Committee voted to reject the proposals.

“Washington seems to find it hard to believe it is possible to enforce the law while at the same time taking Americans’ privacy seriously,” he said in a statement at the time. “The benefits of these treaties simply do not outweigh the potential for abuse. The reservations I offered would have put Americans’ interests first without preventing the treaties from moving forward.”

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