Tax treaties finally score chance to move

Tax Hot Topics newsletter The three tax treaties and four tax treaty protocols that have languished without ratification for nearly a decade have a chance to advance in the Senate this summer.

The Senate Foreign Relations Committee scheduled a meeting for June 25 to prepare the four protocols for Senate floor action. The three tax treaties are also expected to get committee considerations soon if the issues related to the enactment of the Tax Cuts and Jobs Act can be resolved.

All seven treaty instruments have been held up for years by objections from Sen. Rand Paul (R-Ky.) over information-sharing provisions. Senate leaders had been unwilling to dedicate the considerable Senate floor time needed to overcome the objections, but Senate Majority Leader Mitch McConnell (R-Ky.) has quietly signaled recently that he hopes to move at least some of the instruments in the coming months.

Supporters of the treaty instruments appear optimistic, but hurdles remain. Treasury has concluded that the three new treaties for Chile, Hungary and Poland require reservations to account for the enactment of the base erosion and anti-abuse tax (BEAT). Treasury maintains that the four treaty protocols with Spain, Switzerland, Japan and Luxembourg do not. Senate Foreign Relations Committee ranking minority member Bob Menendez (D-N.J.) has sparred with Treasury over a lack of transparency on their conclusions. He has indicated he is ultimately inclined to support the instruments, but the issue could delay or even derail the process.

It is also unclear how much floor time McConnell is ultimately willing to dedicate to the treaty instruments, or whether unforeseen developments will emerge to take precedence. McConnell is particularly eager to move the Spanish protocol over constituent concerns, while Democrats have made the Swiss protocol their top priority. Those two instruments are expected to move first, and if Paul continues to drag out the process and floor time is a problem, it’s possible the less urgent treaty instruments are abandoned. The three tax treaties requiring reservations could also potentially face additional challenges based on the reservation issue.

Dustin Stamper
Managing Director
Washington National Tax Office 
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office 
T +1 202 861 4143

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