Time for a Tax Treaty Timeout
David Rosenbloom authored the January 3, 2023 Letter to the Editor "Time for a Tax Treaty Timeout" for Tax Notes Today International. Below is the full op-ed, and please visit this link to view the Letter to the Editor as it appears on Tax Notes' website.
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To the Editor:
With all due respect for persons who are involved in, interested in, or just cognizant of the U.S. tax treaty program — which is one way of referring to the efforts of the Treasury Department to negotiate tax conventions with other nations — I make a suggestion: Treasury should announce publicly that the treaty program is being suspended pending some indication from the U.S. Senate that it is prepared to consider the approval (or disapproval, though disapproval would be rare) of tax treaties in a reasonable time frame once they are agreed to with the other country and sent to the Senate. The present situation sees these agreements concluded and sent to Capitol Hill to die a slow death because of the whims of a single senator who has maintained persistent, if never coherently explained, antagonism.
That is, of course, his prerogative, and the peculiar rules of the Senate have allowed him to block regular treaty consideration for many years. The continuation of Treasury’s treaty program in these circumstances seems feckless and, more importantly, misleading to other countries who, believe it or not, negotiate these treaties in good faith. The negotiated convention with Chile, to take an egregious example, has lingered without approval for more than 10 years. It has been renegotiated reluctantly by Chile at the instance of Treasury because of fears it might nullify a few odd provisions of the Tax Cuts and Jobs Act. Like the patrons of Rick’s Cafe, the Chileans look to the Senate and wait and wait and wait. The United States should do better than this. I believe a Treasury announcement (and follow-through) along the lines suggested above would be a move in the right direction.
Let the wild rumpus — that is, the counterarguments — commence. At a minimum, it is worth talking about this. The executive branch is not subservient to the legislative branch and can and should make its own decisions on how to deal with other countries. Treasury needs to communicate that on some issues — and treaties represent one of those issues — it cannot speak for the United States given the U.S. system of government. Outside the United States (probably inside too), that system is neither understandable nor well understood.
I am well aware that tax treaties rank about 137th on the list of the top 100 issues in this country. But a bit of rationality is never amiss, and in any event, tax treaties are more important than most people realize. In particular, they are important to the business community because they are the only means of resolving cross-border tax disputes and, thanks to the OECD’s meandering decade long pronouncements on base erosion and profit shifting, there are apt to be a lot more tax disputes in the future. It is true that there are reasons to be skeptical about treaties and what they do, but the United States in particular, with its sclerotic system for changing domestic tax laws, has plenty of counter-reasons for finding treaties useful.
So again, my suggestion: State publicly that it is currently impossible for a negotiated tax treaty to go into effect and that Treasury is concerned about the image a futile process of negotiation is displaying to the world. Then hit the pause button until the situation changes.