Negotiations between Treasury and Sen. Rand Paul, R-Ky., over his hold on several bilateral income tax treaties and protocols have broken down over privacy concerns.
“We’ve been trying to achieve a compromise with Treasury and negotiations were very close to an agreement, and [then] Treasury broke off the negotiations,” Paul told Tax Notes June 5.
Despite Paul’s continued objections, the Senate is looking to push ahead without his blessing, according to two lobbyists.
The Senate has not approved any treaties or protocols since Paul assumed office in January 2011. There are four protocols pending in the Senate (Spain, Switzerland, Luxembourg, and Japan) and three treaties (Hungary, Chile, and Poland). There is also a treaty and protocol with Vietnam signed in 2015 that has not yet been approved.
Paul said he wants language in the treaties “to protect the privacy of individuals so that foreign governments” and the U.S. government can’t sift through documents and records without affording taxpayers certain protections.
But one lobbyist, speaking on the condition of anonymity, said that what the Kentucky Republican is looking for isn’t so simple. “He is asking for something that goes against U.S. policy and international tax policy on treaties,” the lobbyist said.
Treasury officials did not respond to a request for comment.
Moving Forward
While Paul’s continued privacy objections will present some hurdles, Senate Majority Leader Mitch McConnell, R-Ky., “is willing to bring the treaties and protocols to the floor and file cloture in a way to overcome Senator Paul’s objections,” the lobbyist said.
A spokesperson for the majority leader did not immediately respond to a request for comment.
The treaties and protocols would have to clear the Senate Foreign Relations Committee before heading to the Senate floor. While treaties and protocols in the past have been approved in the Senate by unanimous consent — a parliamentary procedure to expedite legislation — Paul’s objections will force the Senate to approve each treaty and protocol sequentially.
Another lobbyist confirmed that the Senate is looking to move ahead with the treaties and protocols, explaining that the Foreign Relations Committee is looking to divide the treaties and protocols into two batches that move separately. The lobbyist said the committee would initially report out the four pending protocols before moving on to the three pending treaties.
“We’re looking at a timeline over the next month on those,” the lobbyist said, adding that the committee is working with outside consultants to overcome certain technical hurdles. The lobbyist further stated that Democrats would prefer approving all seven treaties and protocols in one sitting but would be willing to go along with the two-tranche plan as long as there is a set timeline on approving all seven.
The Senate has been under increasing pressure from some of the country’s largest multinationals to approve the pending bilateral treaties. Several organizations, like the American Institute of CPAs, have also urged Foreign Relations Committee Chair James E. Risch, R-Idaho, and ranking member Robert Menendez, D-N.J., to take up the matter.
“Tax treaties assist in harmonizing the tax systems of treaty nations and in providing certainty on key issues faced by businesses of all sizes that operate internationally,” a May 23 letter signed by AICPA Tax Executive Committee Chair Christopher Hesse said. Interested parties also argue that tax treaties prevent the prospect of double taxation and that updated protocols with Switzerland help combat tax evasion.