In a letter to Senator Bob Corker (R-Tenn.), chairman of the Senate Committee on Foreign Relations and Senator Robert Menendez (D-NJ), the committee’s ranking member, the American Institute of CPAs (AICPA) noted that the full Senate has not approved any income tax treaty or protocol since 2010.
“Income tax treaties are vital to United States economic growth as well as U.S. trade and tax policy,” the letter said. “Tax treaties assist in harmonising the tax systems of treaty nations and in providing certainty on permanent establishment rules, a mechanism to relieve double taxation, and other key issues faced by businesses of all sizes that operate internationally.” The letter was signed by Troy Lewis, chairman of the AICPA’s Tax Executive Committee.
Lewis wrote that new treaties help the economy and boosted job creation in the US, as well as assist in the authorities in keeping up to date with international developments and enforcing the tax laws.
“The lack of action by the full Senate to ratify these treaties and protocols impedes the ability of the U.S. Department of the Treasury to keep US tax treaties in line with changes in policy and bilateral relationships,” he wrote. “Outdated tax treaties increase the potential for double taxation as well as hinder the ability of the Internal Revenue Service and foreign tax authorities to cooperate in the fair and efficient enforcement of tax laws.”
Referring to specific agreements that the committee approved in 2014, but which the full Senate has yet to vote on, the letter said the treaty with Chile would be the first with that country and the second US income tax treaty in South America. The treaty with Hungary, would bring the existing version, signed in 1979, up-to-date by closing an important loophole by inserting a limitation on benefits clause.
“This loophole currently allows nonresidents of the two treaty partners to obtain US tax benefits by inserting into their structures, Hungarian companies with no economic substance with the principle purpose of providing access to the treaty for those non-residents,” the letter pointed out.
The letter added the protocol to the treaty with Luxembourg would update how the US exchanges information with that jurisdiction and the protocol to the treaty with Switzerland “would specifically protect Americans against indiscriminate searches of information by either country by limiting the administrative assistance to individual cases. It would also bring the exchange of information article up-to-date to aid the US in combating tax evasion by US persons”.
In 2014, the committee also approved the new income tax treaty with Poland, and a protocol to the income tax treaty with Spain.
