[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]






                   BIDEN'S GLOBAL TAX SURRENDER HARMS
                    AMERICAN WORKERS AND OUR ECONOMY

=======================================================================

                                HEARING

                               before the

                          SUBCOMMITTEE ON TAX

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 19, 2023

                               __________

                          Serial No. 118-TAX01

                               __________

         Printed for the use of the Committee on Ways and Means









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                                   _______
                                   
                 U.S. GOVERNMENT PUBLISHING OFFICE 
                 
54-908                       WASHINGTON : 2024 






























                      COMMITTEE ON WAYS AND MEANS

                    JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania             MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut
DARIN LaHOOD, Illinois               EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio                  BILL PASCRELL, Jr., New Jersey
JODEY ARRINGTON, Texas               DANNY DAVIS, Illinois
DREW FERGUSON, Georgia               LINDA SANCHEZ, California
RON ESTES, Kansas                    BRIAN HIGGINS, New York
LLOYD SMUCKER, Pennsylvania          TERRI SEWELL, Alabama
KEVIN HERN, Oklahoma                 SUZAN DelBENE, Washington
CAROL MILLER, West Virginia          JUDY CHU, California
GREG MURPHY, North Carolina          GWEN MOORE, Wisconsin
DAVID KUSTOFF, Tennessee             DAN KILDEE, Michigan
BRIAN FITZPATRICK, Pennsylvania      DON BEYER, Virginia
GREG STEUBE, Florida                 DWIGHT EVANS, Pennsylvania
CLAUDIA TENNEY, New York             BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota        JIMMY PANETTA, California
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
                       Mark Roman, Staff Director
                 Brandon Casey, Minority Chief Counsel
                                 ------                                

                          SUBCOMMITTEE ON TAX

                   MIKE KELLY, Pennsylvania, Chairman
DAVID SCHWEIKERT, Arizona            MIKE THOMPSON, California
JODEY ARRINGTON, Texas               LLOYD DOGGETT, Texas
DREW FERGUSON, Georgia               JOHN LARSON, Connecticut
KEVIN HERN, Oklahoma                 LINDA SANCHEZ, California
RON ESTES, Kansas                    SUZAN DelBENE, Washington
LLOYD SMUCKER, Pennsylvania          GWEN MOORE, Wisconsin
DAVID KUSTOFF, Tennessee             DON BEYER, Virginia
BETH VAN DUYNE, Texas                BRAD SCHNEIDER, Illinois
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York   




























                         C  O  N  T  E  N  T  S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Mike Kelly, Pennsylvania, Chairman..........................     1
Hon. Mike Thompson, California, Ranking Member...................     3
Advisory of July 19, 2023 announcing the hearing.................     V

                               WITNESSES

Panel 1:
Michael Plowgian, Deputy Assistant Secretary for International 
  Tax Affairs, United States Department of the Treasury..........     4
Panel 2:
Mindy Herzfeld, Professor of Tax Practice, University of Florida 
  Levin College of Law...........................................    60
Adam Michel, Director of Tax Policy Studies, CATO Institute......    79
Anne Gordon, Vice President, International Tax Policy, National 
  Foreign Trade Council..........................................    94
David Schizer, Dean Emeritus and Harvey R. Miller Professor of 
  Law and Economics, Columbia Law School.........................   106
Peter Barnes, International Tax Advisor and Of Counsel, Caplin & 
  Drysdale.......................................................   113

                    MEMBER QUESTIONS FOR THE RECORD

Member Questions for the Record to and Responses from Michael 
  Plowgian, Deputy Assistant Secretary for International Tax 
  Affairs, United States Department of the Treasury..............   146
Member Questions for the Record to and Responses from Adam 
  Michel, Director of Tax Policy Studies, CATO Institute.........   163
Member Questions for the Record to and Responses from Anne 
  Gordon, Vice President, International Tax Policy, National 
  Foreign Trade Council..........................................   165

                   PUBLIC SUBMISSIONS FOR THE RECORD

Public Submissions...............................................   168

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                   BIDEN'S GLOBAL TAX SURRENDER HARMS 
                    AMERICAN WORKERS AND OUR ECONOMY 

                              ----------                              


                        WEDNESDAY, JULY 19, 2023

                  House of Representatives,
                               Subcommittee on Tax,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:03 p.m. in 
Room 1100, Longworth House Office Building, Hon. Mike Kelly 
[Chairman of the Subcommittee] presiding.
    Chairman KELLY. The committee will come to order for this 
Tax Subcommittee hearing, and thank you, Mr. Plowgian, for 
joining us today.
    We are here to discuss a matter critical to our nation's 
economic success. Perhaps it became, innocently enough, the 
U.S. had just enacted a historic reform of our tax laws, 
including the world's first Global Minimum Tax, which only 
applied to U.S. companies. Now, at the same time, a few 
European countries were beginning to target some of our largest 
and fastest-growing companies with discriminatory taxes known 
as Digital Service Taxes, or DSTs.
    And I got to tell you, I have a glossary here for those of 
you that are fans of acronyms. I am not. I wish we could just 
say exactly what we are talking about. But to save time, I 
won't go through all that.
    Look, the original idea of engaging in negotiations at the 
OECD was this: other countries could join the U.S. with their 
own Global Minimum Taxes, and we could stop the proliferation 
of DSTs. Unfortunately, that is not what happened. With active 
encouragement from the Biden Treasury Department, the OECD, in 
its Pillar Two agreement, failed to recognize our pioneering 
Global Minimum Tax as a qualifying tax. Instead, the agreement 
they came back with is so inconsistent with our tax laws that 
it would tilt the playing field in favor of foreign firms.
    Now, it also destabilizes a network of constitutionally 
ratified bilateral tax treaties negotiated over the past half 
of a century. Now, for the first time, through Undertaxed 
Profit Rules, or UTPRs, the Pillar Two agreement authorizes 
foreign governments to tax income generated outside its border, 
including U.S.-sourced income. Now, this is all based on an 
arbitrary set of rules approved by the OECD, foreign 
governments, and international accounting bureaucrats where the 
U.S. has minimal representation. Congress has absolutely no 
say.
    It also favors the tax incentives Europe likes: refundable 
tax credits, over the non-refundable business credits more 
common in the U.S. In this sense, it would constrain the 
ability of the U.S. Congress to write tax laws that promote 
growth and jobs, as Congress has done since the beginning of 
our republic.
    Now, this agreement is totally unacceptable, and it is no 
wonder the Biden Administration sought to avoid consulting with 
Congress, because they knew Congress would never approve it.
    OECD Pillar One, intended to stop DSTs, is no better. Under 
Pillar One, U.S. companies would pay far more than any other 
country and more than all of Europe. Now, that is right, the 
U.S. pays more than Europe. That is according to an analysis by 
a European Union think tank.
    Now, 60 percent of the revenue divided up under the Pillar 
One agreement would come from U.S. firms--60 percent. Our own 
Treasury Department acknowledges that about 50 percent of the 
firms are subject to the Pillar One agreement would be U.S. 
companies. Republicans have repeatedly requested a detailed 
analysis of how the agreement would impact American companies 
and workers, but Treasury has rejected those requests. All the 
while, foreign governments continue to collect DSTs from 
American companies.
    Now, given the economic stagnation in Europe since 2008, 
these DSTs should come as no surprise. The U.S. will continue 
to be a revenue target.
    Now, going into these OECD negotiations, Treasury should 
have recognized that governments in Europe would be looking for 
ways to rein in successful American companies and extract 
additional tax revenue to prop up their own poor domestic 
finances. As one author in Tax Notes put it, ``this effort has 
to be understood as a primarily European project and, in the 
larger picture, a way to sustain the euro.'' The Biden 
Administration has called for additional business taxes to fund 
their own domestic spending agenda.
    So why, then, would Treasury negotiate an OECD deal that 
surrenders over $120 billion? That is $120 billion in U.S. tax 
revenues to foreign countries. This makes absolutely no sense.
    Now, the OECD Global Tax Project is effectively controlled 
by Europe. Why? Because Europe controls one-third of the seats 
on the steering committee, and the broader inclusive framework 
includes over 30 tiny former European colonies. Members of this 
group include the Cook Islands, the Bahamas, Saint Lucia, and 
the Samoa.
    The bottom line is the deck is stacked against America at 
the OECD. That is why it has never made sense for Treasury to 
negotiate behind closed doors with a group of 140 nations on a 
one-country/one-vote basis when the U.S. accounts for 25 
percent of global GDP and pays almost that percentage of dues 
at the OECD.
    I am going to close with this. My whole life has been in 
the retail automobile business, and I spent a lifetime 
negotiating. And it just doesn't take a rocket scientist to 
understand that the U.S. has signed up for a bad deal. It is a 
bad deal for the American taxpayers, it is a bad deal for 
American workers, it is a bad deal for American businesses just 
trying to keep their doors open for the next generation of U.S. 
workers.
    I am trying to figure what are we trying to accomplish by 
doing something like this? I have never seen an instance where 
we are always so willing to give up market share and pick up 
the tab for other places that can't pay their own bills. It all 
falls on the American people.
    It is bizarre that we even have to discuss this today, but 
we do. And I would like to know--I am not sure that I 
understand, constitutionally, that what the Administration has 
done is even possible. There is a reason we are here. There is 
a reason why all of this starts in the House. There is no 
reason why Treasury has not sat down and talked with us about 
what they have done and failed to be able to answer any 
questions on it.
    So, with that, I welcome Mr. Plowgian, and I want to thank 
you. You are giving up a day to come here and talk with us, and 
I think this is not a Democrat issue or a Republican issue. I 
said earlier, this is about jobs and companies and our ability 
to sustain market share, globally.
    Why would the United States hamper itself to be successful? 
It makes no sense to me.
    Chairman KELLY. Now, I am pleased to recognize the 
gentleman from California, Ranking Member Mr. Thompson, for his 
opening statements.
    Mr. THOMPSON. Thank you, Mr. Chairman, and thank you, Mr. 
Plowgian, for being with us today.
    Mr. Chairman, our economic recovery from the pandemic has 
not only broken all of our own records, it has put us far and 
above the world's major economies. Despite naysayers and wish-
casters betting against the American worker, we have been able 
to defy all odds. Thanks to President Biden and congressional 
Democrats investing in workers and families, over 13 million 
jobs have been added, inflation has declined consecutively for 
the last 12 months, and we have had the strongest economic 
growth of all the world's major economies.
    And instead of building on this success, in the first Tax 
Subcommittee hearing of the 118th Congress my colleagues are 
choosing to double down on their race to the bottom in 
protecting multi-national corporations. From examining how we 
can extend the Child Tax Credit to looking at how our tax code 
treats victims of disasters, there is much on the individual 
side for our committee to discuss, and I regret that my 
colleagues didn't want to start there.
    American workers and taxpayers have paid the price for a 
system that rewards large, multi-national corporations that do 
business in one country and then park their profits in the 
country with the lowest tax rate they can find. Republicans' 
desperate attempts to preserve this system is more of the same: 
sparing the largest, most profitable companies from paying 
their fair share, while honest taxpayers are left with the 
bill.
    The Global Minimum Tax is designed to level the playing 
field and put an end to underhanded profit shifting. For one, 
it brings parity to our small businesses, those who don't have 
the ability to move their profits offshore, who have already 
been paying their fair share. Second, it will encourage 
businesses to keep their incomes in the United States of 
America.
    There is widespread agreement around the world that the 
wealthiest corporations have an obligation to pay their fair 
share, and they won't wait for us to move forward in the 
process. More than 50 countries, large economies, are already 
implementing the Global Minimum Tax. This is not the time to 
wish away reality. And the longer my colleagues take a head-in-
the-sands approach, the more damage will be done to our 
taxpayers, our businesses, and our treasury. While we have led 
the other large economies around the world in our recovery, our 
economy does not exist in isolation. And coordination will 
strengthen our commerce ties around the world.
    The truth is that abandoning these negotiations would be 
unambiguously worse for Americans and American businesses than 
continuing to negotiate and to ensure that we get the details 
right. Pulling out of this process puts other countries in 
charge of our fate and abandons American companies, American 
workers, and, ultimately, American taxpayers.
    Too much is at stake for our businesses and economy to let 
this train leave the station without American leadership and 
input.
    Mr. THOMPSON. Thank you, and I yield back.
    Chairman KELLY. Thank you, Mr. Thompson. Now, I would like 
to introduce the first panel for today's hearing.
    Michael Plowgian is the deputy secretary for international 
tax affairs at the Department of Treasury.
    Mr. Plowgian, I want to thank you for being here. You have 
five minutes to deliver your oral remarks. And thank you, sir, 
again, for being here. We appreciate it.

 STATEMENT OF MICHAEL PLOWGIAN, DEPUTY ASSISTANT SECRETARY FOR 
       INTERNATIONAL TAX AFFAIRS, DEPARTMENT OF TREASURY

    Mr. PLOWGIAN. Chairman Kelly, Ranking Member Thompson, and 
members of the subcommittee, I am Michael Plowgian, deputy 
assistant secretary for international tax affairs at the 
Department of the Treasury's Office of Tax Policy.
    Chairman KELLY. Is your mic on?
    Mr. PLOWGIAN. I think so, yes.
    Mr. THOMPSON. Maybe get a little closer.
    Mr. PLOWGIAN. Okay.
    Chairman KELLY. There you go.
    Mr. PLOWGIAN. Thank you.
    Chairman KELLY. Okay.
    Mr. PLOWGIAN. I appreciate the opportunity to testify 
before the Ways and Means Tax Subcommittee regarding U.S. 
engagement on the two-pillar solution in the G20 OECD inclusive 
framework on BEPS.
    I would like to begin by placing the work that we are doing 
on the two-pillar solution, and particularly on Pillar Two, in 
context. The two-pillar solution grew out of the Organization 
for Economic Cooperation and Development project known as BEPS, 
for Base Erosion and Profit Shifting. The BEPS project began in 
2012 at the request of the Group of 20 who were concerned about 
the ability of multi-national corporations to avoid tax by 
shifting profits into low or no-tax jurisdictions.
    Since the BEPS project began over a decade ago, the United 
States has had a strong interest in its success. The active 
participation of the executive branch and the support of 
Congress has been crucial in protecting our tax base from being 
eroded by multi-national businesses. Prior to our engagement in 
BEPS, multi-nationals' ability to shift paper profits to low-
tax jurisdictions resulted in an unproductive race to the 
bottom in corporate tax rates. Unilateral attempts to address 
this problem led to uncertainty and instability for both U.S. 
taxpayers and the U.S. Government.
    The BEPS project led countries to enact changes to 
international tax rules to limit profit shifting. In the United 
States, the BEPS project provided the foundation for several 
Tax Cuts and Jobs Act provisions, including the global 
intangible, low-tax income, or GILTI, provisions; the interest 
deduction limitation; and the anti-hybrids provisions.
    However, starting in 2018, it became clear that further 
work was needed to stabilize the international tax system and 
enable U.S. businesses to compete on a level tax playing field. 
That work has continued across multiple congresses and 
administrations. As part of that process, this Administration 
has pushed to reach a global framework on a two-pillar solution 
to reform the international tax system.
    Pillar One, when implemented, will get rid of the 
unilateral and discriminatory Digital Services Taxes that 
largely impact U.S. businesses and will reallocate a portion of 
taxing rights to reflect the way business is done in the 21st 
century.
    Pillar Two will level the playing field between U.S. and 
foreign businesses and end the race to the bottom in corporate 
tax rates by establishing a Global Minimum Tax on the earnings 
of large multi-nationals, regardless of where they are 
headquartered or where they operate. It will ensure the United 
States can tax U.S. multi-nationals at reasonable levels 
without being undercut by other countries using their tax 
systems to induce our multi-nationals to shift their profits, 
operations, or residency offshore.
    Over the past two years, the Administration has engaged in 
the inclusive framework to work through the details of this 
package. The inclusive framework has reached consensus on model 
rules on Pillar Two, and many countries are implementing those 
model rules. Continued U.S. engagement in the inclusive 
framework is essential to ensure consistent interpretation of 
those rules. Discussions in the inclusive framework have 
resulted in additional guidance, including guidance issued this 
week that would treat transferable credits appropriately as 
equivalent to refundable credits.
    Treasury negotiators have also been working in the 
inclusive framework to develop a complete Pillar One agreement, 
though there are still important elements of Pillar One that 
remain open.
    The Executive Branch and Congressional Partnership on 
International Tax is a longstanding, important relationship 
with a shared goal of protecting U.S. taxpayer interests and 
providing certainty and stability in the international tax 
system. It goes without saying that Pillar One and Pillar Two 
can only be implemented in the U.S. with the support of 
Congress. We hope to have a complete Pillar One package soon 
and intend to continue to seek input.
    Similarly, with respect to Pillar Two, we stand ready to 
work with Congress to enact the reforms proposed in the 
President's budget to implement Pillar Two, which would 
increase U.S. revenue and strengthen our tax system.
    We will also continue to work with Congress to prioritize 
issues for interpretive guidance.
    As always, we would like to offer our technical assistance 
to any relevant legislative effort. And with that I would be 
pleased to respond to any questions.
    [The statement of Mr. Plowgian follows:]

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    Chairman KELLY. Mr. Plowgian, Ms. Gordon, in the concluding 
paragraph of her testimony, raises the analogy of the USMCA to 
the current situation Congress finds itself in.
    Now, my friend, the ranking member, Mr. Thompson, may 
recall the Trump Administration, on that trade agreement, took 
the same position as this Administration in taking on Pillar 
Two. That is the deal, as negotiated, and Congress should 
consider the deal signed, sealed, and delivered. As members 
will recall, that agreement was reopened and renegotiated 
largely at the direction of my Democrat friends on this 
committee.
    Now, Mr. Plowgian, in your testimony you state the 
Administration wants to work with Congress to take Pillar Two 
process to conclusion. I appreciate the constructive tone, but 
if you want this agreement to become domestic law, as you just 
stated in your statement, are you willing to go back to the 
negotiating table and take care of the issues of importance to 
members of this committee?
    Mr. PLOWGIAN. Thank you, Chairman.
    So only Congress has the authority to implement or not 
implement changes to U.S. law. That is true with respect to 
Pillar Two, it is true with respect to Pillar One. We have 
received a lot of input from Congress, from the tax writing 
committees, as well as from U.S. businesses and other 
stakeholders. We take that input very seriously. We take that 
into the negotiations, and we would like to continue to work 
with Congress to take that input and take that into the 
discussions.
    Chairman KELLY. You know, and I appreciate your tone 
because we went through this same thing with the USMCA.
    My question is, if there is this willingness to work 
through the Congress, why is the Congress denied information 
when they try to find out what exactly was negotiated, how it 
was negotiated, and why we considered it a done deal?
    Now, I would like to see this go back. I think members of 
this panel--not the panel, but us up here--including both sides 
of the aisle, should be more involved with this. I just--I 
don't like it whether it was the Trump Administration, or the 
Biden Administration forgoing and going around the--taking an 
end run on Congress. There is a reason for that structure to be 
in place, and I would like to see it taken care of.
    So, I am going to yield now to my friend from California, 
Mr. Thompson.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Plowgian, thank you again for being here. You mentioned 
in your testimony that the changes you have been able to secure 
are thanks to congressional input. Could you provide more 
details on the issues that Treasury has negotiated that will 
benefit the United States?
    Mr. PLOWGIAN. Thank you, Ranking Member Thompson. Yes, I am 
happy to.
    Protecting U.S. interests has been a consistent priority 
for the multiple administrations that have been involved in 
these negotiations. And the Pillar Two model rules and 
interpretive guidance reflect that. I can't speak to every 
decision that has been made, but a few examples, I think, will 
paint the picture.
    Many important U.S. provisions, including accelerated 
depreciation, are specifically identified in the model rules as 
book tax differences that do not give rise to adjustments to 
the effective tax rate, and do not give rise to top-up tax 
under Pillar Two.
    Treasury negotiators have also been able to secure a GILTI 
coordination rule that reduces the burden for U.S. businesses 
in allocating taxes paid under GILTI for purposes of Pillar 
Two.
    On Monday, there was also guidance that was released that 
provides for a safe harbor on the UTPR that provides temporary 
taxpayer relief and time to resolve outstanding issues in the 
application of the UTPR, two parent jurisdictions.
    I also want to highlight the guidance on the treatment of 
credits. So credits through tax equity partnerships, structures 
that are commonly used in the Low-Income Housing Tax Credit 
context, as well as for certain green energy credits, have also 
been protected under administrative guidance.
    Monday's guidance also, as I mentioned, protects the value 
of transferable credits like those enacted under the Inflation 
Reduction Act by treating them appropriately as refundable tax 
credits. And I think that administrative guidance really 
demonstrates that the U.S. should remain at the table as the 
world moves forward and implements Pillar Two.
    Mr. THOMPSON. Thank you, and I think the transferable 
credits provision speaks loudly about the importance of us 
being at that table. I appreciate that. It seems to me that 
your recent accomplishments are proof of the importance of 
remaining at that table.
    One thing is really clear to me, and that is that the OECD 
is going to forge ahead, and the United States can't just put 
our head in the sand and pretend that it isn't, as some of my 
colleagues on the other side of the aisle seem to think we 
should be doing. I am glad that, notwithstanding some 
resistance from my colleagues on the other side, the Biden 
Administration, Secretary Yellen, and you have been steadfast 
in your commitment to representing the United States at the 
OECD. I appreciate that, and I want you to know that you have 
the full support of folks on my side of the aisle.
    A lot has been said about the JCT revenue estimates. It 
seems to me that estimating the revenue effects of adopting or 
not adopting Pillar Two is an extremely difficult exercise, 
even for the most qualified economists at JCT. In your opinion, 
what should we take away from these estimates that we have 
seen?
    Mr. PLOWGIAN. Well, I think that is a really important 
issue, and I think there are several things to keep in mind 
when reviewing the JCT revenue estimates.
    First is the modified baseline that JCT uses. The JCT 
analysis says that if the 40-plus jurisdictions that have 
announced plans to implement Pillar Two do, in fact, adopt 
Pillar Two and the U.S. does nothing, then the impact of Pillar 
Two on U.S. revenues could vary by $400 billion, depending on 
their assumptions on profit shifting. If you just look at the 
midpoint of that range, what they are saying is that Pillar Two 
adoption by those 40-plus jurisdictions and no action by the 
U.S. is an increase in U.S. tax receipts of $25 billion.
    In addition, I think it is important to note that in every 
scenario that the JCT analyzed, U.S. adoption of Pillar Two 
increases U.S. tax receipts as compared to inaction by the U.S. 
For instance, scenario five, which shows U.S. adoption of 
Pillar Two and adoption by those 40 baseline countries, would 
increase U.S. revenue by $236.5 billion.
    So overall, the takeaway is, if other major members of the 
global economy are moving ahead, and they are moving ahead to 
implement Pillar Two, it is better from a revenue perspective 
for the U.S. to take action than to remain on the sidelines.
    Mr. THOMPSON. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman KELLY. Thank you, sir. Mr. Schweikert from Arizona 
is recognized for five minutes.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman.
    Mr.--is the proper term Deputy Secretary?
    Mr. PLOWGIAN. Deputy Assistant Secretary.
    Mr. SCHWEIKERT. Deputy Assistant. That gets a little long, 
doesn't it?
    Mr. PLOWGIAN. It does.
    Mr. SCHWEIKERT. Forgive me for--because I think you 
actually have one of the most fascinating jobs someone could 
have if you are a tax geek. But I think, actually, one of the 
things you just said was a little duplicitous, so forgive me 
for being cruel.
    So we are here two years from now, after what you are 
calling the victory has functionally timed out. What is the 
effect 24 months or 36 months from now--then, compared to 
today? Not what our friends across the other parts of the 
world--on tax receipts. What is good for America?
    Mr. PLOWGIAN. Well, I think, as I mentioned, the JCT 
analysis shows----
    Mr. SCHWEIKERT. No, no, no, no, stop, Mr.--what you said is 
the JCT analysis. If we did nothing--I am just asking, ceteris 
paribus, then until 36 months from now, do we have more tax 
receipts or less?
    Mr. PLOWGIAN. I am sorry, what is the hypothetical? If the 
U.S. does nothing?
    Mr. SCHWEIKERT. Today, three years from now.
    Mr. PLOWGIAN. Three years from now?
    Mr. SCHWEIKERT. It is not hard.
    Mr. PLOWGIAN. And the U.S. does what?
    Mr. SCHWEIKERT. Nothing. No, no, no, just from today's tax 
receipts----
    Mr. PLOWGIAN. Right.
    Mr. SCHWEIKERT [continuing]. To this new scheme, as we will 
call it. What happens to U.S. tax receipts? Are they up or 
down?
    Mr. PLOWGIAN. The JCT analysis----
    Mr. SCHWEIKERT. The JCT analysis was based on the concept 
that if we did nothing and our trading partners did something. 
I am just asking, are we up or down?
    Mr. PLOWGIAN. The JCT analysis does not answer that 
question. It shows a range----
    Mr. SCHWEIKERT. Actually, it alludes to it.
    Mr. PLOWGIAN. I am sorry.
    Mr. SCHWEIKERT. Please, go on.
    Mr. PLOWGIAN. It does not answer that question. It shows a 
range, a variable range of $400 billion. Again, the midpoint of 
that range is an increase in U.S. tax receipts of $25 billion.
    Mr. SCHWEIKERT. Really? Because we white-boarded this last 
night, and we actually had just the opposite, that once we got 
beyond the two-year reprieve that seemed so joyful, we actually 
had the U.S. receipts going down. Why do you believe we see the 
difference?
    I mean, I am not asking for you to talk about JCT. You have 
smart people over with Treasury. What are you seeing?
    Mr. PLOWGIAN. I am not an estimator. The Treasury 
estimators have estimated the effects of enacting the 
President's budget proposals, which would enact Pillar Two, and 
those raise considerable revenue for the U.S.
    Mr. SCHWEIKERT. Okay, so we agree to this, and that is with 
the two years, and even with what you have also done in regards 
to R&D tax credits and how that amortization is treated, and 
you actually see receipts going up. And do you think that is 
what the next panel is going to tell us?
    Mr. PLOWGIAN. I don't know what the next panel is going to 
tell you.
    Mr. SCHWEIKERT. So you haven't read any of their testimony?
    Mr. PLOWGIAN. I have not.
    Mr. SCHWEIKERT. Really? I am glad for the level of 
professionalism we are dealing with.
    You are making our job more difficult because, for many of 
us, we are trying to just defend. Are we taking in receipts? 
Does this increase U.S. economics and opportunity and jobs? Are 
we basically giving it away? Because we have other analysts 
coming to us and saying this is not actually good for the 
robustness of the American economy.
    Okay. In the last minute we have here or so, walk me 
through what is happening in R&D credits.
    Mr. PLOWGIAN. So, with respect to R&D credits, this is an 
issue that we have heard quite a bit of input from Congress and 
from U.S. businesses and other stakeholders on. It is an issue 
that we have raised----
    Mr. SCHWEIKERT. What is happening with them?
    Mr. PLOWGIAN. By what is happening with them, you mean how 
are they treated under Pillar Two?
    Mr. SCHWEIKERT. What--how are they being treated and how 
does it affect U.S. economic expansion?
    Mr. PLOWGIAN. Yes, so U.S. R&D credits generally are non-
refundable. There is a small portion that is refundable, but 
typically for taxpayers who are within scope of Pillar Two, 
they would be non-refundable. That would reduce the effective 
tax rate. It would be treated as a reduction in taxes with 
respect----
    Mr. SCHWEIKERT. And therefore, it would be subject to?
    Mr. PLOWGIAN. It would depend on the effective tax rate of 
the taxpayer. So it would reduce the effective tax rate of the 
taxpayer.
    Mr. SCHWEIKERT. And so therefore, it would be subjected to 
the--functionally, the OECD sanction.
    Mr. PLOWGIAN. It could be. It could be----
    Mr. SCHWEIKERT. It could be? Or----
    Mr. PLOWGIAN. The taxpayer could be subject to top-up tax--
--
    Mr. SCHWEIKERT. All right.
    Mr. PLOWGIAN [continuing]. Depending on the effective tax 
rate of----
    Mr. SCHWEIKERT. Mr. Chairman, I am sorry it took so long to 
get there, but something we all claim we sort of agree upon is 
now somewhat put at risk on how it is being modeled, 
particularly in the tax rate. So, with that, I yield back.
    Mr. THOMPSON. Mr. Chairman, are you going to point out that 
the witness's testimony has been embargoed?
    Chairman KELLY. No, I am glad you pointed it out. Thank 
you.
    Mr. THOMPSON. Thank you.
    Chairman KELLY. I recognize the gentleman from Texas, Mr. 
Doggett.
    And also, Mr. Plowgian, if you could, could you get a 
little closer to the mic, so it comes across a little bit 
louder? Okay?
    Mr. PLOWGIAN. I will try.
    Chairman KELLY. Okay. Thank you, sir.
    Mr. DOGGETT. Thank you.
    Chairman KELLY. Mr. Doggett.
    Mr. DOGGETT. Thank you, Mr. Chairman.
    Since first joining this Ways and Means Committee more than 
20 years ago, one of my top priorities has been shutting down 
abusive offshore tax havens. In all that time, Republicans have 
been doing all that they can to protect that tax evasion.
    Back in 2001, then-Republican leader Dick Armey was 
castigating the OECD in almost the very same words we have just 
heard today. They favor allowing the biggest corporations to 
dodge their responsibility to fairly contribute to our national 
security and other vital public services.
    When these profitable multi-nationals can shift profits, 
profits they have earned designing new products right here in 
America, profits they have earned selling to American 
consumers, and move that into tax havens, we all lose. Small 
businesses and other domestic businesses like a car dealer 
cannot secret their earnings in some offshore tax haven. 
International tax dodging shifts more of the tax burden to 
those businesses like that, and to working Americans, to a 
nurse, to a firefighter, to a teacher, many of whom end up 
paying a greater proportion of their earnings into our treasury 
than the largest, most profitable multi-nationals in the world.
    The Joint Committee on Taxation looked at the facts, at the 
effect of the 2017 Trump Republican tax scam, what impact it 
had on the 88 largest American multi-nationals. Before their 
scam was enacted, those 88 multi-nationals averaged an 
effective tax rate of only 16 percent. After the tax scam, 
their rate was cut to 7.8 percent. Certainly, a rate any police 
officer would be delighted to pay but is unable to do so.
    Now we can understand why Republicans are working so hard 
to shield these profitable companies from a 15 percent tax 
minimum. Last year U.S. multi-nationals booked $325 billion in 
profits in the top 7 offshore tax havens. This contrasts with 
their reporting only $50 billion in 7 of the world's largest 
economies where they were doing business. IRS data shows that 
American firms reported far more earnings in the Cayman 
Islands, population 65,000, than they did in China and Canada 
combined.
    Indeed, American multi-nationals reported $60 billion in 
profits in the Cayman Islands in 2019. This, of course, is 
impossible, since the total economic output of the Cayman 
Islands is only $6 billion. Just think about that $60 billion 
on which they paid an effective rate of 6/10 of 1 percent. This 
is a fraud on the American people, pure and simple. And those 
that defend it are aiding and abetting that fraud.
    Thankfully, because of the leadership of Secretary Yellen, 
the Biden Administration has been a leader. They have led the 
world, more than 140 countries, in what even the Wall Street 
Journal has reported as the most important tax deal to be 
agreed upon by such a large group of countries within a 
century. In none of the top 10 countries where U.S. multi-
nationals employ workers are they paying less than a 20 percent 
tax rate, and in none of the 10 countries where they book their 
profits do they pay more than 7 percent, with rates going down 
to the 6/10 of 1 percent in the Caymans.
    Mr. Plowgian, what is required to stop this outrage and 
this fraud on small businesses and individual American 
taxpayers?
    Mr. PLOWGIAN. One straightforward way to address the issue 
of profit shifting in--by multi-nationals would be to reform 
our GILTI rules so that they apply on a country-by-country 
basis. The current law, GILTI, applies on a globally-blended 
basis, which means that foreign tax credits for taxes paid in 
high-tax jurisdictions shield the profits in low-tax 
jurisdictions.
    Mr. DOGGETT. And how would other countries increasing their 
taxes to make these multi-nationals pay at least 15 percent 
minimum tax, how would that actually make America more 
competitive?
    Mr. PLOWGIAN. Yes, it makes America more competitive in 
multiple ways. It allows the U.S. to maintain a robust 
corporate tax system because it prevents the shifting of 
profits offshore and allows the U.S. to tax multi-nationals at 
reasonable rates.
    Mr. DOGGETT. And to compete based on our education system, 
our workforce, our justice system, our national security.
    Thank you so much for your service and your testimony.
    Chairman KELLY. I thank the gentleman. Now I am recognizing 
Mr. Arrington from Texas. Now we are going to go in accordance 
with committee practice. We are going to go on a two-to-one 
questioning.
    Mr. Arrington.
    Mr. ARRINGTON. Thank you, Mr. Chairman.
    Mr. Plowgian, you just said that American companies will be 
more competitive if we tax them at a higher rate. We are at a 
12 percent Global Minimum Tax. And you think it is going to 
make American companies more competitive to levy more taxes--
taxes, by the way, corporate taxes that are passed through in 
higher cost of goods and services to consumers, which will 
exacerbate inflation. It will also impact wages by reducing 
wages and income.
    So, tell me again how America is more competitive if we 
increase taxes on American companies, just kind of taking off 
where you all left off in the last Q&A.
    Mr. PLOWGIAN. Right, right, thank you. So Pillar Two levels 
the playing field for U.S. multi-nationals, which were up to 
this point, the only multi-nationals that face a minimum tax on 
their foreign earnings.
    Pillar Two ensures that all multi-nationals, wherever they 
are headquartered, wherever they operate, are subject to a 
minimum level of tax.
    Mr. ARRINGTON. Shouldn't other sovereign nation states 
decide what their tax system should be, and what their 
international tax policy should be? Why are we--why do we need 
this one world order of tax regime?
    Well, let me ask you a more direct question. You had 
Democrat control of the Senate, Democrat control of the House 
in last Congress, and a Democrat President. Did you increase 
the Global Minimum Tax from 12 to 15 percent in the Democrat--
all Democrat, total partisan Democrat tax policy--that is, the 
so-called Inflation Reduction Act, did you raise the Global 
Minimum Tax?
    Mr. PLOWGIAN. Changes consistent with Pillar Two were 
passed in the House, and were----
    Mr. ARRINGTON. Did you raise the tax rate from 12 to 15? It 
is a simple question.
    Mr. PLOWGIAN. And they were close to being passed in the 
Senate----
    Mr. ARRINGTON. Did it pass from 12 to 15, yes or no?
    Mr. PLOWGIAN. But one of the concerns that was raised 
with----
    Mr. ARRINGTON. Just----
    Mr. PLOWGIAN [continuing]. Other countries----
    Mr. ARRINGTON. Listen, if I may, if I may reclaim my time, 
you won't answer the question. It is a simple question. And if 
the American people were sitting here wondering why in the 
world we would allow our companies to be less competitive in 
the global market, and why we would cede our sovereignty in 
terms of tax policy to other countries along with our tax 
base--what you are doing is a backdoor coercive strategy to 
force Congress to have to raise taxes from the 12 percent 
Global Minimum Tax to the 15.
    If we don't, here is what you are setting up. Here is what 
the Biden Administration is setting up. Other countries will 
tax not just U.S. operations in their jurisdiction, they will 
tax U.S. companies. They will take our revenue to support their 
policies, their programs, their people without any say, without 
any say in the matter.
    Well, I guess they did have a say. They rejected the Global 
Minimum Tax increase. They rejected it, even with Democrat 
control. And in addition to other countries, this is the set-
up, this is the back door scheme. They not only take the taxes 
from this country--and JCT says, in one estimate, $56 billion, 
$56 billion--are you going to tax more to offset that loss? 
President Biden's budget includes almost $5 trillion of new 
taxes. So we are going to tax the American people more?
    I think the most outrageous aspect of this whole thing--not 
to mention the fact that we have pleaded with you all to 
consult with Congress, and we got nothing, no response--is the 
fact that the tax base will be ceded to foreign jurisdictions 
for their people, their programs, and their policies, that we 
will subsidize, that United States hardworking taxpayers will 
subsidize, but we will also undermine our sovereignty.
    We have set policy, Mr. Chairman and Ranking Member. We 
have set policies. Whether I agree with them or not, they are 
the law of the land, and they are tax policies to incentivize 
behavior like we want to encourage investment in R&D or the 
Work Opportunity Tax Credit. That is--so if a company takes 
their liability lower than 15 percent because they are taking 
advantage of the Work Opportunity Tax Credit to help veterans, 
to help people on food stamps and other public assistance to 
get jobs, they are penalized for that because of the top-up 
tax.
    This thing is completely off the rails and upside down. It 
is absurd, and it is demeaning to the Tax Policy Subcommittee 
that you didn't even respond to our request for consultation.
    I apologize. Thanks for the indulgence.
    Chairman KELLY. That is okay, that is okay. You are 
deserving of the indulgence. Thank you, Mr. Arrington.
    Now the gentleman from Georgia, Dr. Ferguson, is recognized 
for five minutes.
    Mr. FERGUSON. Thank you, Mr. Chairman.
    Mr. Plowgian, I will start with a simple question. Why do 
you think that you and your colleagues in the Administration 
are so gifted and talented that you can override the 
Constitution and write tax policy and usurp our authority 
there?
    Mr. PLOWGIAN. I do not think that.
    Mr. FERGUSON. Well, good. Then you should stop doing it.
    Tax policy belongs with this committee of jurisdiction, not 
a rogue administration running out and cutting deals with 
foreign countries that make America less competitive. This 
whole notion that somehow or another we need to be in bed with 
the same tax rate as the rest of the world is absolute lunacy. 
It is lunacy. Our mission, our goal every single day should be 
defending those things that make America great, and making sure 
that we are the most competitive place in the world to invent, 
innovate, manufacture, and sell around the globe.
    Americans today really care about their jobs and being able 
to provide for their families. Americans today care about being 
able to afford a decent, safe place to live. Americans today 
really care about their kids' education. And most importantly, 
they care about their freedoms, deeply. And our entire 
philosophy should be around preserving those four things, not 
putting us on par with a bunch of other countries that don't 
share our values or our competitive nature.
    Why in the world would you allow countries with higher and 
more generous R&D credits have an advantage over Americans? Why 
would you do that?
    Mr. PLOWGIAN. Congressman, we share your concerns about 
making sure that America remains a competitive place to do 
business. In fact, we think it is the best place in the world 
to do business. Pillar Two is about leveling the playing field 
for U.S. businesses.
    Again, Pillar Two----
    Mr. FERGUSON. Leveling the playing field for U.S. 
businesses? Wait a minute. We are about the American people, 
the American workers, and American businesses and innovators 
and creators. We are not about leveling the playing field with 
the rest of the country. We are about being number one day in 
and day out.
    This whole business of leveling the playing field is a--it 
is a farce. We are either going to be number one in the world 
or we are not. I don't want to be number one tied with 5 other 
countries or 20 other countries. We need to be number one. We 
need to be doing things that increases productivity, that 
allows Americans to have better jobs. We need to be doing 
things that allow Americans to live in decent, safe housing. We 
need to be doing things that make sure that our children are 
educated in a way that can--they can compete on the global 
stage. And we need to be defending our freedoms. The only way 
that we can do that is to have a vibrant, strong economy, and 
we should be drawing treasure from around the world, not 
sending our treasure across our borders.
    How in the world can you justify sending American tax 
dollars to foreign jurisdictions?
    How can you justify France being able to tax a U.S. 
company? That is absolutely crazy. We have real problems. We 
have real challenges in making sure that we can meet the needs 
of the American people, and all of a sudden you are going to 
suck billions of dollars of taxes out of the U.S. economy and 
send it to people that don't necessarily share our values. Why 
in the world would you do that?
    Mr. PLOWGIAN. I share your concerns.
    Mr. FERGUSON. I don't care if you share them or not. I 
don't care if you like them or not. I am asking you, why would 
you do it?
    Mr. PLOWGIAN. We believe that, on a level playing field, 
American businesses and American workers will win. We believe 
that, when there is a level tax playing field, U.S. businesses 
will be able to compete and win. We believe----
    Mr. FERGUSON. How--wait, stop. Stop right there, sir. Let 
me reclaim my time.
    How is--again, I don't think this is leveling the playing 
field. I think this puts us behind the eight ball, and here is 
why. If all of a sudden, here in America, if we are sending our 
tax dollars overseas, and our spending continues to go up 
because we have got some real challenges with the population, 
if we continue to go down that road then we are going to have 
to tax our traditional taxpayers more. It is going to put more 
of a burden on our job creators and our American workers. As 
that happens, our productivity goes down, our ability to invest 
in new technologies and training goes down. We don't have the 
resources to take care of our most vulnerable. The only way you 
can do it is to raise taxes. As you raise taxes, that makes us 
less competitive.
    I do not see the logic. I do not understand how in the 
world that you can go through the mental gymnastics--you or 
anybody else in the Administration--to land where you have. If 
you are taking revenue out of the U.S. and delivering it to 
other countries, then how does that help us meet the needs of 
the American people?
    Mr. PLOWGIAN. Pillar Two reduces the incentive to shift 
profits offshore, and it allows the U.S. to maintain a robust 
corporate----
    Mr. FERGUSON. But you didn't really care about that a 
couple of years ago. You didn't really fight for GILTI. As a 
matter of fact, you kind of delayed everything, putting us 
behind the eight ball.
    I would ask you to do this. Think about the things that 
American families wake up and think about every day: a job, a 
house, an education for their kids, safety, and security, and 
think about the freedoms that we have. And ask yourself, does 
this policy make--put--advance those goals or not? And the 
answer is no.
    With that, Mr. Chairman, I yield back.
    Chairman KELLY. I thank the gentleman. The gentleman from 
Connecticut, Mr. Larson, is recognized for five minutes.
    Mr. LARSON. Thank you, Mr. Chairman.
    And Mr. Plowgian, thank you, and I hope you get to speak 
now. We have heard a lot of speeches.
    I didn't think we were going back to isolationism, but 
apparently that is the new road that we are setting out on, is 
that we are going to stand isolated and alone.
    Also, just for the record, you know, about the Democratic 
majorities. They have this body called the Senate and they have 
something called the cloture vote. I am sure all of you are 
aware of that, where it takes 60 votes. Where in the 
Constitution does it say you need 60 votes to pass a bill? But 
Mitch McConnell swears by that, that that is exactly what is 
needed for things to happen and transpire. The House of 
Representatives should wake up. More than 500 of our bills, 
Democrat and Republican and non-partisan, don't get taken up in 
the United States Senate--I wish the press would write about 
that--because of the cloture vote. So let's have that for the 
record.
    Now, Mr. Plowgian, apparently in the age of isolationism, 
apparently the United States exists alone in a global economy. 
And these other 50 countries, as has been articulated by Mr. 
Thompson and was also articulated by Mr. Doggett, are they 
simply going to--if nothing happens, if the United States 
doesn't approve this, does Pillar Two just simply goes away?
    Mr. PLOWGIAN. No, Congressman, that is not what would 
happen. There are jurisdictions that have already implemented 
Pillar Two, South Korea and Japan being two of those. And all 
EU member states----
    Mr. LARSON. South Korea and Japan. Are they pretty active 
economies?
    Mr. PLOWGIAN. They are.
    Mr. LARSON. Oh, all right. And so South Korea and Japan. 
What other economic impacts would that mean?
    Mr. PLOWGIAN. Well, the----
    Mr. LARSON. Because we want to be isolationist, right?
    Mr. PLOWGIAN. Right. All EU member states are also 
obligated to implement Pillar Two, and most have legislation at 
this point. And there are many of our other major trading 
partners--the UK, Canada, Australia--that are moving forward--
--
    Mr. LARSON. UK, Canada, Australia.
    Mr. PLOWGIAN [continuing]. As well.
    Mr. LARSON. Boy, those sound like awful partners for us. Do 
you really--you know, don't you think we ought to isolate from 
them, and--no?
    Mr. PLOWGIAN. I don't think so, Congressman. I think we 
need to be at the negotiating table in order to represent U.S. 
interests in these discussions. And as you know, the 
Administration has proposed reforms to implement Pillar Two in 
the United States, as well.
    Mr. LARSON. And you kept on talking about a level playing 
field and allowing the U.S. to compete. How is that to our 
advantage, especially given this great nation of ours and our 
ability, as is demonstrated in the global economy, to compete?
    Mr. PLOWGIAN. Absolutely. So up to now, U.S. multi-
nationals have been the only multi-nationals that are subject 
to a minimum tax on their foreign earnings. Now, under Pillar 
Two, all multi-nationals, wherever they are headquartered, 
wherever they operate----
    Mr. LARSON. So previously it was only U.S. internationals, 
and now everyone is subject to that. Hmm, that seems like it is 
leveling the playing field to me.
    Mr. PLOWGIAN. It does. And we believe that U.S. businesses 
will be able to compete and win in that environment.
    It also levels the playing field for small businesses and 
purely domestic firms who cannot shift their profits offshore 
to avoid paying tax, and so they can compete better----
    Mr. LARSON. And why is that important?
    Mr. PLOWGIAN. That is important because they also need to 
be able to compete and grow our economy. Small businesses are 
major employers in the U.S., and that benefits American 
workers.
    Mr. LARSON. So it is the small businessman that really is 
going to be advantaged as much as the large multi-national is 
going to be advantaged through competition, as well, because it 
will be the first time that the other global multi-nationals 
will be subject to the same tax. Is that correct?
    Mr. PLOWGIAN. That is correct.
    Mr. LARSON. And that is why the Administration is pursuing 
this policy----
    Mr. PLOWGIAN. That is----
    Mr. LARSON [continuing]. For business in general to level 
the playing field and allow the United States to compete and 
succeed and to grow jobs and grow this economy.
    Mr. PLOWGIAN. That is exactly right.
    Mr. LARSON. Thank you. I yield back.
    Chairman KELLY. Thank you. I now recognize the chairman of 
the Ways and Means Committee, Mr. Smith.
    Chairman SMITH. Let me begin by thanking Chairman Kelly for 
allowing me here, and for your leadership. We are incredibly 
grateful that you are at the realm [sic] of this committee with 
your experience, your knowledge, and your passion. And I am 
glad to have you leading our tax-writing committee.
    Mr. Plowgian, no one in the Biden Administration has the 
power to write U.S. tax policy. The Supreme Court has said that 
the power to tax involves the power to destroy. It is among the 
most solemn responsibilities of government, and, under the 
Constitution, it is strictly controlled. The power to tax 
demands the highest level of accountability to the American 
people, especially when masses of jobs are at risk. And, while 
every member seated here today is accountable to voters, you 
and Secretary Yellen are not.
    I have eight specific questions on Treasury's engagement 
with the tax-writing committees over the OECD negotiations, and 
I ask that you please just answer yes or no.
    Was Congress consulted prior to Treasury agreeing to a UTPR 
surtax that would allow foreign governments to tax the U.S. 
operations of U.S. companies?
    Mr. PLOWGIAN. We did receive input from Congress on the 
UTPR during the----
    Chairman SMITH. So that is a yes.
    Mr. PLOWGIAN [continuing]. Negotiations.
    Chairman SMITH. That is a yes?
    Mr. PLOWGIAN. We did receive input from Congress, yes.
    Chairman SMITH. Okay. I have followed this issue very 
closely over the past three years, and I don't think that is 
the case. I know that Treasury has never consulted with 
Republican members prior to a decision. And unless you would 
like to revise your testimony, please provide to this committee 
in writing the date of the consultation, the names of Treasury 
personnel involved, and the names of Members of Congress that 
Treasury met with. Can you give me that information?
    Mr. PLOWGIAN. We get input from Congress in many different 
ways, from hearings----
    Chairman SMITH. Can you give me that information?
    Mr. PLOWGIAN [continuing]. From letters, from consultation 
with staff, as well.
    Chairman SMITH. Yes or no, can you provide this committee 
that information?
    Mr. PLOWGIAN. I do not have that information currently.
    Chairman SMITH. So how do you know what you just testified 
before Congress is accurate?
    Mr. PLOWGIAN. We receive input from Congress in multiple 
ways, as I said, through----
    Chairman SMITH. What are those multiple ways, and from what 
Members?
    Mr. PLOWGIAN. Through hearings, through letters from 
Congress from Members.
    Chairman SMITH. What hearings?
    Mr. PLOWGIAN. Treasury is called before House Ways and 
Means. Secretary Yellen has testified before Ways and Means.
    Chairman SMITH. Testified after she made the negotiations 
in regards to it.
    Mr. PLOWGIAN. We receive letters from Members, as well.
    Chairman SMITH. Let me ask you another question. Was 
Congress consulted prior to Treasury accepting this recent 
offer by foreign countries to delay the UTPR surtax by just one 
year?
    Mr. PLOWGIAN. Again, we received input from Congress and 
from taxpayers with concerns----
    Chairman SMITH. You did not consult with the chairman of 
the tax-writing committee. So who did you consult with?
    Mr. PLOWGIAN. We received input from the tax-writing 
committees on the UTPR, and concerns about----
    Chairman SMITH. No one from our committee on the Republican 
side. So was it only the Democrat side you spoke with?
    Mr. PLOWGIAN. We speak with staff of the tax-writing 
committee on a bipartisan basis on a regular basis.
    Chairman SMITH. Did you, in regards to this delay for one 
year, did you speak to the majority in the tax-writing 
committee of Ways and Means?
    Mr. PLOWGIAN. We received input on concerns about the UTPR 
and concerns about application of the UTPR to parent 
jurisdictions, especially in the early years of----
    Chairman SMITH. You received letters from us----
    Mr. PLOWGIAN [continuing]. The Pillar Two.
    Chairman SMITH [continuing]. But did you consult with us 
before this decision? Yes or no.
    Mr. PLOWGIAN. We speak with the tax-writing committees on a 
regular basis.
    Chairman SMITH. Well, I am the chairman of this committee, 
and it is almost crickets. So you might want to do a little bit 
better in regards to that.
    Was Congress consulted prior to Treasury agreeing that the 
U.S. R&D credit would be disadvantaged versus the R&D credits 
of other countries like the UK?
    Mr. PLOWGIAN. I cannot speak to that decision. This has 
been an ongoing process for multiple years, and that is a 
longstanding distinction in the Pillar Two rules.
    Chairman SMITH. Yes, it is pretty detrimental to U.S. 
businesses. Were you part of the negotiation?
    Mr. PLOWGIAN. I joined--rejoined Treasury in October of 
2021. The Pillar Two negotiations have been going on since 
2018.
    Chairman SMITH. So since 2021, when you were in the 
negotiations, R&D hasn't been discussed around you?
    Mr. PLOWGIAN. We have raised the R&D credit as an important 
issue in the negotiations.
    Chairman SMITH. Did anyone in Congress sign off on the 
decision to give generous refundable corporate tax credits and 
Chinese state subsidies an advantage over more typical tax 
incentives like those enacted by Congress on a bipartisan 
basis? Yes or no?
    Mr. PLOWGIAN. Again, I was not part of the negotiations 
when that decision was made. That has been an issue in the 
Pillar Two negotiations. That is longstanding.
    Chairman SMITH. Can you find that answer out for me?
    Mr. PLOWGIAN. I will check on that and come back to you.
    Chairman SMITH. I would love that to be submitted.
    Did Treasury consult with Congress prior to Treasury 
conceding that the U.S. GILTI rule would not receive full 
grandfathering status as the only Global Minimum Tax in the 
world? Yes or no?
    Mr. PLOWGIAN. I was not part of the negotiations at that 
juncture.
    Chairman SMITH. So once again, can you provide me the 
answer to that question with whoever at Treasury that was?
    Mr. PLOWGIAN. I will check on that.
    Chairman SMITH. Did anyone in Congress sign off on 
Treasury's decision to surrender U.S. tax revenues from GILTI 
and Subpart F because of the OECD's preference for local 
corporate minimum taxes?
    Mr. PLOWGIAN. You are speaking about the qualified domestic 
minimum taxes. So we, again, received input on that. The 
qualified domestic minimum taxes are consistent with all 
international tax rules that provide the primary taxing rights 
to a jurisdiction when it taxes its residents on income that 
arises----
    Chairman SMITH. I understand what it is.
    Mr. PLOWGIAN [continuing]. In that jurisdiction.
    Chairman SMITH. But my question was did anyone in Congress 
sign off on Treasury's decision?
    Mr. PLOWGIAN. Again, we receive input from Congress in many 
ways.
    Chairman SMITH. Once again I ask, unless you would like to 
revise your testimony, please provide to the committee in 
writing the date of the consultation with the Members of 
Congress, the names of Treasury personnel involved, and the 
names of Members of Congress that Treasury met with.
    Did anyone in Congress sign off on the decision for a 15 
percent Global Minimum Tax rate to replace the 12 to 13 percent 
rate that the OECD was considering prior to President Biden 
taking office?
    Mr. PLOWGIAN. I was not part of the negotiations at that 
stage.
    Chairman SMITH. Can you get that information for the 
committee?
    Mr. PLOWGIAN. I will check on that.
    Chairman SMITH. Was Congress consulted prior to Treasury 
agreeing on the scope of the Pillar One profit allocation, 
which skews heavily against U.S. companies while exempting 
their foreign-headquartered competitors?
    Mr. PLOWGIAN. I am sorry. What was the question?
    Chairman SMITH. Was Congress--once again, was Congress 
consulted prior to Treasury agreeing on the scope of the Pillar 
One profit allocation which skews heavily against U.S. 
companies while exempting their foreign-headquartered 
competitors?
    Mr. PLOWGIAN. I don't think that it exempts foreign MNEs 
under Pillar One, so I am not sure I understand the----
    Chairman SMITH. From my understanding----
    Mr. PLOWGIAN [continuing]. The question.
    Chairman SMITH [continuing]. It does. So would you be 
opposed to it if it did not exempt those foreign-headquartered 
competitors?
    Mr. PLOWGIAN. Sorry, I don't----
    Chairman SMITH. Would Treasury be opposed to it?
    Mr. PLOWGIAN. I don't think that it does exempt foreign-
headquartered multi-nationals in Pillar One.
    Chairman SMITH. So in regards to Pillar One profit 
allocation period, did Treasury consult with any Members of 
Congress?
    Mr. PLOWGIAN. We continue to consult with Congress about 
Pillar One. Pillar One remains open. There are many open issues 
on Pillar One.
    Chairman SMITH. So it goes back to my simple question. You 
said yes, you have. I would love for you all to provide in 
writing to this committee who you consulted with, what members 
of Treasury that consulted with us, and what date.
    If Treasury had consulted with Congress, we would have 
avoided the multitude of Biden Administration losses in the 
OECD negotiations.
    My final question: Most observers are skeptical that China 
will ever truly comply with this OECD agreement. Secretary 
Yellen recently traveled to China to meet with the Chinese 
Communist Party officials. During that trip was she able to 
obtain commitments from China that it would adopt the OECD 
agreement and implement it fairly?
    Mr. PLOWGIAN. Secretary Yellen did meet with her Chinese 
counterparts, and in an attempt to reset the relationship with 
China. I do not know whether they spoke about Pillar Two, but 
the UTPR is an important part of Pillar Two that ensures that 
China and other jurisdictions do not gain an advantage if they 
do not adopt Pillar Two. And that is why the UTPR is an 
important part of Pillar Two. It ensures--it provides an 
enforcement mechanism that ensures that Chinese multi-nationals 
will be subject to the same minimum tax as other multi-
national----
    Chairman SMITH. We know China is really not that great of 
following rules and agreements. We have seen that with our 
country. That is why I was hopeful that the Treasury Secretary, 
in her long visit to China, would definitely have talked to 
them about whether they would adopt OECD and the agreement and 
implement it fairly. Since it is so important, I figured that 
would be top of her list.
    Whether by manipulating financial statements or by creating 
new state subsidies, China will find ways to evade these OECD 
rules. And allowing CCP-supported companies to gain a 
competitive advantage against the United States is yet another 
failure in these negotiations by the Biden Administration.
    I yield back, Mr. Chairman.
    Chairman KELLY. Thank you, Chairman Smith. I now recognize 
Mr. Hern from Oklahoma.
    Mr. HERN. Thank you, Mr. Chairman, for holding this 
important meeting.
    Mr. Plowgian, I want to piggyback a little bit off what the 
chairman had to talk about, but I am glad to hear you have been 
here for a year-and-a-half, so we know we are talking to the 
person that would have the answer. So I appreciate the chairman 
asking you for resolve in the conversations that you have 
specifically had or your team has had with Congress or with 
Ways and Means, specifically the tax-writing committee that you 
are speaking to today.
    You mentioned that you and--the chairman mentioned about 
responding in writing. In November of last year, Chairman--or 
Ranking Member Brady and I wrote a letter together asking you 
for modeling data and estimates on how U.S. companies and 
Federal tax revenue would be impacted by the OECD Pillar One 
agreement, and how does the Treasury plan to achieve 
ratification of an MLC by December 31 without sharing essential 
information with the Congress that has not been involved in the 
Treasury's unilateral negotiations.
    I know you say you have talked about this, I mean, the 
response to the November letter by myself and Ranking Member 
Brady and then again from myself solely in March of this year. 
I mean, the responses could be, you know, what do you want for 
Christmas. They were not responding to the letters at all. So I 
am not sure who is writing you letters. I find it hard to 
believe, until you prove us all differently, that you have been 
dialoging with the committee that has jurisdiction over this in 
Congress.
    I am asking again. Please share these projections with the 
Ways and Means Committee. And will you commit to sharing this 
information?
    I will be nice, but, you know--there wasn't a timeframe put 
on it, but within 30 days. That is not too much to ask.
    Mr. PLOWGIAN. Congressman, first of all, I want to say that 
Pillar One cannot be approved without congressional support.
    Mr. HERN. Oh, we are keenly aware of that. But I am just 
asking why couldn't you have responded to the letters in 
November and March of this year?
    Mr. PLOWGIAN. There are open issues that I mentioned in the 
Pillar One discussions. And specifically, those open issues as 
mentioned in the outcome statement last week that was issued by 
the inclusive framework relate to issues that have to do with 
the economics of Pillar One, and specifically issues around how 
the Pillar One taxing right is coordinated with the existing 
international tax system.
    So, for example, there are issues around how much should 
existing taxes offset the Pillar One taxing right. There are 
questions about how withholding taxes imposed by jurisdictions 
should be treated. There are questions about what is the 
threshold for residual profits on which the Pillar One taxing 
rights should be made.
    And so the Pillar One agreement is not complete, and we are 
concerned that providing estimates would not provide Congress 
with a complete picture of the Pillar One negotiations.
    Mr. HERN. So, Mr. Plowgian, again, following up on what the 
chairman said about China and its--and actually, I asked 
Secretary Yellen this specifically sitting in your seat when 
she was here last. What assurances do we have that China is 
going to follow these model rules to do the things that you are 
talking about as you related to the UTPR?
    What are the punishments?
    You know, Secretary Yellen went to China and said the world 
is big enough for both of us to play in in a level playing 
field. Do we honestly believe, based on our relationship right 
now with China, that they are going to play by the rules when 
their whole mission in life, as stated by the president of 
their country, the general secretary of the communist Chinese 
people, has said time and time again that their goal in life is 
to become the number-one nation in the world, both economically 
and militarily, do we honestly think that their goal in life is 
to be on a level playing field with us?
    Mr. PLOWGIAN. Well, we know, Congressman, as you suggest, 
that China does often try to undermine or circumvent 
international institutions, international partnerships and 
agreements. And we go into negotiations with our eyes open 
about that.
    Mr. HERN. So we don't have a--we don't have any way to be 
punitive to that.
    I just want to say a couple last things here, and then I 
will yield back.
    You know, the EU Tax Observatory released an EU-funded 
report this month that goes into detail on the country-by-
country breakdown of covered groups and their Amount A profits. 
Treasury's argument that any release of impact analysis or 
modeling data--would undermine current negotiation is a facade, 
and is not sufficient for the tax writers on this committee. Do 
you have a better reason for not complying with my request?
    You just alluded to the fact that there was--it was 
incomplete, but you didn't share it quite like that. Could 
you--do you have any way of fulfilling my request?
    Mr. PLOWGIAN. Once again, there are open issues in the 
Pillar One negotiations. Once we can resolve those issues, we 
plan to share estimates with Congress.
    Mr. HERN. And you will follow up in writing to the 
questions that we asked in those letters, both Kevin Brady and 
myself, and then again me. I would really appreciate those in 
writing, as the chairman said.
    I yield back.
    Chairman KELLY. Thank you, Mr. Hern. Now we recognize the 
gentlelady from California, Ms. Sanchez, for five minutes.
    Ms. SANCHEZ. Thank you, Mr. Chairman.
    Today, Republicans are once again demonstrating their 
unfailing commitment to shielding large corporations from 
paying their fair share in taxes. Rather than working towards 
real solutions, Republicans want to let massive multi-national 
corporations move their profits to no-tax or low-tax 
jurisdiction so that they can avoid paying their fair share. 
And rather than working towards real solutions, Republicans are 
willing to put nearly nine million U.S. workers out of a job.
    In contrast, Democrats recognize that we must remove 
profit-shifting incentives from our international tax system. 
We support the Biden Administration's work to protect domestic 
tax incentives. Those incentives include many of the Inflation 
Reduction Act's green tax credits that represent the largest 
single climate investment in American history. Protecting those 
green energy tax incentives would deliver lower costs for 
working families and take a huge step in the right direction in 
protecting our planet. And anybody who doubts that we are in 
dire need to protect our planet only must look to the extreme 
heat that we are currently experiencing to understand what 
exactly is at stake.
    I want to focus on a crucial part of the Inflation 
Reduction Act, which are the transferable tax credits. Firms 
that don't have the tax capacity to claim non-refundable 
credits can still benefit from the IRA's transferable credits 
spurring green energy development. The OECD guidance released 
on Monday was certainly favorable on the transferable credits 
issue. This is going to help protect billions of dollars that 
Democrats invested in clean manufacturing, for instance.
    Assistant Secretary Plowgian, thank you for being here. 
Despite the way that you have been badgered a bit, you are 
answering, I think, as honestly as you can. And I just want to 
say I assume that the favorable guidance on the transferable 
credits wasn't a result of your staying home and watching 
reruns of the Golden Girls. So, I want to thank you for your 
service, and I want to thank you for taking multiple trips 
across the Atlantic to advocate on behalf of the United States 
in these negotiations.
    I think it is important for the committee to get a sense of 
the type of work that goes into your advocacy here on behalf of 
the United States. Can you describe some of the opposition that 
you faced, and how did the United States' persistence at the 
negotiating table pay off?
    Mr. PLOWGIAN. Thank you, Congresswoman. Yes, so this was an 
issue on which we received a lot of input from Congress and 
from U.S. businesses about the importance of these credits and 
their treatment under Pillar Two.
    As you suggest, approximately nine months ago many 
countries opposed treating transferable credits as refundable. 
There were a few allies early on who were very important to 
building momentum, but the majority view was, you know, deep 
skepticism of this position. The process of changing the view 
in the room is really a multi-pronged one.
    So Secretary Yellen spent time with her counterparts 
explaining the importance of these credits economically and 
from a climate perspective, as well. International affairs 
engaged with their counterparts in other countries. The rest of 
the Administration engaged, as well. I certainly spent time 
with the lead tax negotiators from key jurisdictions building 
support.
    And then my team and--I just cannot say enough good things 
about my team. They have been amazing and tireless through this 
whole process. They have to convince negotiators that our 
position is the right policy one, the right technical one, and 
come up with a technical solution. They have been working 
nights, weekends, holidays, early mornings, and just really 
have been tireless and amazing throughout the entire process.
    And of course, none of that would have been possible if we 
were not at the table in the inclusive framework representing 
U.S. interests in these discussions.
    Ms. SANCHEZ. And how favorable was that ultimate guidance 
to U.S.?
    Mr. PLOWGIAN. I think it was very favorable. So it 
addressed two main issues for the originators of these credits, 
the taxpayers who engage in the projects that give rise to the 
credits. It treats the credits as refundable, meaning that they 
are treated as income, rather than as a reduction in tax 
expense, which helps protect the value of the credits. With 
respect to the purchasers, they treat just the net amount--so 
the difference between the value of the credit and the amount 
paid for the credit--as a benefit, and that was a huge request 
from stakeholder community with respect to these credits.
    Ms. SANCHEZ. Again, I thank you for your service.
    And I yield back.
    Chairman KELLY. I thank the gentlelady. I now recognize the 
gentleman from Kansas who is celebrating his birthday today.
    Mr. Estes, five minutes, please.
    Mr. ESTES. Thank you, Mr. Chairman. And I am grateful you 
are holding this hearing. We need to take every opportunity to 
remind the Biden Administration that the Constitution provides 
that Congress, not the executive branch, with the sole 
authority to lay and collect taxes.
    With that in mind, I introduced legislation with Chairman 
Smith last night that builds upon the first retaliation [sic] 
bill that we passed, or that we dropped in May. It increases 
the exposure that foreign companies have on Base Erosion and 
Anti-abuse Tax, the so-called BEAT, if their home country 
introduces the OECD's so-called Undertaxed Profit Rule, or 
UTPR. I just want to jump right into questions.
    Mr. Plowgian, do you think U.S. businesses should pay more 
taxes to other countries?
    Mr. PLOWGIAN. First of all, Congressman, happy birthday.
    Mr. ESTES. Thank you.
    Mr. PLOWGIAN. I think it is important to, as I have 
mentioned, level the playing field for U.S. businesses. And 
Pillar Two does level that playing field by ensuring that other 
countries' multi-nationals pay a minimum level of tax, as well.
    Mr. ESTES. So I think a level playing field, a more level 
playing field would be introduce GILTI and BEAT in other 
countries' tax codes, as opposed to this process.
    With the addition of the UTPR, I mean, the 10-year 
projections are that the U.S. Treasury will lose $120 billion 
and that corporations, U.S. corporations, will pay more in 
taxes that will go to other companies and--or other countries. 
I am trying to understand why the Administration would do a 
deal that would take taxes over a 10-year period out of the 
U.S. Treasury, and it would cause U.S. businesses to have to 
pay more in taxes.
    I mean, what value do we get out of that over the 10-year 
period that--I mean, my colleague, Mr. Schweikert, talked about 
the first two years, as you would mentioned. But over this 10-
year estimate from JCT, it is $120 billion loss of Treasury--to 
the Treasury if we do not change our laws. And if we do change 
our laws, it is almost a $60 billion loss to the U.S. Treasury.
    Mr. PLOWGIAN. Well, I think it is important to look at the 
JCT analysis as an entire picture, right?
    So as I mentioned, the JCT analysis describes its baseline 
as being 40-plus jurisdictions that it has identified that have 
announced plans to implement Pillar Two, and what would happen 
if those jurisdictions implement Pillar Two and the U.S. does 
not. And that is a, as I mentioned, a $400 billion swing, 
depending on the profit shifting assumptions that JCT uses.
    And again, the midpoint of that range is an increase in 
U.S. tax revenue from other countries implementing Pillar Two.
    Mr. ESTES. So what--but what the JCT projected is that we 
would--that the U.S. Treasury would lose roughly $120 billion, 
and that is the piece that concerns us the most when we look at 
UTPR and the impact on this.
    And so let me go--we have limited time, let me go. The next 
question on there is why didn't Treasury focus on getting 
credit, full and complete credit, for the current U.S. tax 
code? Things like an R&D depreciation, and GILTI, and BEAT, and 
some of the other provisions that are in the current U.S. tax 
code? Why wasn't that included in the complete negotiations 
through this process?
    Mr. PLOWGIAN. Well, I can't speak to the negotiations prior 
to when I rejoined Treasury. This has been an ongoing process 
for several years.
    One of the things that is clear from the Pillar Two 
blueprint is that a common tax base was needed in order to be 
able to have a level playing field among jurisdictions. And so 
that is why--as far as I understand it, that is why a financial 
accounting tax base was adopted for Pillar Two purposes.
    Mr. ESTES. But you are supportive of those provisions that 
were negotiated before you came on board. Otherwise, you would 
work to correct those. So you believe they are okay?
    Mr. PLOWGIAN. We are engaged in ongoing discussions on 
Pillar Two. And again, I think it is very important for us to 
continue to be engaged in those negotiations. We think it is 
important to take congressional input into those negotiations 
to interpret the rules under Pillar Two.
    Mr. ESTES. So I am glad to hear you say that, because I 
think there is a strong consensus not just in this committee, 
but across the country, and certainly in the taxpaying 
community, that provisions such as UTPR are something that we 
don't want to agree with going forward, and that it is punitive 
and anti-American in terms of the approach, that it misses 
that.
    And so there is going to be some additional work done 
before this is ever implemented. Thank you.
    And my time is expired, and I will yield back, Mr. 
Chairman.
    Chairman KELLY. I thank the gentleman. I now recognize Mr. 
Kustoff from Tennessee.
    Mr. KUSTOFF. Thank you, Mr. Chairman.
    Thank you, sir, for appearing today. I kind of want to 
follow back up on Mr. Estes's question about JCT, and maybe Mr. 
Arrington's.
    So we have heard the JCT estimate about the loss of $120 
billion. You have disputed that, or you gave your argument 
against that. Has Treasury presented its argument to JCT to 
challenge their assumption?
    Mr. PLOWGIAN. Well, Congressman, I am not challenging JCT's 
assumptions. All I am doing is pointing out the totality of 
JCT's analysis, which, again, assumes a baseline of 40-plus 
jurisdictions implementing Pillar Two, and then analyzes five 
scenarios. And in each of those, again, adoption of Pillar Two 
by the U.S. increases U.S. tax revenue as compared to not 
adopting.
    But I do think it is important to take into account the 
baseline adoption by 40 major economies in the world and many 
of our largest trading partners.
    Mr. KUSTOFF. Well, let me ask it a different way. Do you 
dispute JCT's assertion about the loss of $120 billion?
    Mr. PLOWGIAN. All I am pointing out is that the JCT 
analysis is for multiple scenarios, many of which show U.S. tax 
revenue increases.
    Mr. KUSTOFF. You would agree with me that JCT is non-
partisan, correct?
    Mr. PLOWGIAN. Yes.
    Mr. KUSTOFF. All right. And I asked you a question; I don't 
think I got a direct answer. Treasury has not disputed or gone 
to JCT and disputed their analysis, have they?
    Mr. PLOWGIAN. I----
    Mr. KUSTOFF. Has Treasury disputed that with JCT?
    Mr. PLOWGIAN. I am not aware of Treasury disputing that 
analysis with JCT.
    Mr. KUSTOFF. All right. So let's assume Pillar Two goes 
into effect. What I have heard from different businesses and 
companies is the issue of compliance and compliance cost--I 
mean, a real, practical, pragmatic matter--and if I could, 
Deloitte, from their website, when they talk about Pillar Two--
I want to read you this quote and see if you can help me figure 
it out. ``Completing the new OECD Pillar Two information return 
represents a global undertaking requiring hundreds of data 
points, many of which are complex composites of underlying 
data. The size and complexity of the data requirements are 
further complicated by timing. While in many cases the first 
return has an 18-month lead time following the accounting 
period end, subsequent returns must be filed in less time. So 
even before you complete your first return, you will need to 
make decisions about ongoing compliance and reporting.''
    Mr. Plowgian, has the Treasury Department conducted any 
study or any analysis on the compliance--I must say burden--
compliance burden or cost as it relates to Pillar Two for U.S. 
businesses?
    Mr. PLOWGIAN. We share the concern about compliance burden, 
and this has been a central issue for our team in these 
discussions, and we are seeking to reduce compliance burden 
wherever possible.
    So, for example, there is a country-by-country reporting 
safe harbor for two years that provides that no top-up taxes 
due with respect to a jurisdiction if the country-by-country 
reporting shows an effective tax rate in a jurisdiction above a 
certain threshold. That is intended to provide taxpayers with 
time to phase in their compliance in various jurisdictions, 
focusing first on the highest risk jurisdictions.
    Mr. KUSTOFF. Right.
    Mr. PLOWGIAN. There is also a--in the globe information 
return, so the Pillar Two tax return that was released on 
Monday, there is a five-year transition period that provides 
for jurisdictional reporting as opposed to entity-by-entity 
reporting. That, again, was intended to reduce compliance 
burden for taxpayers by reducing the amount of specific 
information that needs to be provided.
    Mr. KUSTOFF. Thank you, I appreciate the answer. Let me ask 
my question again. Has Treasury conducted any study as it 
relates to the issue of compliance or compliance cost?
    Mr. PLOWGIAN. I am not aware of any such study.
    Mr. KUSTOFF. Okay, fair enough. So, Treasury--let me just 
ask as my time expires--Treasury has no data as it relates to 
the issue of compliance or compliance cost, correct?
    Mr. PLOWGIAN. Again, I am not aware of any study in that 
regard.
    Mr. KUSTOFF. If there was, would you agree to share that 
with this committee?
    Mr. PLOWGIAN. I can check on that and get back to the 
committee.
    Mr. KUSTOFF. Can you let us know, one way or the other, 
whether that exists? Will you agree to that?
    Mr. PLOWGIAN. I will check on that and get back to you.
    Mr. KUSTOFF. Thank you. I yield back.
    Chairman KELLY. I thank the gentleman. I now recognize the 
gentlelady from California, Ms. DelBene, for five minutes.
    Ms. DelBENE. From the great state of Washington, Mr. 
Chairman. Yes, not California. [Laughter.]
    Chairman KELLY. From the great state of Washington.
    Ms. DelBENE. There you go, there you go. Thank you, thank 
you, Mr. Chairman.
    And Mr. Plowgian, thank you so much for being here today 
and for your time. You have highlighted the many reasons why 
the United States needs to stay engaged in the Pillar Two 
negotiations. And, given that the treatment of various tax 
credits has been a key part of the conversation, I wondered if 
you could talk specifically about a particular credit that I 
know has been strongly supported in a bipartisan fashion as 
very supported in our communities, which is the Low-Income 
Housing Tax Credits, and kind of how Pillar Two would treat 
LIHTC.
    Mr. PLOWGIAN. Absolutely. So this was an issue that, when 
the model rules were released, we received input from Congress 
and from stakeholders about the need for additional guidance 
about economic development credits and, in particular, the Low-
Income Housing Tax Credit. And, certainly, the Administration 
has shared those concerns.
    And we have been able, through the negotiations, to secure 
administrative guidance that was released in February that 
provides that what is known as qualified flow-through tax 
benefits are protected under the Pillar Two rules. And what 
that means is that tax credits that are used in tax equity 
partnerships, which are the common structure for investments in 
Low-Income Housing Tax Credits, are protected. They are treated 
as qualified, flow-through tax benefits. And this was 
definitely something that is unique to the U.S., these 
structures.
    And so it took a while to explain, really, to our 
counterparts what these were, why they were needed. But it is 
something that was very important to us. And the LIHTC is the 
largest and most effective Federal program that we have that 
encourages development of affordable housing.
    Ms. DelBENE. Thank you. Thank you very much. Also, we saw 
the announcement last week that more than 130 countries have 
agreed to refrain from imposing Digital Services Taxes for an 
additional year, while work continues on the implementation of 
global tax reform. But Canada was one of five countries who did 
not agree to the moratorium extension.
    Mr. Plowgian, I wondered if you could describe the steps 
that U.S. Treasury and the Administration are taking to address 
the Canadian Government's continued interest in pursuing a 
Digital Services Tax that targets U.S. companies and workers, 
given that this would have serious tax and trade implications 
for us going forward. And so I wondered if you could address 
that, and what steps you might be taking.
    Mr. PLOWGIAN. Absolutely. This is a critical issue. And as 
you stated, the outcome statement, 138 countries joined in 
extending the standstill on DSTs.
    Treasury is engaged with Canada at all levels, including 
Secretary Yellen, to dissuade them from implementing a 
discriminatory DST. The Administration more broadly is engaged 
with Canada, as well, through the interagency process, and 
other agencies have raised this issue with their Canadian 
counterparts.
    Implementation of a DST by Canada would seriously undermine 
the Pillar One negotiations. And as you saw, actually, Canada 
was isolated on this issue. The other countries were not 
necessarily objecting to DST standstill; it was other issues 
that caused them not to join the outcome statement. But, with 
respect to Canada, we are exploring all options, and we would 
like to work with Congress to address that issue.
    Ms. DelBENE. Thank you. Thank you again for being with us 
today.
    I yield back, Mr. Chairman.
    Chairman KELLY. I thank the gentlelady from Washington. I 
now recognize the gentlelady from Texas, Ms. Van Duyne.
    Ms. VAN DUYNE. Well, I appreciate the time, Mr. Chairman.
    I continue to be shocked that this Administration would 
cede U.S. sovereignty to allow other countries to dictate 
changes to the U.S. tax code. And this Administration could not 
convince Congress to pass its extremist tax hike agenda, so it 
has basically given the keys to our tax writers to Paris. You 
know, whoever drafted this plan has to understand that this 
attacks our tax base, our economic strength, and it transfers 
wealth from the U.S. to countries abroad, and it benefits 
countries abroad. It benefits workers abroad, not American 
workers. So we have talked about this, but I am not sure I have 
really gotten an answer.
    So the Joint Commission on Taxation estimates that the U.S. 
would lose over $120 billion in tax revenues. Do you agree with 
that number?
    I mean, you have given reasons why it may or may not, but 
do you agree with how they got to that number?
    Mr. PLOWGIAN. Well, as I have mentioned, the JCT analysis 
looks at multiple scenarios, right?
    And again, I think it is important to look at the baseline 
in the JCT analysis. The JCT analysis baseline is adoption of a 
Pillar Two by 40-plus jurisdictions, many of our largest 
trading partners and major economies. And again, the midpoint 
of their range for the impact of adoption by other countries of 
Pillar Two on U.S. tax receipts is a $25 billion increase in 
U.S. tax receipts.
    Ms. VAN DUYNE. So that is the midpoint. But that is--as you 
mentioned, I mean, they are looking at a number of different 
scenarios, which I would hope that our own Treasury would look 
at.
    So can you tell me what the U.S. Treasury has defined as 
would be the loss or the gain?
    Mr. PLOWGIAN. The Treasury Department has provided 
estimates on the adoption of the Administration's Green Book 
proposals to enact Pillar Two, and those would----
    Ms. VAN DUYNE. So you have done an independent analysis.
    Mr. PLOWGIAN. On the adoption of the Administration's 
proposals to enact Pillar Two, yes.
    Ms. VAN DUYNE. Okay. So have those been shared with 
Congress?
    Mr. PLOWGIAN. Those have been shared with Congress, and 
have been made publicly available.
    Ms. VAN DUYNE. Okay. So what was your number?
    Mr. PLOWGIAN. I, unfortunately, do not recall off the top 
of my head, but it is multiple hundreds of billions of dollars.
    Ms. VAN DUYNE. So the Treasury is saying that, as a result 
of this, we are going to make a ton of more money, even though 
what we are doing is allowing foreign nations to be able to 
define our tax codes. And we are so sure that European 
countries are going to be so favorable to U.S. companies and 
not want to be competitive at all?
    Mr. PLOWGIAN. I am sorry, I don't understand the question.
    No, the Treasury has provided estimates of U.S. adoption of 
Pillar Two, yes.
    Ms. VAN DUYNE. And this is based on which of the scenarios 
that JCT used?
    Mr. PLOWGIAN. This is based on U.S. adoption of Pillar Two.
    Ms. VAN DUYNE. Correct. But JCT used a number of different 
variables. What is Treasury's variables?
    Mr. PLOWGIAN. I don't think it aligns perfectly with JCT's 
analysis.
    Ms. VAN DUYNE. So how could they be so far off?
    Mr. PLOWGIAN. Well, I think they do analyze different 
scenarios.
    Ms. VAN DUYNE. But you just said that you are using the 
same. So which is it?
    Mr. PLOWGIAN. I----
    Ms. VAN DUYNE. Is it similar or is it not similar? And what 
is the different numbers that they are using that you are not 
using?
    Mr. PLOWGIAN. I did not say that they were the same.
    So our--Treasury's analysis assumes no change in foreign 
law, which is the----
    Ms. VAN DUYNE. Okay.
    Mr. PLOWGIAN [continuing]. Convention for revenue 
estimating.
    Ms. VAN DUYNE. So we are expecting that they are not going 
to change anything in that. We are just going to have a 
freefall of dollars. Okay. Makes sense.
    I mean, no offense to our European friends, but the U.S. 
has taken a much more aggressive approach when it comes to 
corporate tax rates. And we have seen that we have been 
rewarded with growth. In 2008 the U.S. and EU were equally the 
same size. By 2022 the U.S. economy had grown to $25 trillion, 
whereas the EU and the UK together had only reached $19.8 
trillion. America's economy is now nearly one third bigger. It 
is more than 50 percent larger than the EU without the UK.
    So to be--this tax deal seems like a race to the bottom, 
and not what Republicans have been accused of at all. We 
continue to hear from the other side of the aisle that TCJA was 
a tax scam and created corporate loopholes. Yet in 2022 
corporate tax revenues reached a record high of $425 billion, 
or 43 percent higher than the final year of the Obama 
Administration. And on top of that, the TCJA included the 
world's first Global Minimum Tax.
    So can you please define what is meant for companies by the 
phrase ``pay their fair share'' that continues to be used to 
justify this continued attack on U.S. corporate base?
    Mr. PLOWGIAN. Well, I think the goals of the Pillar Two 
project are to level the playing field for----
    Ms. VAN DUYNE. No, I am asking can you define ``pay their 
fair share''? Is there a percentage that the Administration 
would deem fair? Is there an amount, a dollar amount?
    Mr. PLOWGIAN. Again, I can speak to the Pillar Two project, 
which is to level the playing field for U.S. businesses----
    Ms. VAN DUYNE. Well, maybe----
    Mr. PLOWGIAN [continuing]. Including----
    Ms. VAN DUYNE. But you are repeating the same talking 
points. Specifically, the phrase ``pay their fair share'' 
continues to be used. And I am asking, is there a dollar 
amount? Is there a percentage that is ``fair''?
    Mr. PLOWGIAN. I do not have a dollar amount.
    Ms. VAN DUYNE. Do you have a percentage?
    Mr. PLOWGIAN. No.
    Ms. VAN DUYNE. Okay, I yield back. Thank you.
    Chairman KELLY. I thank the gentlelady. The gentleman from 
Iowa, Mr. Feenstra, is recognized for five minutes.
    Mr. FEENSTRA. Thank you, Mr. Chair.
    As you know, Mr. Plowgian, we don't live in a parliamentary 
system like many of our negotiating partners, and the Treasury 
does not have the authority to rewrite tax law and our system, 
and we just noted that. But you noted that we--that you think 
it is a need for a common international tax base to exist, and 
yet you don't have any authority.
    Did you tell our counterparts that you guys have really no 
authority, that you can negotiate but you have no authority to 
pass this?
    Mr. PLOWGIAN. I think it is well known that only Congress 
has the authority to change U.S. tax laws. And, certainly, my 
counterparts are aware of that.
    Mr. FEENSTRA. Okay, thank you for saying that. So how does 
this move forward if we can't get it through Congress?
    Mr. PLOWGIAN. Well, other countries are moving forward with 
Pillar Two----
    Mr. FEENSTRA. Yes, but----
    Mr. PLOWGIAN [continuing]. And implementing them, and----
    Mr. FEENSTRA. But if they go down that path and a 
government says--you know, they say we are not going to pay the 
tax, I mean, don't you see this as a massive lawsuit just 
waiting to happen?
    You guys are trotting down this path. But if I am a multi-
national corporation or a business, whatever, I am going to 
say, wait a minute, no.
    Mr. PLOWGIAN. They would not comply with foreign countries' 
laws? I am not sure I understand the question.
    Mr. FEENSTRA. Well, we already have GILTI, all right? I 
mean, that was passed through Congress. So the multi-national 
companies would simply say, no, we are not going to pay, you 
know, this extra--I mean, it could happen that we don't have to 
do the top-up tax or whatever it might be.
    Mr. PLOWGIAN. The Pillar Two rules are taxes imposed by a 
jurisdiction on residents----
    Mr. FEENSTRA. Correct.
    Mr. PLOWGIAN [continuing]. In that jurisdiction.
    Mr. FEENSTRA. I fully understand.
    Mr. PLOWGIAN. Yes.
    Mr. FEENSTRA. Okay, so let me push this a little further. 
Did Treasury recognize that the UTPR's treatment of non-
refundable credits would disproportionately harm U.S. 
competitiveness?
    I mean, what you are doing here is Treasury is favoring 
cash grants and refundable credits over non-refundable credits, 
which, in essence, uniquely harms U.S. Is that a fair 
statement?
    Mr. PLOWGIAN. Well, the Pillar Two rules, again, level the 
playing field for U.S. multi-nationals by ensuring that all 
multi-nationals pay a minimum level of tax.
    Mr. FEENSTRA. Right, right. Refundable credits do. But how 
about all the non-refundable credits, right?
    Again, we have got a massive problem here that you didn't 
take into consideration that everything--you know, from Europe, 
they do a lot of refundable credits. We don't, and so we are at 
a dramatic disadvantage. Correct?
    I mean, look at the R&D credit. You know, we don't have a 
refundable R&D credit. So now that can't be used. That puts us 
at a dramatic disadvantage, correct?
    Mr. PLOWGIAN. The----
    Mr. FEENSTRA. Correct?
    Mr. PLOWGIAN. So certainly we share the concerns about the 
R&D credit. We think that is an important incentive for----
    Mr. FEENSTRA. But it is not only the R&D credit, it is many 
of our credits, right? We have very few refundable credits. A 
lot of European nations, they have gone down that path of 
refundable credits. We haven't. I mean, it dramatically puts us 
at a competitive disadvantage?
    Why did Treasury agree to allow UTPR to stack on top of the 
corporate minimum tax and the U.S. GILTI tax rules--why did the 
Treasury allow this to happen? Why did the Biden Administration 
de-prioritize the fair treatment of GILTI?
    Mr. PLOWGIAN. Again, the Pillar Two rules are necessary in 
order to create a level playing field, and----
    Mr. FEENSTRA. But you are--again, so we are not--really 
care about GILTI? I mean, we are de-prioritizing GILTI, then?
    Mr. PLOWGIAN. Then the UTPR, which you asked about, is 
necessary as an enforcement mechanism to ensure that there is 
not a competitive advantage that could be gained by China or 
other jurisdictions.
    Mr. FEENSTRA. So, what you are doing is you are giving the 
middle finger to all our corporations and saying, you know 
what? We are going to stack these things on top of each other. 
In essence, that is what you are doing.
    Why did the Treasury agree to allowing Pillar Two domestic 
top-up taxes with their special carve-outs to the CCP state 
subsidiaries take priority over U.S. anti-abuse rules of 
subpart F and GILTI?
    Mr. PLOWGIAN. The qualified domestic minimum top-up tax 
rules are consistent with all other international tax rules 
which provide a primary taxing right to a jurisdiction, taxing 
its own residents on income that is sourced to that 
jurisdiction.
    The way our foreign tax credit rules work, we provide a 
foreign tax credit for taxes paid to foreign jurisdictions.
    Mr. FEENSTRA. So China gets special privilege, but not the 
U.S. I mean, this is my great concern, is every time we look at 
this Pillar Two we are at a disadvantage. And I just laid out 
three different things, how we are at a disadvantage, not to 
say that it is non-binding. I mean, you have no jurisdiction to 
allow this to occur.
    Thank you, and I yield back.
    Chairman KELLY. I thank the gentleman. The gentlelady from 
Wisconsin, Ms. Moore, is recognized for five minutes.
    Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman and 
colleagues, and thank you, Mr. Deputy Assistant Secretary, for 
your patience here today.
    I had one compliment for the Republicans regarding their 
Tax Cut and Jobs Act, and it was that they imposed GILTI to 
make sure that we were not contributing or leading a race to 
the bottom. I thought it was a very bold move on their part.
    Many of our colleagues have already asked you today of why 
you didn't find GILTI--or why the OECD didn't find GILTI to be 
totally compliant with what is now the proposed GloBE rule. Is 
it because it continues to blend those tax rates, and still 
creates the incentive to seek out low-tax jurisdictions?
    Mr. PLOWGIAN. Well, as I mentioned, I cannot speak 
precisely to the negotiations before my arrival. The October 
2021 statement does suggest that the global blending of GILTI 
was a significant consideration in that regard.
    Ms. MOORE of Wisconsin. I am sorry, it was a consideration? 
It was--but, I mean, my question to you was--okay, I will just 
move on, since you don't seem to know.
    Let me ask you it this way. Does GILTI still provide the 
opportunity for the United States multi-national enterprises to 
blend, and still incentivizes them to place their profits in 
low-tax jurisdictions?
    Mr. PLOWGIAN. Yes, absolutely.
    Ms. MOORE of Wisconsin. So the race to the bottom is still 
on. Thank you.
    Mr. PLOWGIAN. Yes.
    Ms. MOORE of Wisconsin. I want to ask you a series of 
questions about the JCT report with the wide $400 billion 
swing.
    And so many here just say we just should do nothing. And if 
we do nothing, there is no indication that the rest of the 
world is not going to adopt GloBE. And that is when we would 
lose hundreds of billions of dollars by not participating. Is 
that right?
    Mr. PLOWGIAN. Yes. In every scenario that the JCT 
analyzes----
    Ms. MOORE of Wisconsin. Okay, thank you.
    Mr. PLOWGIAN [continuing]. It is better for the U.S. to 
adopt Pillar Two.
    Ms. MOORE of Wisconsin. Okay. Then they also talked about, 
even if we comply, that there would be a loss. Is the reason 
that you can't tease out these differentiations is because if 
you leave, you know, your taxing authority in Ireland or your 
product in Ireland versus France, which has a 25 percent 
corporate tax rate versus Ireland, which has 12 percent, that 
that matters with regard to how much profit you will earn?
    Mr. PLOWGIAN. Yes. And in fact, the--one of the major 
assumptions that drives the range is the effect of Pillar Two 
on profit shifting. And the analysts that have looked at this 
have concluded that Pillar Two would reduce the profit shifting 
by multi-nationals in----
    Ms. MOORE of Wisconsin. So in other words, if you kept the 
profit in the United States, that is when you get to those 
upper limits----
    Mr. PLOWGIAN. Yes.
    Ms. MOORE of Wisconsin [continuing]. Of revenue.
    Mr. PLOWGIAN. Absolutely.
    Ms. MOORE of Wisconsin. Keeping money here, in the great, 
old USA. Thank you.
    Other members have questions about providing monies to 
other places. I am thinking now of, like, so-called third-world 
countries. Does this legislation, the GloBE framework, 
incentivize other countries--not forcing them, but incentivize 
them to raise their corporate taxes to inure to the benefit of 
their country?
    And, of course, we would get a foreign tax credit for 
having to pay that. Is that correct?
    Mr. PLOWGIAN. That is right that--you know, especially as 
you mentioned, developing countries do rely heavily on the 
corporate income tax, and they rely on corporate income tax 
incentives to attract investment analysts----
    Ms. MOORE of Wisconsin. So it could really help out a lot, 
huh?
    Mr. PLOWGIAN. Absolutely. Analysts expect----
    Ms. MOORE of Wisconsin. Okay, thank you.
    Mr. PLOWGIAN [continuing]. Pillar Two will help with that.
    Ms. MOORE of Wisconsin. Thank you. You know, I don't have 
as much time as the chairman, so let me move on. [Laughter.]
    Ms. MOORE of Wisconsin. The UTPR, there is a lot of focus 
on that. And so my question is that there is a lot of rage 
about it, but if we are compliant with the regimen, is there 
some scenario where, you know, countries all over willy-nilly 
will be grabbing our money if we are compliant? Isn't the point 
of this to make sure that people comply?
    Mr. PLOWGIAN. Yes. If the U.S. companies are subject to a 
15 percent minimum tax in the U.S., they would not pay the----
    Ms. MOORE of Wisconsin. So if I have got two children, and 
I tell two sisters, and I say, ``Look, I am going to give your 
allowance to your sister if she has to make up your bed every 
day. You make your bed up,'' and then the other sister just 
decries, ``Oh, she is going to take my allowance away, take it 
away, take it away''--if you just make your bed up, that 
wouldn't happen.
    Thank you, and I yield back.
    Chairman KELLY. I thank the gentlelady. I now recognize the 
gentlelady from New York, Ms. Malliotakis, for five minutes.
    Ms. MALLIOTAKIS. Thank you, Mr. Chairman. First, I want to 
echo my colleagues' concerns and opinions, which is the truth, 
which is that Treasury is taking Congress's tax-writing 
authority and giving it to unelected bureaucrats in Paris. They 
are giving it to foreign governments. It really doesn't make 
any sense, and it is not something I think that this committee 
will be tolerating. Congress is giving our opinion.
    And, you know, in response to Chairman Smith, you said that 
you take our input. Well, I hope you actually listen to it. And 
I hope you are listening to the input of American businesses 
all across the country that are concerned about what this means 
in terms of compliance, how they are going to be able--it is 
very complicated. It sounds like it is going to be a complete 
accounting nightmare that will require them to divulge 
proprietary information, a massive number of data points to 
comply.
    And there has been no regulations put out so far for--you 
know, there is some guidance that came out earlier this week, 
but I think there is a lot of people all across the country 
that are concerned that this will certainly put American 
businesses at a disadvantage.
    And look, the deal is just a bad deal for the United 
States, no matter how you look at it, as my colleague just laid 
out a couple of points. It eliminates our competitive 
advantage, and our government can lose $120 billion in tax 
revenue to foreign governments. And that is not according to 
Republicans on this committee. That is according to the Joint 
Committee on Taxation.
    And Treasury does not protect our status as the first 
country to enact a Global Minimum Tax, and the U.S. will be 
targeted with 40 percent of the tax burden under Pillar Two and 
60 percent of the tax pillar--under Pillar One. I don't know 
how you can agree to that.
    China's state subsidies are more protected than ordinary 
tax incentives like R&D tax credits here in the United States. 
And I think that we have all alluded to this, and we believe 
it, that China will, you know, avoid these higher taxes that 
are under Pillar Two because the CCP will use direct state 
subsidies to hide the true tax rate paid by, you know, Chinese-
controlled entities.
    So how does--how do you intend to enforce this UTPR tax 
rule, both for--domestically, with American companies, but also 
with our competitors like communist China?
    Mr. PLOWGIAN. Well, I would like to say that we do take 
congressional input very seriously. We do meet with U.S. 
businesses and other stakeholders regularly in the Office of 
Tax Policy, and we take that input into the negotiations.
    And with respect to the UTPR----
    Ms. MALLIOTAKIS. I find it hard to believe that you are 
taking input from American businesses and from Members of 
Congress that would put us at such a disadvantage and would 
really put American companies at a disadvantage.
    But go on with the communist China. How would you--how are 
you going to make sure that they commit to their end?
    And I guess I will add a second part to that question. What 
about the countries that have not joined this agreement? Aren't 
there concerns that now America will be less competitive with 
them?
    Mr. PLOWGIAN. Well, I think that is exactly the point that 
you raise with the UTPR. The UTPR is the enforcement mechanism 
for the Pillar Two rules, and the UTPR provides that 
implementing jurisdictions will impose tax on their residents. 
And if--the multi-national group is not subject to a 15 percent 
minimum rate in each jurisdiction in which it operates. And so 
that is how the rules work. That is how they ensure a level 
playing field. That is how we ensure that China and other 
jurisdictions that don't implement the rules do not have a 
competitive advantage by staying outside of the deal.
    Ms. MALLIOTAKIS. Okay. That doesn't really, I don't think, 
make sense to most people.
    But Secretary Yellen has yet to share Treasury's economic 
analysis of Pillar One with Congress. Why? What is she--why 
does she refuse to share this information with Congress, when 
she knows that all tax treaties must be ratified by two-thirds 
of the Senate?
    I mean, how do you expect a deal to be ratified if she 
won't even share this critical information to be able to 
evaluate it on its merits?
    All we have seen so far is generic guidance adopted in 
France.
    Mr. PLOWGIAN. Yes. So the Pillar One negotiations, as I 
mentioned, continue to have important economic terms that 
remain open. And those include how the Pillar One taxing right 
is coordinated with the existing international tax system. And 
when we are able to resolve those issues, we plan to share 
estimates with Congress.
    Ms. MALLIOTAKIS. When do you anticipate that?
    Mr. PLOWGIAN. I don't know exactly when that will be. I 
need to--obviously, those issues need to be resolved with 
negotiating partners.
    Ms. MALLIOTAKIS. Okay. Well, my time is expired. Thank you.
    Chairman KELLY. I thank the gentlelady. I now recognize the 
gentlelady from West Virginia, Mrs. Miller.
    [Pause.]
    Chairman KELLY. Gentlelady, turn your mic on, please.
    Mrs. MILLER. Can you hear me?
    Chairman KELLY. Carol, we still can't hear you.
    Mrs. MILLER. We will try a different one then.
    Chairman KELLY. There we go.
    Mrs. MILLER. I will have to get a real long neck going 
here. Okay. Thank you, Chairman Kelly and Member Thompson.
    I am pleased that you, Mr. Plowgian, have come here today 
to answer some of our questions. However, I am really 
incredibly disappointed and, quite frankly, disgusted by the 
Biden Administration's abject failure to negotiate in America's 
best interests at the OECD. In my view, you and your colleagues 
have completely failed your fiduciary responsibility to the 
American taxpayers, American workers, and American companies.
    I realize that you haven't been involved in all of this, 
but you are here now, and this Administration's failure is 
shameful. It is reprehensible and downright outrageous. It is 
really hard for me to believe. The American people empower you 
to negotiate on their behalf. And instead you have surrendered 
to a global socialist tax scheme that will ultimately make 
America poorer and less competitive, placing our children and 
grandchildren--our children and our grandchildren--their future 
at risk, not to mention that you have denigrated our nation's 
status as a beacon of strength, democracy, and capitalism in an 
increasingly dangerous world.
    There are two news headlines just this week. On July 17 the 
Wall Street Journal wrote that Europeans are becoming poorer. 
``Yes, we are all worse off,'' says the Bank of England's chief 
economist. And from The Washington Post just yesterday, 
``Britain should stop pretending it is a rich country.'' These 
articles drive into how Europe's heavy subsidies, over-promised 
social spending, and the lack of innovation have led to slow 
growth, lower wages, and less spending and prosperity.
    Mr. Chairman, I would like to submit these two articles for 
the record.
    Chairman KELLY. So approved. 
    
    
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    Mrs. MILLER. Mr. Plowgian, I just can't comprehend why the 
Treasury would put the United States in a position to be forced 
by unelected global bureaucrats to give up our strong economy 
to match the failures of our allies abroad. Is the Biden 
Administration willing to reverse course and fight at the OECD 
to ensure our proven tax incentives like the Research and 
Development Credit or the Low-Income Housing Tax Credit are 
fully protected?
    Mr. PLOWGIAN. It has been a shared and consistent priority 
across the administrations that have participated in these 
negotiations to protect U.S. interests, to protect U.S. 
businesses, and to protect American workers.
    Mrs. MILLER. That sounds like ``no'' to me.
    Mr. PLOWGIAN. We continue to take input from Congress and 
from U.S. businesses into these discussions and continue to 
raise these important issues for the United States.
    Mrs. MILLER. Like our chairman, I would like to have proof 
of that, please.
    Do you consider socialism to be a key goal of the Biden 
Administration?
    Mr. PLOWGIAN. Congresswoman, I----
    Mrs. MILLER. I guess that is a no.
    The OECD Tax Project is a thinly veiled attempt to neuter 
the U.S. economy and drive America into the arms of global 
socialism. Europe's economy struggles to adapt to the modern 
year--world, and these countries aim to capture our U.S. 
dollars to fund their socialist programs and government 
handouts.
    So I am just really concerned. While the OECD's proposed 
deal would protect refundable tax credits, also known as direct 
subsidy, most U.S. tax credits are not refundable, and for good 
reason. The U.S. is the most innovative nation on the planet, 
and we attract the best and brightest to start and grow their 
businesses here. We do not need direct government checks 
payable to industry, nor should we offer them. Many countries 
in Europe don't prize innovation or competitiveness like we do, 
and that is why so many of them come to the United States.
    So these countries have the sovereign right to determine 
their own tax code, incentive structures, and national agendas. 
They do not have the right to try and fund themselves with U.S. 
tax dollars, no matter what the Treasury Department might 
think. Congress writes the rules, the administration 
administers them.
    I will yield back my time.
    Chairman KELLY. I thank the gentlelady. I now recognize the 
gentleman from Virginia, Mr. Beyer.
    Mr. BEYER. Mr. Chairman, thank you very much.
    Mr. Plowgian, thank you for sitting through this. I greatly 
appreciate all of your work negotiating.
    And I have great affection and respect for my Republican 
friends on this committee, but I think, in my only four-and-a-
half years on this committee, this is the greatest 
misunderstanding of what this legislation does that I have ever 
seen.
    I was ambassador U.S. ambassador to Switzerland for four 
years in the midst of all the fights over taxes. And one of the 
things I saw there is that there was an enormous amount of tax 
evasion and tax cheating by major global corporations, not just 
American, hiding assets or putting all of their costs in the 
high-tax states like the United States and the UK and the like, 
and putting all of their revenues in the low-tax places, three 
percent, zero percent, one percent. I won't do ad hominem 
attacks on countries, but, you know, you don't have to be 
really creative. I will be happy to tell you who they were.
    And this is the entire world community coming together and 
saying we need to stop the tax cheating. We need to make sure 
that we stand up to those small little countries, many of them 
just islands who take all the revenue, don't charge any taxes 
at all, but that one percent or two percent is enough to make 
them happy.
    In the meantime, my family business--we just celebrated our 
50th anniversary Sunday morning--has been paying 37 percent for 
years. And before that, as Mike knows, 39.6 percent. And it 
makes me upset that somebody much, much bigger than I am is 
paying three percent, five percent, six percent.
    This lack of sovereignty--the sovereignty thing is the 
emptiest issue I have ever seen. Mr. Plowgian and Janet Yellen 
cannot impose this tax on us. We can do it. We are the only 
people who can raise the tax from 10.5 percent to 15 to 20, 
whatever. We have complete autonomy. We have not given our 
sovereignty away to anybody else.
    When we say those other people will be able to tax us, they 
are just looking at undertaxed jurisdictions and saying we are 
now going to charge them more in Poland, in Ukraine, in France, 
in India, because--for the country that is undertaxed itself. 
That is designed not to go after U.S. at 10.5 or 11 percent, it 
is designed to go after the country that is at 3 percent and 2 
percent and 1 percent. We are not changing. They are changing 
their own tax policies for U.S. companies that are doing 
business in their countries and are being undertaxed.
    Most of these arguments just have not made any sense at 
all. The one that has--Mrs. Miller brought up--is the concern 
that we should have about our tax incentives, things like the 
housing tax credit, the green energy tax credit, things like 
that.
    Mr. Plowgian, I have been told by Administration officials 
that we are working hard to make sure that our tax incentive 
structures we put in place are not going to hurt our companies, 
because that is not a matter of us hiding revenues in low-tax 
jurisdictions. That is taking advantage of everything. Can you 
assure me that we are going to work as hard as we can to make 
sure that this new GILTI regime--we are going to do our best to 
avoid them affecting our tax credits?
    And before you answer, one last point. LPTR is not a 
decision we make. These are decisions that other countries 
around the world are making to tax--increase their own taxes on 
revenues in their country to penalize the tax havens that are 
under-taxing. And to the extent that we are under by 1.5 
percent, 3 percent, it is a relatively small amount.
    By the way, that is taxes that we were not collecting 
anyway. We weren't collecting it, which is--and now we are--
they are saying they are going to collect it because we won't. 
We are not shifting tax revenue at all.
    Mr. Plowgian, I give the floor to you.
    Mr. PLOWGIAN. Yes, absolutely. We continue to prioritize 
U.S. incentives in these discussions. We have been able to 
agree on interpretive guidance that protects many of the 
incentives that we have been talking about today: the Low-
Income Housing Tax Credit, green energy credits, other 
transferable credits. And we continue to raise these in the 
discussions.
    Mr. BEYER. Yes, I also want to make the point, Mr. 
Plowgian, that in no way is insisting that international 
corporations who have been purposefully cheating on their 
taxes, avoiding taxes through great manipulation, is a move to 
global socialism. It just doesn't make any sense at all. What 
we are trying to do is make sure that everybody is playing by 
the same rules, and at least that U.S. corporations are being 
treated fairly at all times.
    Mr. Chairman, thank you for leading this. I yield back.
    Chairman KELLY. I thank the gentleman. I now recognize the 
gentlelady from New York, Ms. Tenney.
    Ms. TENNEY. Thank you, Mr. Chairman and Ranking Member. I 
am grateful that we are holding this hearing today to examine 
President Biden's global tax surrender.
    Ways and Means Republicans have been sounding the alarm 
over the framework negotiated between President Biden's 
Treasury Department and Janet Yellen and the OECD. This 
comprehensive rewrite of global tax rules championed by the 
Administration would result in fewer U.S. tax revenues, reduce 
the global competitiveness of U.S. companies, and erode our 
overall economic strength. It amounts to nothing more than 
surrendering American tax sovereignty with U.S. taxpayers, 
sending a check to the tune of billions and billions of dollars 
to foreign countries.
    In fact, according to analysis from the Joint Committee on 
Taxation, the United States could stand to lose as much as 120 
billion in tax revenue under the Global Minimum Tax negotiated 
by the Biden Administration. On top of that, OECD released 
recent guidance which substantiated Republicans' concerns. 
President Biden's tax deal is unworkable, and it is ill 
conceived. This guidance does nothing to address my concerns, 
it only to only serves to underscore the deal's fatal flaws, 
particularly on the Undertaxed Profits Rule, which will send 
critical research and development abroad.
    Had Treasury consulted with Congress instead of completely 
neglecting the American people, perhaps they would have avoided 
these pitfalls. And I want to make sure I emphasize what the 
chairman had talked about earlier. Just accepting letters from 
the majority is not negotiating or working with us in terms of 
consulting.
    So I want to turn my questions to you and thank you, sir, 
for your service and for being here. But Mr. Plowgian, the 
United States is the world's economic superpower, but we 
represent just 25 percent of the global GDP--15 percent, if 
adjusted for purchasing power. Multiple independent economic 
experts have found that the OECD deal would disproportionately 
impact the United States.
    My first question is why would Treasury agree to a Pillar 
One framework where U.S. companies face 60 percent of the total 
burden of profit reallocation?
    Mr. PLOWGIAN. I am sorry, Congresswoman. With respect to 
your question, are you--which pillar are you referring to?
    Ms. TENNEY. Pillar One.
    Mr. PLOWGIAN. Pillar One. So a consistent priority across 
the administrations, the different administrations that have 
been involved in these negotiations, has been to protect U.S. 
interests, to protect U.S. businesses, and to protect U.S. 
workers.
    In particular with respect to Pillar One, the--one of the 
main purposes behind the negotiations--and this is based on 
input on a bipartisan basis from Congress--is to get rid of and 
prevent----
    Ms. TENNEY. Hang on. Okay, go ahead. Let me ask you, so do 
you think it is beneficial to the United States companies to 
pay more in taxes?
    I guess that is--was that the decision that was made in 
implementing this?
    Mr. PLOWGIAN. Well, I don't think that Pillar One 
necessarily does that. So what----
    Ms. TENNEY. Well, let me--can I ask you, do you disagree 
with the Joint Committee on Taxation's assessment of the $120 
billion tax revenue loss under the Global Minimum Tax 
negotiated by Janet Yellen, Secretary Yellen?
    Mr. PLOWGIAN. So under Pillar Two, the JCT analysis 
actually shows multiple different scenarios. And again, with 
respect to the baseline that the JCT analysis uses, which is 
implementation of Pillar Two by more than 40 of our largest 
trading partners, the midpoint of their range is an increase in 
U.S. tax revenue from other countries implementing Pillar Two.
    And indeed, in scenario 5, which shows implementation by 
those same 40-plus jurisdictions plus implementation by the 
U.S., they show----
    Ms. TENNEY. So let me ask--you didn't answer my question. 
Do you think that the Joint Committee on Taxation's numbers are 
wrong, regardless?
    So, in your opinion, the U.S. companies will net a greater 
tax revenue and will not be penalized under the entire plan?
    Mr. PLOWGIAN. The JCT analysis shows that the U.S. gains 
revenue in multiple of those scenarios.
    Ms. TENNEY. But----
    Mr. PLOWGIAN. And----
    Ms. TENNEY. A net, they net gain----
    Mr. PLOWGIAN. Yes.
    Ms. TENNEY [continuing]. Revenue.
    Mr. PLOWGIAN. Yes, and it is----
    Ms. TENNEY. How do you come up with that conclusion?
    Mr. PLOWGIAN. Scenario 5 by the JCT shows an increase in 
U.S. tax revenues of $236.5 billion over the 10-year window.
    Ms. TENNEY. And what is that analysis based on?
    Mr. PLOWGIAN. That analysis is based----
    Ms. TENNEY. Is that an assumption that there is going to be 
greater trade, or we are not sure of that?
    Mr. PLOWGIAN. That--the assumptions that the JCT uses for 
scenario 5 is adoption by the 40-plus jurisdictions, and 
adoption by the U.S. of Pillar Two.
    Ms. TENNEY. But don't you think that is a surrender of our 
sovereignty to give the right of other countries to tax our own 
entities in a way that we are not even doing ourselves and then 
to put this in an unfair trading position in the end?
    Mr. PLOWGIAN. Well, all countries have the sovereign right 
to tax their residents under their corporate tax----
    Ms. TENNEY. Right, but aren't we surrendering our right? We 
are letting--we are subjecting our U.S.-based companies, who 
are competing abroad, to this unfair scheme.
    Mr. PLOWGIAN. The Pillar Two rules are taxes imposed by 
jurisdictions on their own residents.
    Ms. TENNEY. I understand. So--but overall, we are going to 
end up losing because we are penalizing our own U.S.-based 
companies when they try to compete in the foreign market.
    And I think my time has expired, so I will have to talk to 
you about it further in another time. Thank you.
    Chairman KELLY. I thank the gentlelady. We now recognize 
the gentlelady from California, Mrs. Steel.
    Mrs. STEEL. Thank you, Mr. Chairman, for hosting this 
important hearing. I love to yield my colleague--to my 
colleague from Oklahoma, Mr. Hern.
    Mr. HERN. Mr. Plowgian, just to follow up on my two 
letters, and then what Ms. Tenney just responded to, are the 
JCT assumptions based on information, work product that you 
have given them to do an analysis on their assumptions of 
revenue loss or gain?
    Mr. PLOWGIAN. So certainly, the Treasury estimates----
    Mr. HERN. That is a yes or no, if you have given them 
information or not.
    Mr. PLOWGIAN. My understanding is that the Treasury 
estimators do speak with their JCT colleagues on a regular 
basis.
    Mr. HERN. So then it is a yes, you have given it to JCT 
then. I was just curious because, again, we haven't seen it in 
Congress. So as long as they have it, and we are basing these 
estimates off of your work product, that would be interesting 
to know.
    Thank you. I yield back.
    Mrs. STEEL. I am very generous with my time today, so I am 
yielding to my colleague from Georgia, Mr. Ferguson.
    Mr. FERGUSON. I thank the gentlelady.
    Mr. Plowgian, is it appropriate to allow one state or 
country to collect income tax on income earned outside its 
border?
    Mr. PLOWGIAN. So the way the international----
    Mr. FERGUSON. Yes or no.
    Mr. PLOWGIAN [continuing]. Tax rules----
    Mr. FERGUSON. Is it appropriate to allow one state or 
country to collect income tax earned on income outside its 
border?
    Mr. PLOWGIAN. Well, the United States collects income tax 
on the income of CFCs that operate outside of the U.S. So the--
--
    Mr. FERGUSON. So our treaties allow that?
    Mr. PLOWGIAN. Our treaties allow that, yes.
    Mr. FERGUSON. So if that is so, couldn't we just tax 
foreign companies here on income earned outside the U.S.?
    Mr. PLOWGIAN. The saving clause in our treaties allows the 
parties to the treaty to tax their residents, generally, 
without regard to the treaty. And so we have always taken the--
--
    Mr. FERGUSON. I mean, if----
    Mr. PLOWGIAN [continuing]. Position that GILTI and subpart 
F are consistent with our treaties.
    Mr. FERGUSON. But wouldn't that--if we start taxing 
companies and other countries on income that they have earned 
outside of the U.S., don't you think that would lead to tax or 
trade disputes with the home country?
    Mr. PLOWGIAN. We currently do tax income earned by entities 
in other jurisdictions. So we tax the U.S. entity with respect 
to income earned by CFCs in other jurisdictions under GILTI and 
subpart F.
    Mr. FERGUSON. Okay. Thank you.
    Mrs. STEEL. Thank you, Mr. Chairman.
    You know, this is very important discussions that we are 
having. And thank you, Deputy Assistant Secretary, that, you 
know, you are coming out. And I hope that Treasury, moving 
forward, will work with this committee and fight for U.S. 
businesses.
    But having said that, your--on your statement you said 
Pillar Two, which would increase U.S. revenue and strengthen 
our tax system, and Pillar Two will be fairer--if I said 
something that you didn't say, please let me know--on the world 
stage, so better be in Pillar Two than not in Pillar Two.
    So my concern on Pillar Two is--actually, all the members 
already stated--that 60 percent of total--actually, that is the 
Pillar One. Pillar Two, that total burden--that nearly 40 
percent of additional tax burden for Pillar Two that--for U.S. 
companies.
    So could you explain, then, why you are saying that without 
any detailed technical issues that we resolve before we 
implement this, that you already saying that, that--how it can 
increase U.S. revenue and strengthen, and then why it has to be 
fairer, and then why we have to be in Pillar Two, not in Pillar 
Two.
    Mr. PLOWGIAN. Yes, absolutely. The JCT analysis shows that 
in all scenarios that they analyzed, that U.S. adoption of 
Pillar Two increases U.S. revenue as compared to not adopting 
Pillar Two.
    Similarly, the Treasury estimates for the Administration's 
Green Book proposals to adopt reforms consistent with Pillar 
Two show a significant revenue increase for the U.S. of 
adopting those reforms.
    Mrs. STEEL. Thank you. I still have a problem with double 
taxation for our corporations here.
    Having said that, I don't have enough time, so I am going 
to just say really quick statement here. I was born in Korea 
and raised in Japan. And it is great that we live in a global 
world that allows international commerce. But I am here to 
advocate for my constituents from southern California.
    And could you and will you--you and Treasury--commit today 
to negotiate with OECD rules that are equitable across 
countries on behalf of my constituents?
    And I can't in good faith sign off on policies without 
knowing how it would affect our constituents and communities. 
Will you commit today to provide Congress and--critical details 
going forward, and bring all the important issues on Pillar Two 
before we implement Pillar Two? Just yes-and-no question, 
because my--I am already over my time.
    Mr. PLOWGIAN. Yes, we do take U.S. interests and U.S. 
business interests into the negotiations. And I can commit to 
taking those into the negotiations, and we have provided 
estimates on Pillar Two to Congress and made them publicly 
available.
    Mrs. STEEL. Thank you, Mr. Chairman. I yield back.
    Chairman KELLY. I thank the gentlelady, and now would turn 
to Mr. Schneider from Illinois for five minutes.
    Mr. SCHNEIDER. Thank you, Mr. Chairman.
    And Mr. Plowgian, thank you for your patience. I know it 
has been a long afternoon. I am going to review some of the 
things.
    In your testimony we talked about the BEPS project, or the 
Base Erosion and Profit Shifting project that was the genesis 
of this whole initiative. What was the motivation for that 
project?
    Mr. PLOWGIAN. It was concern about the ability of multi-
nationals to shift profits into low-tax jurisdictions, 
essentially.
    Mr. SCHNEIDER. And what was [sic] the goals that the 
countries participating set for the project?
    Mr. PLOWGIAN. The basic idea was to try to develop reforms 
to the international tax rules to prevent multi-nationals from 
being able to shift profits into low-tax jurisdictions.
    Mr. SCHNEIDER. And as we sit here now more than a decade 
later, and we are talking about Pillar One and Pillar Two--that 
often gets confusing, we have got initials like UTPR--what is 
your sense of the commitment to the G20 countries to actually 
moving forward and addressing the original motivations of the 
BEPS project and what they are trying to achieve with Pillar 
One and Pillar Two?
    Mr. PLOWGIAN. Well, the G20 finance ministers this--earlier 
this week reiterated their support for the two-pillar solution, 
and the--in particular, the steps that countries are taking to 
implement Pillar Two.
    Mr. SCHNEIDER. So is it fair to say that, irrespective of 
what we might do in the United States, countries around the 
world, developed countries around the world are going to move 
forward here?
    Mr. PLOWGIAN. Yes, absolutely.
    Mr. SCHNEIDER. Okay. Now, we have also talked about this 
JCT analysis, and my colleagues have been focusing on one of 
the scenario numbers. But there are multiple scenarios. What is 
the key distinction between each of the different scenarios?
    Mr. PLOWGIAN. The key distinctions between the different 
scenarios are assumptions about which jurisdictions implement. 
There are several scenarios in which the U.S. implements Pillar 
Two. There are several scenarios in which the U.S. does not 
implement Pillar Two. And then there is this distinction 
between just the 40 baseline--or 40-plus baseline jurisdictions 
adopting versus every single country in the world adopting.
    Mr. SCHNEIDER. Okay. And what happens if the rest of the 
world moves forward--and, as you noted, the leading economies 
are committed to moving forward--and the United States stays on 
the sidelines, what happens then?
    Mr. PLOWGIAN. Yes. So if the entire rest of the world 
adopts Pillar Two, which is the JCT scenario 1, and the U.S. 
stays on the sidelines, that is the $122 billion number that 
has been talked a lot about in this hearing. They find that the 
U.S. would lose $122 billion of revenue.
    Mr. SCHNEIDER. And the logic behind that is that--and one 
of the numbers I saw is an estimate of 75 percent of the 
profits that are now located in low-tax jurisdictions like the 
Canary Islands, or the--or Bermuda is going to move to more 
business, the G20 economies. The assumption is it would all 
move to these other economies, not to the United States. Is 
that correct?
    Mr. PLOWGIAN. I think that is a large driver of the 
numbers.
    Mr. SCHNEIDER. Okay. But are things that the United States 
could do to make it more attractive for these companies to move 
their profits from Bermuda back to the United States?
    Mr. PLOWGIAN. Yes. And in fact, we believe that Pillar Two 
does make it more attractive for companies to move their 
profits back to the United States because it reduces the tax 
incentive to shift profits out of the U.S. to low-tax 
jurisdictions.
    And in fact, OECD and IMF analysis has suggested that 
reducing the tax rate differentials between the U.S. and 
offshore centers would significantly increase investment in the 
U.S.
    Mr. SCHNEIDER. So if instead of fighting amongst ourselves 
we put our heads together and came up with strategic actions as 
a body to make sure that the United States remains as the 
innovative place in the world, actually, we wouldn't see a 
decline in taxes, but, by the JCT model, we would see an 
increase in revenues to the United States. Is that correct?
    Mr. PLOWGIAN. That is correct. And certainly, Pillar Two is 
part of that. In every scenario, if the U.S. adopts Pillar Two, 
the JCT shows an increase in U.S. tax revenue as compared to 
the U.S. not adopting.
    Mr. SCHNEIDER. Okay. And let me finish on one other thing, 
because I am worried about R&D, and I know we talked about it a 
little bit. And this wasn't my observation, but I think it is 
an important observation.
    Two-and-a-half years ago we entered into what was a dark 
moment for the country with the pandemic, for the world, as the 
world shut down. All of the scientists around the world 
gathered together or worked together to try to come up with 
some response treatments for COVID, vaccines for COVID. And 
countries tested some. As we sit here, two-and-a-half years 
later, there are three vaccines that are standing that are 
desired by the world. All three of those were invented here in 
the United States because we have the greatest innovation R&D 
system. We incentivize it, we motivate it, we support it.
    I do want to make sure as we go forward--and I think it is 
a fair concern--that whatever we do with Pillar Two makes sure 
that we protect those incentives, those reasons for companies, 
the best companies in the world, to base their research and 
development in the United States, to bring the smartest people 
and hire the smartest people in the United States, and make 
sure, God forbid, if there is another pandemic or we have the 
next revolution of AI, or whatever is coming next, that those 
innovations are happening in the United States.
    And with that, I yield back.
    Chairman KELLY. I thank the gentleman.
    Mr. Plowgian, I want to take a moment to thank you for 
being here today, and for being patient, and enduring as we go 
through this, because I got to tell you I think the main thing 
that has bothered me since the beginning of when this--it is 
the constitutionality of what the Administration is doing.
    There is three distinct parts of our government. And I just 
think, when we look at trade policy, when we look at tax 
policy, all that begins in the House. And I am just trying to 
understand why the Administration would go outside that model 
and decide to do something on its own. So I am going to 
encourage you to keep in touch with us. And the people that 
asked you to get back with them, they asked you some questions 
that you said you would get back with them, please do that. And 
thank you so much for being here today.
    Mr. PLOWGIAN. Thank you.
    Chairman KELLY. We are now going to move to the second 
panel.
    [Pause.]
    Chairman KELLY. I now recognize the second panel, and I 
want to thank you all for going through this process. And I saw 
you out in the back seats, but thank you all for staying with 
us.
    First of all, Ms. Mindy Herzfeld serves as a professor of 
tax practice at the University of Florida, Levin College of 
Law. She is also a counsel for the Potomac Law Group and a 
contributing editor for the publication, ``Tax Notes.''
    Ms. Herzfeld, thank you for being here.
    Adam Michel is the director of tax policy studies at the 
CATO Institute.
    Mr. Michel, thank you so much for being here.
    Anne Gordon is the vice president for international tax 
policy at the National Foreign Trade Council.
    Ms. Gordon, thank you so much for being here.
    Mr. David Schizer is a dean emeritus and Harvey R. Miller 
professor of law and economics at Columbia Law School.
    Mr. Schizer, thank you for being here.
    And Mr. Peter Barnes is an international tax adviser and 
the counsel at Caplin & Drysdale. He is also a senior fellow at 
Duke University.
    It is nice to have the Blue Devils here. Thank you so much.
    Thank you all for being here today, and I hope we can 
continue on.
    I just want to make sure that we understand the whole 
purpose of what we are trying to do today. And I think that 
sometimes we get caught up in the floor speeches. The real 
problem--and I just addressed at the end of the first--is the 
constitutionality of the Administration and the movement that 
they are making without being the counsel of the Congress. And 
so we will begin now.
    Ms. Herzfeld, each of you, please, you have five minutes. 
Mr. Hern is going to take over as the chairman. Thank you so 
much.

    STATEMENT OF MINDY HERZFELD, PROFESSOR OF TAX PRACTICE, 
          UNIVERSITY OF FLORIDA, LEVIN COLLEGE OF LAW

    Ms. HERZFELD. Chairman Kelly, Ranking Member Thompson, and 
members of the subcommittee, thank you for the opportunity to 
testify here today on this important topic.
    The background to my testimony is the Joint Committee on 
Taxation's recent analysis estimating that Pillar Two of the 
OECD agreement for a Global Minimum Tax will impose significant 
costs on the U.S. Government.
    To put the two-pillar project in perspective, I will start 
by sketching out the international tax principles that have 
been in place since the early 20th century, followed by changes 
introduced by the OECD's project to crack down on cross-border 
Base Erosion and Profit Shifting, known as BEPS, and the U.S. 
Tax Cuts and Jobs Act. Together, BEPS and the TCJA set the 
stage for the 2021 two-pillar agreement. I will explain why 
certain aspects of that agreement negatively impact U.S. 
revenues, but then turn to what might be done to fix it.
    From its earliest days, the U.S. income tax system, as 
applied to taxing U.S. persons' foreign earnings, can be 
characterized by three principles: first, U.S. persons are 
taxed on all of their income, regardless of where earned; 
second, the United States provides U.S. taxpayers with a credit 
for foreign taxes paid; and third, in general, U.S. tax law 
respects corporate entities as separate taxpayers, and 
historically has not subjected foreign companies' earnings to 
U.S. tax until repatriated.
    Now, beginning in 2013, the G20 and the OECD undertook a 
project to address cross-border profit shifting and 
digitalization of the economy. This BEPS project fell short, 
though, in two respects. One, it didn't develop concrete 
proposals for taxing the digitalized economy. And two, a U.S. 
push to encourage expanded adoption of controlled foreign 
corporation regimes mostly failed. But these missed 
opportunities have been revived in the OECD's current work.
    Now, partly in response to the same pressures that prompted 
BEPS, the TCJA introduced a number of important changes to U.S. 
international tax rules. Most importantly, in enacting GILTI, 
the U.S. became the first mover in adopting a Global Minimum 
Tax.
    Now, unfinished business from the BEPS project led other 
countries to propose and enact Digital Services Taxes. To limit 
such efforts, the OECD undertook what is sometimes referred to 
as BEPS 2.0, which includes the two pillars. Pillar One remains 
focused on taxing large, highly profitable multi-nationals, 
disproportionately impacting U.S. tech companies, and 
reallocates a share of their profits to market economies. 
Pillar Two, meanwhile, morphed into a Global Minimum Tax.
    At a high level, other countries were trying to copy GILTI. 
But in the OECD's hands, the scope of the idea has grown.
    Now, if Pillar Two was simply a platform for other 
countries to mimic GILTI, we wouldn't be here today. But three 
changes made between the 2021 agreement and the release of the 
OECD model rules turned the OECD minimum tax into a U.S. 
revenue loser.
    The first was that the UTPR, the Undertaxed Profits Rule, 
provides other countries full rein to tax the domestic earnings 
of U.S. multi-nationals.
    Second, many U.S. general business credits, because they 
are not refundable, are treated as reducing taxes paid and 
increase the risk of a top-up tax being imposed.
    And third, Pillar Two now encourages other countries to 
enact their own qualified domestic minimum taxes, QDMTTs. The 
details are complicated, but the principle is not. When other 
countries increase taxes on U.S. multi-nationals, the U.S. 
loses money because of the foreign tax credit. This is the 
landscape we face today.
    I would like now to sketch out possibilities for fixing the 
deal to minimize its harmful impacts.
    One, the U.S. could modify its domestic rules so that they 
conform to Pillar Two. But this is unlikely to make up the 
revenues lost to other countries, while also costing the U.S. 
fisc.
    Two, the U.S. could threaten other countries with 
retaliation, but this could have harmful impacts on cross-
border trade.
    Three, the U.S. could encourage the OECD to modify some of 
the worst of its arbitrary rules. I think the guidance released 
earlier this week suggests that this is a viable path.
    And four, the OECD rules are based on financial accounting, 
but it is Congress, through the SEC, that retains the ultimate 
authority for the accounting guidelines, followed by publicly-
traded companies.
    Over the longer term, the two-pillar agreement highlights a 
failure in Treasury's interaction with Congress when pursuing 
international tax negotiations. Congress could and should be 
providing Treasury with clearer guidance here. A model could be 
the Trade Promotion Authority, which guides the executive 
branch when it is pursuing and negotiating trade agreements.
    Thank you again for inviting me to testify. I would be 
happy to answer any questions you may have.
    [The statement of Ms. Herzfeld follows:]  
    
    
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    Mr. HERN [presiding]. Thank you, Ms. Herzfeld.
    Mr. Michel, you can start if you are ready.

STATEMENT OF ADAM MICHEL, DIRECTOR OF TAX POLICY STUDIES, CATO 
                           INSTITUTE

    Mr. MICHEL. Chairman Kelly, Mr. Hern, Ranking Member 
Thompson, members of the subcommittee, thank you for inviting 
me to testify today. I will begin by describing how the OECD 
has abandoned its founding principles, then highlight the costs 
of the Biden Administration's work with the OECD to overturn 
domestic tax laws, and conclude with how Congress should 
respond.
    Founded more than a century ago, the Organization for 
Economic Cooperation and Development was established to 
preserve individual liberty and increase well-being. It did 
this by expanding trade and international investment. An 
important part of this work was the OECD's role in coordinating 
international tax systems to reduce the double taxation of 
international income.
    In recent decades, the OECD has transformed into an 
unaccountable, taxpayer-funded special interest group for our 
government-centric economic policy model. This is a perversion 
of the principles on which it was founded. Through its project 
on Base Erosion and Profit Shifting, bureaucrats in Paris have 
abandoned the pretense of objectivity. They have done this as 
part of a multi-decade crusade against any country that dares 
use its tax code to compete for international business.
    Its most recent work has culminated in a two-pillar 
proposal that aims to take domestic sovereignty over tax law 
away from elected governments around the world, increase 
economically costly corporate tax rates, raise new revenue from 
primarily U.S. firms, and redistribute taxing rights away from 
productive economies to consumer economies.
    Pillar One is intended to replace extraterritorial Digital 
Services Taxes targeted at the United States' most profitable 
and iconic digital brands. These taxes have been widely 
criticized on a bipartisan basis.
    Pillar One's new digital tax isn't any better. It is 
designed to redistribute the profits of the largest American 
businesses to revenue-hungry governments across the world.
    Pillar Two's 5-part 15 percent minimum tax is even worse. 
It includes a new extraterritorial levy that will allow other 
countries to reach into our borders and claim taxing rights 
over the U.S. domestic income of U.S.-based companies. 
Estimates indicate that Pillar Two will reduce U.S. revenues by 
more than $120 billion, shrink domestic investment, and end 
hundreds of thousands of American jobs.
    Both Pillar One and Pillar Two are bad deals for the United 
States. Every member on this dais, regardless of where you 
think our--ultimately our tax laws should end up, should be 
absolutely outraged at how the Administration has used the OECD 
to circumvent your constitutional role in policy-making. By 
side-lining Congress, Treasury's negotiators have colluded with 
foreign powers to tax American businesses. They have done this 
after Congress, on a bipartisan basis, rejected the 
Administration's preferred tax policies.
    So, what can Congress do?
    First, Congress should instruct the President to 
immediately withdraw from the OECD convention and stop funding 
the close to 20 percent of the organization's budget we 
support. The OECD is not only bad on tax policy, its projects 
on inequality, labor markets, and climate pursue whole-of-
government approaches which seek one-size-fits-all solutions, 
regularly calling for higher taxes, more redistribution, and 
greater government subsidies. It is a disgrace that American 
tax dollars are subsidizing an organization that is actively 
undermining American competitiveness abroad.
    Second, and even more importantly, after rejecting the 
OECD's tax increases, America needs to be the most attractive 
place to do business in the world. Building on the reforms in 
2017, Congress should lower the corporate tax rate to the OECD 
and Biden Administration agreed-upon rate of 15 percent or 
lower; finish the transition to a full territorial 
international tax system; and make full expensing for all new 
U.S. business investments permanent. This would be the most 
powerful message Congress could send to the OECD. We should be 
playing the tax competition game they are trying to stop.
    Your leadership is ultimately necessary to protect American 
workers from a future dictated by policy-makers in Europe, a 
future that would include higher taxes, slower growth, and 
fewer jobs.
    Thank you, and I look forward to your questions.
    [The statement of Mr. Michel follows:]  
    
    
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    Mr. HERN. I appreciate it. Thank you, Mr. Michel.
    Ms. Gordon, you may proceed.

  STATEMENT OF ANNE GORDON, VICE PRESIDENT, INTERNATIONAL TAX 
             POLICY, NATIONAL FOREIGN TRADE COUNCIL

    Ms. GORDON. Good afternoon, Mr. Chairman, Ranking Member, 
and members of the Tax Subcommittee. Thank you for inviting me 
today to testify about this critical issue. I am the vice 
president for international tax policy at the National Foreign 
Trade Council.
    NFTC is an association of U.S. business enterprises engaged 
in all aspects of international trade and investment. Our goal 
is to foster an environment in which U.S. companies can compete 
globally.
    On balance, the work of the inclusive framework fails in 
several respects and, in too many instances, specifically harms 
the competitiveness of American businesses. The continued 
engagement of Congress is essential to creating stability and 
protecting American interests.
    First, let me briefly mention Pillar One. The business 
community has repeatedly requested a final consultation on the 
overall Pillar One concept, as there are several major 
problematic issues still unresolved in both Amount A and Amount 
B. There must be a cohesive, workable structure for tax 
administrations and taxpayers on all of Pillar One, one that 
has the backing of Congress. At this juncture, we feel it would 
be premature for the U.S. to sign the Pillar One multilateral 
convention being released later this year.
    International tax is a complicated web of U.S. and foreign 
laws and bilateral income treaties. And Pillar Two is adding to 
that. With the Tax Cuts and Jobs Act enacted in 2017 by 
Congress, there is a new international tax system that ensured 
the foreign operations of U.S. companies were subject to 
minimum tax under the first-of-its-kind GILTI framework. And 
U.S. base erosion was prevented under the BEAD.
    In short, the United States is not now, nor has ever been a 
tax haven. Moreover, the notion that additional foreign minimum 
taxes are needed to prevent the abusive use of the U.S. tax 
code is unfounded.
    The breadth of issues still remaining with the nearly 
complete Pillar Two agreement is unsettling. The initial rules 
were created without sufficient or--and at times disregard of 
input from the business community. The final rules currently 
contain multiple flaws that will hurt investment in the United 
States.
    More than anything else, what we need is time, time to 
create a cohesive set of rules that accommodate U.S. tax 
policies and ensure that U.S. businesses, U.S. workers, and the 
U.S. economy are not disproportionately harmed. The recently-
announced delay in the application of the Undertaxed Profits 
Rule, UTPR, is a step in the right direction, and is unlikely 
to have occurred without the attention of Congress on this 
project.
    For many NFTC members, compliance with Pillar Two is a 
looming reality, whether or not the United States makes any 
domestic law changes. The more compliant the existing U.S. tax 
system is deemed to be with Pillar Two rules, the better the 
result for U.S. companies and workers. One such fix is the 
earlier global consensus that current law GILTI is a compliant 
Income Inclusion Rule, or IIR. In designing the Pillar Two 
minimum tax, non-refundable credits are disfavored, while 
refundable credits more commonly used in other countries, and 
direct cash grants are favored.
    In short, the use of many bipartisan credits, such as the 
R&D credit, could reduce a corporation's tax rate below 15 
percent and allow other countries to impose additional tax--
effectively, a clawback of U.S. tax credits.
    It is extremely troublesome that U.S. negotiators have not 
succeeded in broadly protecting U.S. credits, while other 
countries were given specific carve-outs for their incentives 
and industries. Even the acceptance of refundable credits 
merely adds them to the denominator of the ratio, which is tax 
paid over taxable income. This is helpful in many fact 
patterns, but it can still result in additional tax for those 
with significant investments, such as the energy credits. The 
new preferential treatment of transferable credits, similar to 
that of refundable credits, is not without numerous 
complexities which may result in limited practical utility.
    Above and beyond the policy concerns, the Pillar Two tax 
return is unworkable and an unadministrable compliance burden. 
It puts U.S. companies' sensitive financial information and 
competitive advantage at risk for disclosure or leaking to non-
U.S. competitors. NFTC members have estimated the Pillar Two 
returns, as envisioned, would provide anywhere from 50,000 to 
200,000 data points, which is far greater than the 1,000 data 
points estimated for the EU's country-by-country reporting. One 
goal of the Pillar Two work was to provide tax certainty and 
reduce the number of tax disputes, but the opposite is more 
likely to occur.
    I do want to briefly mention the developing countries have 
expressed concern and dismay with the OECD inclusive framework, 
preferring the UN. Employing two competing processes or 
layering a UN regime over the OECD pillars would be disastrous. 
At this juncture, it appears U.S. companies and the U.S. fisc 
may lose, whether or not the U.S. adopts a conforming Pillar 
Two regime. However, the OECD has shown flexibility in 
interpreting and clarifying its rules, including the provision 
of numerous temporary safe harbors, with the one under the UTPR 
just this week.
    Congress's attention to this process has been helpful in 
obtaining this temporary relief. We urge Congress to continue 
working with the OECD, Treasury negotiators, and foreign 
counterparts to create a regime that works with the U.S. tax 
code, protects U.S. companies and workers from an unlevel 
playing field, and encourages investment and economic growth in 
the U.S. Thank you.
    [The statement of Ms. Gordon follows:]  
    
    
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    Mr. HERN. Thank you, Ms. Gordon.
    Mr. Schizer, you are recognized for five minutes.

STATEMENT OF DAVID SCHIZER, DEAN EMERITUS AND HARVEY R. MILLER 
      PROFESSOR OF LAW AND ECONOMICS, COLUMBIA LAW SCHOOL

    Mr. SCHIZER. Representative Hern, Ranking Member Thompson, 
and distinguished members of the subcommittee, thank you for 
inviting me to this hearing.
    Our international tax system is famously complicated, but 
some things are simple, or at least they should be. And I am 
here to make two simple points: first, in the United States, 
taxes must be imposed by Congress, not the President; second, 
the tax policy of the United States should be set by the United 
States, not by other countries.
    Unfortunately, in joining the Pillar Two agreement, which 
imposes a Global Minimum Tax on large corporations, the Biden 
Administration has strayed from both of these principles. 
Proceeding without congressional approval, they have given 
other countries significant influence over our tax system.
    So Congress is now under pressure to enact a Global Minimum 
Tax that satisfies Pillar Two. Technically, the agreement 
doesn't compel it to do so, but there is a steep price for 
saying no: other countries will be able to collect and keep 
this tax. So, if a U.S. company like Apple uses a tax credit to 
cut tax on its U.S. income, U.S. income below 15 percent, 
France and Germany will be able to take away this tax savings, 
even though Congress meant to provide it. This puts Congress in 
a difficult position.
    The message, essentially, is adopt a Pillar Two minimum tax 
or other jurisdictions will do it for you. This denies Congress 
the ability to make an independent choice. By analogy, think 
about a non-profit that asks for a donation, which is supposed 
to be voluntary, but then adds, ``if you don't give us the 
money, those big guys over there will take it from you.''
    This pressure is all the more inappropriate because the 
U.S. already has three minimum taxes in place. In fact, we led 
the way in enacting them. But our minimum taxes don't satisfy 
the OECD. The Biden Administration should have said that we 
would join Pillar Two if and only if our minimum taxes were 
sufficient. Instead, the Administration got out ahead of 
Congress, undercutting Congress's ability to make an 
independent choice about Pillar Two.
    This is not the way taxes are supposed to be imposed in 
this country. Under the Constitution, only Congress has the 
power to lay and collect taxes. This is an expression of a 
fundamental idea: No taxation without representation. The 
President can't just rewrite the tax law on his own. For 
example, the U.S. had one of the highest corporate tax rates in 
the world until Congress cut it from 35 percent to 21 percent 5 
years ago. But if Congress had voted down this measure, could 
the Trump Administration have done this on their own, 
announcing that they would collect only a 21 percent tax? 
Obviously not. The same is true for the Biden Administration.
    The right way to change our minimum tax regimes is to 
appeal to Congress or, if they say no, to voters, not to an 
international organization. This brings me to my second point: 
Should we really give the OECD so much power?
    Unfortunately, the U.S. now has one set of minimum taxes, 
the OECD has another, and they aren't in sync. This pressures 
us to revise our rules to spare U.S. businesses from double 
taxation. According to the Joint Committee, as has already been 
discussed, we also are going to lose a great deal of revenue.
    Some might call it unfair to blame the Biden Administration 
for what other countries do. For example, if a U.S. multi-
national like Apple wants to do business in France, Apple 
chooses to be subject to whatever taxes France imposes on 
profits there. But let me emphasize ``on profits there.'' 
Pillar Two does more than that. With the UTPR [sic], France can 
collect tax from Apple's French subsidiary based not on the 
French subsidiary's income in France, but on the U.S. parent's 
income in the U.S.
    To see how aggressive this is, imagine that you live in 
Virginia and your daughter lives in California. Obviously, 
Virginia can tax you, since that is where you live and earn 
money. But should California also be able to tax you, and to do 
it through your daughter? Is it okay for California to tax your 
daughter based not on what she earns in California, but on what 
you earn in Virginia? This is what a UTPR does.
    When faced with this sort of overreach, the Administration 
should push back and threaten retaliation, as the House has 
done. But in committing to Pillar Two, the Administration 
essentially pledged not to object to this overreach. Arguably, 
they encouraged it.
    To sum up, the Administration has empowered other countries 
to reshape our tax law, while curtailing Congress's role. This 
is not the way our system is supposed to work.
    Thank you, and I look forward to your questions.
    [The statement of Mr. Schizer follows:]  
    
    
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    Chairman KELLY. Thank you, Mr. Schizer.
    Mr. Barnes, five minutes.

  STATEMENT OF PETER BARNES, INTERNATIONAL TAX ADVISOR AND OF 
                  COUNSEL, CAPLIN AND DRYSDALE

    Mr. BARNES. Representative Hern, Ranking Member Thompson, 
and distinguished members of this committee, I appreciate this 
opportunity to speak on Pillar Two. This is a critically 
important proposal, and how the U.S. responds will have a major 
impact on our companies, their global competitiveness, and the 
U.S. fisc.
    Yes, Pillar Two represents a significant change in 
international tax law, but it comes as the next step in decades 
of efforts to align international tax rules so that 
corporations can and will run their businesses based on market 
fundamentals, not taxes. The U.S. competes very successfully in 
that environment.
    The U.S. is the model for much of Pillar Two. Congress 
deserves credit for enacting GILTI, which demonstrated the 
soundness of ensuring corporate income earned outside the 
parent company's home jurisdiction is subject to a minimum tax.
    The reason the United States should join this initiative is 
quite simple. More than 100 countries will adopt Pillar Two in 
their domestic laws. The proposal is not going to be abandoned. 
So, the United States faces a choice: join this exercise or 
stand outside the process. The merits of joining are clear.
    First, the U.S. Fisc is better served by joining Pillar 
Two. The revenue impact on the United States is uncertain, as 
detailed in the Joint Committee's analysis. But one conclusion 
from the JCT is clear: the U.S. will earn more tax revenue if 
it adopts the Pillar Two agreement than if the U.S. stands 
aside while other countries proceed.
    Second, U.S. multi-national companies will benefit, 
compliance burdens will be reduced, and competitiveness will be 
improved. Today, U.S. companies are subject to our GILTI tax, 
but no other country has a similar regime. Competitor companies 
often pay little or no tax on low-taxed earnings of foreign 
subsidiaries. The Global Minimum Tax will benefit U.S. 
companies by subjecting their competitors to a minimum 15 
percent tax.
    The legislative changes required for conformity with Pillar 
Two are modest. The Build Back Better legislation approved by 
this committee in the House of Representatives in 2022 included 
the changes to U.S. law required to align the U.S. with Pillar 
Two. The path forward is well marked.
    Much of the criticism of Pillar Two has centered on the 
Undertaxed Profits Rule. Critics argue that the UTPR violates 
tax sovereignty. This argument, in my view, misunderstands the 
concept of sovereignty. If a country adopts tax rules into its 
law, that is the quintessential exercise of tax sovereignty.
    Indeed, that is the argument the U.S. has made for three 
decades when countries object to the use of arbitration for 
dispute resolution under treaties. Countries complained that 
allowing arbitrators to decide a tax dispute was a denial of 
sovereignty. No, the U.S. responded repeatedly. When a 
sovereign adopts a rule such as tax arbitration, there is no 
loss of sovereignty because it is the decision of the sovereign 
to establish that procedure. The argument that Pillar Two 
undermines U.S. tax sovereignty is not persuasive.
    More importantly, the UTPR is an important but diminishing 
feature of Pillar Two. If a country adopts the key elements of 
Pillar Two, there will be no undertaxed foreign income earned 
by that corporation--country's corporation subject to the UTPR. 
The UTPR safe harbor regarding home country income announced on 
Monday by the OECD eliminates, at least temporarily, the risk 
that other countries will tax income earned by U.S. companies 
from U.S. activities.
    Pillar Two is the result of many compromises. Any informed 
critic can find elements of the proposal that need further 
work. Fortunately, discussions about the technical issues are 
still under debate. So far, the United States has had a full 
voice in those discussions, but there is a limit to what weight 
the U.S. interests will be given if the U.S. chooses to stand 
outside Pillar Two. The U.S. must join the initiative so that 
the U.S. voice will continue to be strong and effective in 
negotiating these rules.
    Some critics of Pillar Two act as if the proposal can still 
be derailed. At last count, 138 countries indicated their 
intention to join. The choice facing the U.S. is binary: adopt 
the proposal or step away from the table with the attendant 
consequences.
    I urge this committee to align the U.S. tax rules with 
Pillar Two. That will continue our leadership in developing 
sound international tax practices that benefit our companies 
and their ability to drive economic growth. Thank you.
    [The statement of Mr. Barnes follows:]  
    
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    Mr. HERN. Thank you, Mr. Barnes. I would like to thank each 
of the witnesses for your expert testimony, and we are going to 
now move into the question-and-answer session, and so I will 
recognize myself.
    The overall goal of Pillar Two is to ensure that all 
companies are paying a minimum rate of 15 percent everywhere 
they operate. It makes no sense to me that non-refundable tax 
credits are treated worse than refundable tax credits in the 
OECD Pillar Two rules. The OECD's whack-a-mole approach to 
eliminate tax competition is ill considered.
    Ms. Herzfeld, as you know, the Pillar Two rules favor 
refundable tax credits. JCT finds that the effectiveness of 
Pillar Two might be significantly weakened by the introduction 
of refundable tax credits by low-tax jurisdictions. ``The 
country that introduces them thereby preserves its fiscal 
competition feature without visibly having a low-tax rate.'' 
Ms. Herzfeld, do these rules, these rules that were just 
stated, do these rules eliminate tax competition, or merely 
just create a new competition for direct-pay tax-tradeable 
subsidies?
    Ms. HERZFELD. Thank you for the question. Yes, they do, the 
latter part of your question. They shift tax competition to 
other areas. One is in the form of the type of tax incentives 
that countries could offer. And so countries can compete along 
the lines of credits that are blessed by the model rules.
    The other way they can compete are also noted by the Joint 
Committee. They can compete for--in the substance-based income 
exclusion, so that allows an exclusion from the top-up tax, and 
so they can compete in that area, as well.
    Mr. HERN. And with that would come negotiations that would 
get you--as a company or in a country, you would--you would 
negotiate that with a body like ours, supposedly, or something 
similar, to be able to get those. And it would be a 
competition, much like it is today. It would be influence 
peddling and lobbying, and it would be all of those combined, 
except in a different world. So, it is the old saying, ``Tell 
me the rules and I can play the game,'' is that fair?
    Ms. HERZFELD. Correct. And also note that they--in addition 
to tax incentives, this encourages a shift to direct subsidies. 
And so, there is [sic] lots of different ways that countries 
can and probably will compete to encourage investment in their 
jurisdictions.
    Mr. HERN. So, it would be credits that would incentivize 
certain companies to possibly stay there and do business and 
pick and choose winners and losers for in-country competition, 
favoring one competitor over another, possibly. All these 
things come into play that would create a whole other--another 
set of rules that we would have to put in place and look at. Is 
that correct?
    Ms. HERZFELD. Yes. I mean, the reality is countries compete 
for investment. And, if one avenue is shut down, then they will 
likely move to another.
    Mr. HERN. Do you see this creating--I think you have 
alluded to this--creating a sort of a whole new government 
free-for-all with added complexities and burdens that go along 
with that? Is that--I believe that is what you are saying.
    Ms. HERZFELD. So, these rules squash certain types of 
investments, and so they will encourage other types of 
incentives to proliferate, which--yes, you have added 
complexity in shutting down one area, and--but taxpayers are--
and businesses are always creative in trying to maximize their 
return on their investments in jurisdictions, and countries are 
creative in trying to encourage businesses to invest there.
    Mr. HERN. Mr. Schizer, if I may, I really appreciate your 
scenario of really bringing it down to what everybody can 
understand. In your example of Virginia, my colleague here 
said, yes, they would love for California to be able to tax 
everybody in every state for all----
    Mr. SCHIZER. No, I said your daughter. [Laughter.]
    Mr. HERN. Oh, oh, my daughter in your state, even though 
she has never been there.
    Mr. Schizer, can you go into detail how the OECD's favoring 
of certain credits over others can be problematic in the future 
as it relates to the sovereignty of this nation, and how the 
powers of this committee laid out in the Constitution could be 
usurped?
    Mr. SCHIZER. My apologies. Thank you for the question.
    Look, the Constitution is clear about this, that this is 
the prerogative of Congress, and this is a very old idea. We 
fought a revolution years ago because of concerns about a king 
and a distant parliament who weren't listening to American 
voices. And the Declaration of Independence emphasizes that 
taxes can't be imposed without representation. So it makes 
sense that revenue bills begin with you. They begin in the 
House because you are closest to the people.
    Now, it is true the President does also partner with 
Congress in negotiating with foreign countries. But it is a 
partnership. When there are treaties, the President negotiates, 
proposes, but it is the Senate that needs to ratify. So we 
really don't want the President acting unilaterally, and I want 
to emphasize this is not--and should not--be a partisan point. 
Sometimes the president is a Democrat, sometimes the president 
is a Republican, and it should not be the case that a president 
can partner with an international organization to circumvent 
the will of Congress.
    And I will just give an example that maybe points in the 
other direction. There has been talk about the energy credits 
that were passed last summer. If the next President doesn't 
like them and says, ``Please repeal them,'' it will be up to 
Congress to decide whether to do that. It should not be 
possible for the President to go to the OECD and say, hey, 
trigger a top-up tax to eliminate those, because I don't like 
them.
    Now it is--thank you.
    Mr. HERN. Thank you. I am going to--one last question, and 
we will move on to the ranking member.
    Ms. Herzfeld, a few of my colleagues on the other side of 
the aisle have made a push to modify the U.S. rules for taxing 
the foreign income of U.S. multi-nationals so that it is 
calculated on a jurisdictional basis, also known as country-by-
country. As you know, this is the primary change to GILTI to 
come into conformity with Pillar Two.
    Would this modification change JCT's outlook for the U.S. 
fisc? Meaning, if the U.S. modified the GILTI rules to be 
compliant with the OECD-brokered deal as JCT estimated, the 
U.S. will still lose billions of dollars in revenue?
    Ms. HERZFELD. So I don't have the details behind the Joint 
Committee's analysis, but it seems to me that the two primary 
factors that are driving the numbers that showed a loss of U.S. 
revenues were, one, the fact that if other countries enact new 
domestic minimum taxes to increase their tax rate to 15 
percent, the U.S. has to provide a foreign tax credit for that. 
So that is an automatic revenue. So other countries increase 
their taxes, ours goes down. Country-by-country GILTI doesn't 
change that. And the other is the UTPR that imposes a tax on 
U.S. domestic source income. And country-by-country GILTI 
doesn't change that, either.
    Mr. HERN. Thank you for your response. I would like to 
recognize the ranking member, Mr. Thompson.
    Mr. THOMPSON. Thank you, Mr. Chairman. Thanks to all the 
witnesses for being here today.
    Mr. Barnes, we have heard quite a bit from our Republican 
colleagues on the topic of sovereignty, and why they believe 
that the Pillar Two agreement threatens the United States 
sovereignty to enact tax laws. But isn't it true that each of 
the countries in the inclusive framework, including the United 
States of America, has the right to enact or not to enact 
domestic legislation that aligns with Pillar Two?
    Mr. BARNES. Thank you for the question. Yes, every country 
retains its authority, and it is an important point to note 
that there is not a one-size-fits-all. The OECD's agreement is 
trying to align the rules. It is not prescriptive to say you 
must do A, B, C, D, E. There is flexibility within the 
framework for how countries choose to adapt. And that is why 
modifying the U.S. GILTI rules may be sufficient for the U.S., 
even though another jurisdiction takes a different approach to 
aligning with the proposals under Pillar Two.
    Mr. THOMPSON. Thank you. And doesn't the fact that we are 
having this hearing today and the fact that the elected Biden 
Administration has been negotiating with the OECD mean that we 
are not ceding our sovereignty?
    Mr. BARNES. Well, that certainly would be my view, thank 
you.
    And again, I come back to what I said in the oral 
statement, which is in arbitration for tax disputes other 
governments have said, ``That is a loss of my sovereignty'' and 
the U.S. has said, ``No, you as the sovereign can choose to 
have certain disputes settled by arbitration, and that does not 
impede your sovereignty one bit.''
    Mr. THOMPSON. Thank you very much. Mr. Barnes, again, many 
of my colleagues across the aisle seem to think the U.S. should 
abandon these OECD negotiations. As a matter of fact, one of 
the witnesses mentioned that, too. I mentioned to the chairman 
that, you know, that old saying that if you are not at the 
table, you are on the menu, and I think that might hold true 
here, as well.
    In your view, which would be better for American businesses 
and American workers, remaining at the table to ensure a fair 
outcome or walking away from the table entirely?
    Mr. BARNES. Well, I am a huge believer that we need to be 
at the table and our voices heard.
    One thing that is important--and I spent four-and-a-half 
years at the Treasury Department--one thing that is important 
to remember is that our voice is widely respected within the 
world. We have been a leader in developing international tax 
principles for a century, and our voice is heard. But if we 
walk away from Pillar Two, then our concerns will not be taken 
into account with nearly the same weight as if we are a player 
in the exercise.
    Mr. THOMPSON. Thank you, and thank you for pointing out the 
time you spent at Treasury. I think we have a very unique 
witness in you, Mr. Barnes, the fact that you have been at 
Treasury, you have been a player in negotiations such as these, 
you have been in the private sector, and you have been a tax 
consultant to many major corporations and entities. I think you 
bring a lot of expertise to the witness dais today.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. HERN. I thank the gentleman. Now I would like to 
recognize the gentleman from Georgia, Mr. Ferguson.
    Mr. FERGUSON. Thank you, Mr. Chairman, and thank you to the 
witnesses for being here today.
    Ms. Herzfeld, I am going to start with you. You may have 
been here, and you may have heard Mr. Plowgian telling us that 
our treaties allow us to tax income earned outside its borders. 
And he cited the example of CFCs. Do you think that this is 
accurate?
    Ms. HERZFELD. So, our CFC regime, which is known as subpart 
F, has been in place since 1962, and it is widely accepted that 
treaties allow for taxation of foreign earned income by CFCs. 
Subpart F--and that is what GILTI does also.
    There is a big difference between subpart F and GILTI and 
the taxing provisions of the UTPR, which allow for 
extraterritorial taxation in a way that violates existing 
treaty principles. And so there is--although the U.S. laws that 
are in place are consistent with treaties, the UTPR is much 
more questionable.
    Mr. FERGUSON. So it is--in your opinion, that would lead to 
less stability in international tax administration, and 
probably lead to disputes with our trading and taxing partners?
    Ms. HERZFELD. I think there are big, open questions about 
whether the UTPR is consistent with existing tax treaties. 
Several European academics have recently written a long article 
explaining why they think it is not consistent with treaties, 
and so I don't know what happens when you have a lot of 
countries enacting a law that conflicts with their existing tax 
treaties.
    Mr. FERGUSON. And we should certainly be having 
communication with the Treasury Secretary and the 
Administration, sharing work product. And we should--this 
committee should be at the forefront of determining that.
    Moving on, Mr. Schizer, if I heard you right--we are 
talking about refundable credits--if a company here in the U.S. 
has $300 million of taxable income, 400 million, a billion, 
whatever the number is, and then they decide that they are 
going to take advantage of the Green Energy Tax Credits, and 
they take advantage of 300 million of those, and they 
effectively drive their tax rate here in the U.S. down to 0--
yes?
    Mr. SCHIZER. Yes.
    Mr. FERGUSON. Okay. Now, if that happens, then a European 
country could say, well, you have an effective tax rate of 
zero. Therefore, we are going to tax an additional 15 percent 
to bring you up. Right?
    Mr. SCHIZER. That is the risk I was identifying, yes.
    Mr. FERGUSON. So, we are going to--let's just think about 
this for one second. So the corporations that my colleagues on 
the other side of the aisle and this Administration have railed 
against about paying their fair share in this example would go 
from $300 million of taxable income to 0, and then we are going 
to take 15 percent of their--of that, and we are going to give 
it to somebody in France or Italy or Germany or wherever.
    Mr. SCHIZER. So the OECD has given a bit of guidance giving 
comfort on this. But I can tell you, as someone who has 
practiced tax law for 30 years, we have never heard the last 
word on anything. If they wanted to change the guidance 
tomorrow, there is a risk that those credits become ineffective 
because all of a sudden France is nullifying them with a tax.
    Mr. FERGUSON. Okay. So we are not collecting tax revenue 
here, and we are giving tax revenue to a foreign country.
    Mr. SCHIZER. Yes, sir.
    Mr. FERGUSON. Okay. Mr. Michel, I have heard a witness say 
here that we are faced with a--what I believe is a false 
choice, which is either join in the discussions or be left on 
the sidelines. We are America. We are the world's number-one 
economy, the number-one place to innovate. We have the most 
productive workforce. We are in a unique spot.
    Instead of being--instead of our voices being heard, 
shouldn't our policies dictate, and should not we--or shouldn't 
we be putting America in a place of leading the world and not 
simply following behind it?
    Mr. MICHEL. Thank you for the question. I do believe that 
America should be setting the tax policy that is right for us 
and is growing our economy and helping American workers here in 
the United States. And the way we do that is keeping our taxes 
low, setting policies that encourage innovation and investment.
    And the--we have been at the table as part of this, the 
ongoing process. And you can see where it has gotten us. The 
U.S. fisc is about to lose hundreds of billions of dollars, 
investment in the United States is projected to go down, and 
members up and down the dais here were just pleading with a 
representative from Treasury to make sure that companies can 
still access tax credits that you all put into place.
    Mr. FERGUSON. One more quick question for Ms. Gordon.
    Ms. Gordon, at the end of the day, American business 
counts. It counts because it provides jobs for American 
workers. Do you see this creating more jobs or taking away jobs 
from America?
    Ms. GORDON. As currently envisioned, it seems to reduce the 
number of jobs in the United States.
    Mr. FERGUSON. Thank you. I yield back.
    Mr. HERN. I thank the gentleman. The gentleman from Texas, 
Mr. Doggett.
    Mr. DOGGETT. Thank you very much.
    Mr. Michel, though you and I have very significant 
disagreements about most everything you testified to, one thing 
that I do want to say is that you are to be commended for your 
candor in your testimony and particularly that portion of your 
written testimony that you indicate that eliminating corporate 
taxes is a worthy goal, because I think that is exactly what 
these folks have been trying to do. They reduced the corporate 
tax rate by 60 percent in 2017 and, of course, for those multi-
nationals that have stashed so much money down in the Cayman 
Islands, $60 billion in 1 year, and are only paying 0.6 tenths 
of 1 percent in taxes, they have gotten very close to your goal 
of just eliminating corporate taxation on those monies. And 
defending this kind of system assures that we will have more of 
the same kind of tax scam.
    Mr. Barnes, I want to ask you about some of the arguments 
that I have heard from my colleagues. One of them has been, 
well, why didn't the Treasury Department just go over there to 
Europe and get exempt every tax credit that we have? Don't you 
suppose, Mr. Barnes, that if we ask for that, that every other 
country would ask to have every credit and preference and 
loophole in their tax code exempted, as well, so that the idea 
of a minimum tax and stopping the race to the bottom would be 
totally meaningless?
    Mr. BARNES. Well, I suspect--thank you. I suspect everyone 
in this room has been involved in negotiations, in tax 
negotiations, whether it is tax treaties or a negotiation like 
this, Pillar One/Pillar Two exercise. Every country comes with 
its sovereign interests. And the idea that the U.S. can 
completely bully its way through is, I think, a false optimism.
    Yes, we have a lot of authority. But if our take-it-or-
leave-it is--all of our stuff is good, other countries are 
going to insist on the same approach.
    Mr. DOGGETT. We can't just be a go-it-alone if we want to 
be a true leader in the world.
    And the other argument that they make is, well, we have got 
this GILTI tax, why didn't they just go over and get it 
accepted and approved? And I know that some negotiations are 
still continuing, but the GILTI tax has a few loopholes in it. 
One of them is that they blend the country-by-country, instead 
of defining the results country-by-country, and that allows for 
a great deal of subversion for the whole idea of a minimum tax.
    What is your feeling about the failure to just totally 
exempt GILTI as it exists today? The same GILTI, by the way, 
which, as I pointed out from the joint tax analysis, those are 
the 88 multi-nationals that are now paying under 8 percent as 
their tax rate.
    Mr. BARNES. Well, it is important to recognize that the 
GILTI tax paid by U.S. corporate taxpayers is counted in the 
calculation toward the Global Minimum Tax. So it is not like 
the GILTI tax is on top of the Global Minimum Tax. It simply 
has not yet been deemed sufficient to eliminate any need to 
compete and comply with the minimum tax.
    Mr. DOGGETT. In your opinion, would the adoption of a 
Global Minimum Tax the Treasury has been advocating, what is 
called Pillar Two, would it diminish the competitiveness of 
U.S. businesses?
    Mr. BARNES. I think the answer is no. And I realize I may 
be an outlier here, but let me give a concrete example.
    A U.S. company invests in a low-tax jurisdiction, 
Switzerland, Singapore, a real business, $500 million, 1,000 
very skilled workers. Because of Singapore's tax incentives, 
there [sic] zero tax. A Singapore-owned Singapore company pays 
zero. A Dutch-owned Singapore company pays zero. A U.S.-owned 
Singapore company pays 10.5 percent under GILTI. That is our 
rules today. The U.S. company is handicapped by 10.5 percentage 
points. A Global Minimum Tax may cause the U.S. company in 
Singapore to pay a little more tax, but it will bring up the 
tax for the Singaporean-owned Singapore company and the Dutch-
owned Singapore company to 15 percent. In that environment, I 
am quite confident the U.S. company's subsidiary in Singapore 
will be very successful.
    Mr. DOGGETT. Well, thank you for your example. Just 
overall, if we set a reasonable minimum on taxation, we would 
be competing with other countries not on whether we could have 
a race to the bottom with the lowest possible taxes, but on 
things like education, our justice system, our workforce, our 
ability to do research and development here. And I think the 
United States would lead that competition.
    Thank you very much.
    Mr. HERN. I thank the gentleman. The gentleman from Kansas, 
Mr. Estes.
    Mr. ESTES. Well, thank you, acting chairman, or chairman, 
and thank you to the panelists for being here today. It is 
important that we talk through this issue.
    Just as we saw with the previous panel, the Treasury 
Department is willfully ignoring the reality by working around 
Congress, working around the committee, and trying to pave the 
way for new taxes through these deals with the OECD that are 
fundamentally un-American, and would give away our tax base to 
foreign countries.
    Throughout the process of the OECD Base Erosion and Profit 
Shifting, the BEPS 2.0 negotiation, the Administration has 
repeatedly made commitments that are out of its prerogative to 
both make and fulfill. Treasury has cut Congress out of the 
process, even though constitutionally only Congress can write 
tax laws and commit the United States to the end deal 
negotiated at OECD.
    And why is the Administration repeatedly ignoring the 
requests of the committee and doubling down on the efforts to 
give away American tax base? It is all to ram down this bad, 
anti-American policy. At virtually every step of the 
negotiation process, the Administration has chosen America 
last. The deal is so terrible I have to ask which country's 
interests the Biden Administration negotiated for, because it 
doesn't seem to be the interests of America that the Treasury 
is negotiating for.
    As a result of Pillar Two, if we follow UTPR, the U.S. 
Treasury would get less tax revenue, U.S. businesses will pay 
more in taxes, U.S. businesses will have more administrative 
costs and work effort to increase, U.S. taxpayers will not have 
credit for the current tax code provisions that they have to 
comply with, and it incentivizes businesses, whether located in 
U.S. or businesses located in other tax countries, to look for 
the lowest tax district because they will not have to pay the 
global minimum in addition to what they are already paying.
    We have already put the big effort in getting away from 
inversions with the Tax Cuts and Jobs Act that we passed five 
years ago.
    The concessions during the Pillar Two negotiations will 
result in U.S. companies paying more tax overall, but less to 
the United States. As the Joint Committee on Taxation 
identified, the U.S. will lose roughly $120 billion in tax 
revenue if Pillar Two is adopted globally but we don't change 
our tax code and will still lose 60 billion if we do adopt the 
OECD Pillar Two.
    And furthermore, our share of global gross domestic product 
is 24 percent, while U.S. country's share is 40 percent of the 
income exposed to the higher taxes, further evidence that the 
deal disappropriately affects the United States.
    Ms. Herzfeld, can you explain how such a scheme would 
benefit the United States?
    I mean, are [sic] there anything in the deal that benefits 
us in exchange for what we are giving away?
    Ms. HERZFELD. Thank you. I personally have trouble seeing 
the benefit, and I am often asked the question from people from 
other countries why the U.S. negotiated this deal.
    Mr. ESTES. You know, this week OECD announced the delays in 
implementation of one of the Pillar Two's most harmful 
provisions, the one that I think is really the problem, the 
Undertaxed Profits Rule. But this delay is not a fundamental 
change in this bad policy and only extends this uncertainty 
companies are facing.
    Ms. Gordon, what are the main concerns you hear from 
companies about complying with these new rules?
    What is the response you are hearing about the delay in 
implementation?
    Ms. GORDON. Congressman, thank you for your question. So, 
our members welcome the delay but, as you mentioned, it is not 
a change in policy. And some of the concerns are even with the 
UTPR safe harbor that only applies to the United States. So 
most multi-nationals have entities in other countries, as well. 
And if they are in Ireland, where there is a lot of U.S. 
investment, the UTPR safe harbor will not count on that income 
in Ireland, for instance.
    Mr. ESTES. So it is problematic. And from my point of view, 
if it is a bad policy, it is a bad policy next year, it is a 
bad policy two years later, it is just a bad policy. And that 
is not what we should implement.
    I am really concerned about this policy. I am really 
concerned about UTPR. I mean, as JCT confirmed, the United 
States will lose less if we are forced to implement the OECD 
Pillar Two provisions. It is not that we are going to gain 
more. And the fact that UTPR and Pillar Two is not really a 
volunteer tax sovereignty, I mean, if you want to consider 
extortionary threats of you either change your tax code or you 
pay this higher rate anyway. So, for that provision, I am 
really concerned about this process.
    Really, we need to fix the bad policy before it gets 
implemented, ever. And with that, Mr. Chairman, I yield back.
    Mr. HERN. I thank the gentleman. I would now like to 
recognize the gentleman from Connecticut, Mr. Larson.
    Mr. LARSON. Connecticut, yes. Thank you, Mr. Chairman, and 
thank all the panelists. This has been a very interesting 
session.
    We don't often spend as much time on the Constitution as we 
have today, and I am quite interested in the constitutionality 
of all this. I actually thought we were in a committee hearing 
in the United States Congress actually discussing, in the 
committee of cognizance, tax policy, and discussing the 
ramifications of that policy. So rather than working around, I 
kind of feel like this is working directly.
    And the way that our system works, four witnesses come with 
very important and well-established, well-researched views on 
their feelings, and one is a counterbalance to all of that. For 
those that are listening in on this, that is how the system 
works. That is how it is supposed to work.
    So, Mr. Barnes, I had to ask you especially, you seem to 
have a difference of opinion about Pillar Two.
    Number one, do you think that the Constitution is being 
violated here by the Biden Administration or here in Congress?
    Mr. BARNES. Well, because any tax legislation to enact 
Pillar Two will necessarily be started in the House Ways and 
Means, will go to the Senate, will be signed by the President, 
it will follow our ordinary course of constitutional progress 
for tax legislation at the end of the day.
    Mr. LARSON. And that was my impression, and that is--I used 
to be a history teacher in school, so I thought that we were 
following the Constitution. You can have constitutional 
concerns, but we are following the Constitution.
    Also, there is big disagreement over whether or not the 
future for this great nation of ours, in these joint agreements 
with more than 50 countries that are participating in this, it 
seems as though we should be going it alone, as opposed to 
working with other nations in a global economy, and in these 
times where we are in a world where we need to be at the table, 
seated there. And it seems as though we are saying no, what we 
need to do is operate alone and by ourselves. That, to me, 
sounds an awful lot like isolationism.
    How are we advantaged by working together with these other 
nations, Mr. Barnes?
    Mr. BARNES. Let me take two examples from tax history that 
are not directly Pillar Two.
    First would be the treatment of corporate bribes. Some of 
you are familiar with the history. In the 1970s the U.S. said 
corporate bribes are bad. They should not be tax deductible. 
Other countries where that is an ordinary course cost of doing 
business, it took 20 years before some of our major trading 
partners said bribes are not a good thing, we should make them 
non-tax-deductible and illegal. U.S. leadership took decades, 
but we got the right result.
    Same thing with bank secrecy. A tax system can only be 
enforced if there is adequate information. There were countries 
that said bank secrecy is part of our blood, you shouldn't come 
in and breach my bank secrecy. The U.S., with the help of 
Germany and a few other countries, over a period of time led to 
sufficient information exchange to enforce our laws.
    I think U.S. leadership consistently has helped improve 
global tax rules, and I am confident they did on Monday of this 
week. And the continued participation by the U.S. will make the 
ultimate Pillar Two rules much, much better.
    Mr. LARSON. And how will that advantage the United States, 
long run, in terms of our economy?
    Mr. BARNES. I hope it will help us. I realize that there 
are debates over whether Pillar Two ought to exist at all or 
not, but there are some distinct advantages. I mentioned one, 
with the Singapore example, to level the playing field.
    It will put pressure on countries to reduce their corporate 
tax rates. Those people who believe that high corporate tax 
rates--that is, way above 15 percent--are a deterrent to 
investment should cheer Pillar Two. With a country-by-country 
analysis, a country like India, Japan, with high corporate 
taxes will be starkly illustrated as having a rate where the 
taxpayers bear an excess cost. Today, with the blended rules 
under GILTI, that pressure doesn't fall entirely on the high-
tax jurisdictions because taxpayers can self-help to a lower 
rate.
    The other advantage for the U.S. is one Michael Plowgian 
mentioned, which is it will reduce the incentives for U.S. 
businesses to move offshore. That has an advantage for 
investment in the U.S., U.S. workers, U.S. jobs.
    Mr. LARSON. Thank you, sir. I yield back.
    Mr. HERN. I thank the gentleman. I would now like to 
recognize the gentleman from Tennessee, Mr. Kustoff.
    Mr. KUSTOFF. Thank you, Mr. Chairman. Thank you for the 
witnesses for appearing today.
    Ms. Gordon, could I go back to you and follow up maybe a 
little bit on what Mr. Estes asked you? In your written 
testimony--and this is about compliance--you talked about how 
businesses are establishing systems right now to try to comply 
with Pillar Two's extensive reporting requirements. And, in 
your testimony, you noted that one NFTC member has already 
spent a lot of money--I think you said eight figures--and 
15,000 hours preparing for those Pillar Two requirements.
    Can you talk more about the compliance burdens that Pillar 
Two will impose on U.S. businesses? What type of information 
are they going to have to submit, and what are the--what are 
some of the more unique challenges?
    Ms. GORDON. Congressman, thank you for your question. So 
our members have started to update their systems and comply--
prepare for compliance with Pillar Two. One member has noted 
they hired another six to eight people. They have spent 15,000 
hours preparing for this, and over $10 million. Other members 
have noted that the $10 million is probably just the start-up 
costs to implement these systems.
    So this is very labor-intense, and that is really before we 
even have all of the rules, and before we can see if all the 
countries enact the exact same rules or if there are slight 
differences. Every time there is a difference, that is more 
compliance costs, that is more time, and additional numbers 
that the country is going to need to--or the company is going 
to need to report to a different country.
    Mr. KUSTOFF. And you may have just talked about this. What 
about the manpower? What about the labor that goes into that?
    Ms. GORDON. Yes, there is a lot of labor. A lot of these 
numbers that the Pillar Two tax return, the global information 
return is requesting, are not numbers that my members currently 
compute. So it is trying to get that information and compute 
these new numbers because they are on the return, not because 
they are used to assess the audit risk, or because they are 
actually needed to compute either the IIR or the UTPR.
    Mr. KUSTOFF. Thank you very much.
    Ms. Herzfeld, if I can with you, you wrote a column in Tax 
Notes a couple of months ago in May. You talked about the risks 
associated with China participating in Pillar Two. Can you 
expound on that a little bit more? And could China cheat, as it 
relates to their requirements?
    Ms. HERZFELD. Yes. So--and thank you for that question. It 
is interesting that China, in public, has been mostly silent on 
its intentions.
    So Pillar Two is not mandatory for any country to adopt. It 
is voluntary, and for complex reasons. It is not clear, 
although the UTPR is supposed to be this mechanism by which 
other countries are kind of forced into the system or else it 
will impose costs.
    Many large Chinese companies are actually not Chinese-
headquartered, they are Cayman-headquartered. And so, it is not 
clear, really, how effective the mechanisms that were designed 
for Pillar Two would impact--would be in impacting Chinese 
companies.
    On Pillar One they have also been pretty silent.
    But I don't know what mechanisms there are for ensuring 
compliance in China. They haven't been so effective in other 
areas. And so, I thought it was interesting that there was no 
answer to the question about whether Secretary Yellen got a 
commitment from China on implementation of this deal.
    Mr. KUSTOFF. I am going to ask this very politely. Are 
there challenges, or would there be challenges to monitoring 
China's compliance?
    Ms. HERZFELD. So we don't know anything right now about--it 
is the OECD that would be designing a mechanism to ensure 
countries' compliance with this deal. And we--there are simply 
no--not even detailed, there is no information at all about how 
that would be. And so whether that could be effective, I think, 
is unknown at this point.
    Mr. KUSTOFF. Is it fair to say that China could use 
strategies to try to circumvent the Pillar Two rules?
    Ms. HERZFELD. There is lots of mechanisms countries could 
use, but----
    Mr. KUSTOFF. Okay. Thank you very much, Mr. Chairman. I 
yield back. Thank you.
    Mr. HERN. I thank the gentleman. I would like to recognize 
the gentlelady from California, Ms. Sanchez.
    Ms. SANCHEZ. Thank you, Mr. Chairman.
    Mr. Barnes, one thing that struck me about your testimony 
was your statement that joining Pillar Two will strongly 
benefit U.S.-headquartered companies. From hearing my 
colleagues on the other side of the aisle discuss the Global 
Minimum Tax, you would think that the sky was falling. In fact, 
I think my Republican colleagues sometimes are simply panic 
merchants, just trying to throw everybody into a panic, 
claiming that calamity is going to strike if we try to enact 
policies that make wealthy and well-connected multi-national 
businesses pay their fair share in taxes.
    And someone on the other side actually said, what is their 
fair share? And I would just submit that when you have huge, 
multi-national corporations that make billions of dollars in 
profit and they are paying less than one percent in taxes, we 
might want to start at least with what individuals pay. Because 
in the United States individuals pay, minimally, 10 percent, 
but up to 37 percent, with most Americans paying between 12 and 
32 percent in taxes.
    So that would just be kind of a starting point for 
fairness, I would think, especially when you think about the 
fact that these multi-national corporations often use our court 
systems when they have business disputes, they rely on our 
firefighters and police when emergencies arise, and on our 
national security. And yet they move their profits overseas to 
low-tax countries to avoid paying into these same systems that 
they all use and all rely on. That doesn't seem to me to be a 
very pro-American way to operate, to take and take and take 
from the system, and to never pay their fair share into it.
    So could you elaborate why signing onto the Global Minimum 
Tax will strongly benefit our domestic businesses? I am 
interested in hearing again why it makes sense for us to go 
with this regime.
    Mr. BARNES. Yes, let me make--thank you very much for the 
question. Let me make two comments preliminarily.
    First, no corporation likes to pay $1 more than it is 
required to pay by the law. And that is why corporations have 
tax professionals like me to try to make sure they are fully 
compliant, but not paying more than that.
    The second point is I think what is critical here is that 
the U.S. companies are very capable of competing when the field 
is fair. And the minimum tax, in my view, helps ensure a fair 
field. We already have the GILTI rules; other jurisdictions 
don't. There is a what is called a participation exemption is 
the way many countries operate, and so they simply exempt the 
foreign earnings of their domestic companies. And indeed, one 
of our colleagues here on the panel has urged territoriality 
for the U.S.
    So why do I think it will help the U.S. to have this rule?
    First, compliance. The U.S. compliance demands are 
extraordinarily difficult. I appreciate the comment about the 
challenges of the GloBE return. If the U.S. is inside the 
tent--that is, if the U.S. is compliant with Pillar Two--then 
various safe harbors and other issues can be discussed in a way 
to reduce the compliance burden. U.S. companies will be subject 
to Pillar Two regardless of what we do because 130 other 
countries will adopt it. I think we will substantially reduce 
the compliance burden.
    The second is the competitiveness point. We pay GILTI, 
other countries don't have a GILTI. And whether the rate is 5 
percent, 10 percent, 15 percent, 40 percent, the point would be 
to have a rate in which the U.S. companies are not 
disadvantaged. And where there is a level playing field, I 
think, U.S. companies win.
    Ms. SANCHEZ. Okay. And given that that is the case, do you 
have any theories about why these businesses aren't banging 
down Congress's door demanding that we sign on to Pillar Two?
    Mr. BARNES. I do have theories, but I am happy to also 
yield to my colleagues. I think there are two reasons.
    One is it is absolutely out of character for a corporation 
to say, ``raise my taxes.'' That goes against everything the 
corporation has stood for and lived for. And to stand up now 
and say we think increasing taxes on corporations is favorable 
is just completely antithetical to what corporations are all 
about.
    The second reason, I think, is a belief which I don't 
share, a belief that the U.S. GILTI regime will be declared 
fully compliant so the U.S. has nothing else it needs to do. 
The U.S. GILTI rate will increase in two years, as many of you 
know. We will still have the blending, but I think corporations 
are optimistic, I believe incorrectly, but are optimistic that 
the U.S. GILTI rule will be declared compliant.
    Ms. SANCHEZ. Thank you so much for your testimony.
    And I yield back.
    Mr. HERN. I thank the gentlelady. I would like to recognize 
the gentleman from Iowa, Mr. Feenstra.
    Mr. FEENSTRA. Thank you, Mr. Chair, and I just want to say 
thank you to each of our witnesses today.
    In absence of the consultation by the Treasury, we relied 
on your analysis by those like you to understand this agreement 
that is being put before us and just a quick, simple one-on-one 
economics tax lesson.
    Individuals and families pay tax, but they don't make goods 
and services, so they can't pass down the cost of tax, right? 
They just have to pay it. In corporations--I am talking to my 
colleagues on the other side of the aisle--on corporations, 
when you increase their tax, what happens? They pass it down 
through their goods and services. So goods and services 
increase, causing inflation, causing the issues that we are 
currently in. That is actually called economics 101. I just 
want you to know these processes and agreements that are what 
we are seeing is when you pursue a partisan domestic tax agenda 
in an international tax forum, it really is.
    Ms. Herzfeld, you pointed out in your article that the two 
largest benefactors in terms of revenue were Canada and 
Germany, and yet we saw that Canada declined to sign the recent 
Pillar One agreement, and Germany is now taxing IP under 
section 49 of its tax code in what appears to be purely a 
revenue grab from U.S. firms. So despite being the largest 
benefactor of Pillar Two, they are moving forward with 
discriminatory taxes against American businesses. At the same 
time, these new rules may violate U.S. tax treaties.
    So my understanding was that these agreements were intended 
to stabilize the international tax code. But in essence, am I 
fair to say that they are--they could and seems to be--realize 
that they are destabilizing our code? Could that actually 
happen?
    Ms. HERZFELD. Yes, thank you for the question. So I think 
there is a question about whether the promises about stability 
that this international agreement is supposed to bring will 
actually come to fruition.
    In addition to the examples you provided, there is also the 
example of Australia that has proposed a tax that is outside 
the scope of what was agreed to. And so all of those examples 
show that--raise questions about the promises of stability that 
the agreement was supposed to bring.
    Mr. FEENSTRA. Thank you. Michael [sic], you noted that 
also. Can you just note--just 20 seconds on that?
    Mr. MICHEL. The beginning of this process started when 
France and other European Unions started with Digital Services 
Taxes. So I think the entire project starts with the assumption 
that you can agitate at the international level by putting 
these unilateral measures on other countries.
    Mr. FEENSTRA. Yes.
    Mr. MICHEL. And so that, in and of itself, tells you that 
the system is unstable----
    Mr. FEENSTRA. Thank you.
    Mr. MICHEL [continuing]. And we are going to continue to 
see these types of unilateral actions as people agitate----
    Mr. FEENSTRA. Exactly. Thanks for that.
    Mr. MICHEL [continuing]. Changes.
    Mr. FEENSTRA. Thanks for stating that, because every 
country is different. We are going to destabilize the 
international tax system by going down this path.
    Ms. Gordon, it is good to see you again. I am glad you are 
here. The NFTC's members include U.S. businesses that have been 
impacted by this agreement, many of whom provided comments 
throughout this negotiating process. And some of these 
comments, a large part of the comments, were a lot about 
proprietary information that they will have to give up. You 
know, it sounds like there could be over 200 data points that 
they have got to do, compared to GILTI, where they have around 
16--14 to 16, somewhere in there.
    I mean, this seems very egregious, and makes it very 
uncompetitive to us when we have to give up all our proprietary 
information to the international code. Can you comment on that?
    Ms. GORDON. Congressman, thank you for your question, and 
great seeing you, as well. Yes, so the numbers of 50,000 to 
200,000 come from multiplying the number 200 or--versus 16--by 
all the entities.
    And yes, so taking all of that data and giving it to 
countries around the world who do not have the same protections 
for taxpayer information like the United States is a threat to 
American businesses. And many of these countries will either 
share it with state-run enterprises or local competitors and 
get tax advantages or details and knowledge of how these U.S. 
companies operate around the world, which is not helpful.
    Mr. FEENSTRA. Yes, thank you. I agree 100 percent.
    Quickly, Mr. Schizer, I read your Journal piece. I loved 
it, by the way. And you noted just what I said about economics 
101, is when you increase corporate tax it affects the workers, 
it affects jobs, opportunities, economic growth. So can you 
explain why that is?
    I mean, just a basic economics 101 that you wrote in your 
journal piece.
    Mr. SCHIZER. My apologies. Thank you for the question.
    I do think there is a misunderstanding in the general 
public about who pays the corporate tax. It could be that 
investors pay some of it, but it is very clear that consumers 
pay some and that workers pay a lot. And so when we talk about 
who should pay it, we have to remember that.
    Mr. FEENSTRA. Thank you. You just made my point.
    I yield back.
    Mr. HERN. I thank the gentleman. I would like to recognize 
the gentlelady from Washington, Ms. DelBene.
    Ms. DelBENE. Thank you, Mr. Chairman, and thanks to all of 
our witnesses for joining us today. I appreciate it.
    Mr. Barnes, former President Trump once said it is easy to 
win a trade war. We all know that is not true. But it seems 
like our colleagues on the other side of the aisle want to open 
up a new front in this war by introducing a bill that would 
certainly wage a tax war. Just this morning the Republicans 
introduced yet another retaliation proposal intended to punish 
our trading partners.
    And so, Mr. Barnes, I was wondering. Are you aware of any 
tax wars that have been waged in the past? And in your 
judgment, is it easy to win a tax war?
    Mr. BARNES. It is--thank you for the question. It certainly 
is not easy to win a tax war. Let me mention a couple of 
examples.
    In the--it is more frequent that the war is waged through 
administrative measures than through legislation, because it is 
rare to have legislation that targets one country or two 
countries. But administratively, it happens quite often.
    In the 1990s Korea was administering their tax treaties and 
their tax laws in a way that went way beyond the words of the 
statutes and of their authority. When Korea wanted to join the 
OECD in the 1990s, the OECD, the U.S., and other countries 
said, ``no, you cannot join unless you go back and begin to 
follow the rules, the written rules, as you agreed to them in 
your tax treaties. And Korea agreed, and has done so, and 
joined the OECD.
    The most amusing one is probably the effort by India to 
attack the companies that have invested in India in call 
centers, 10,000-person, 20,000-person call centers. India has 
been extraordinarily aggressive--this was particularly in the 
early 2000s--in taxing--one would say over-taxing--the foreign 
investors, including U.S. investors, in the call centers.
    The Philippines government, in a tongue-in-cheek but very 
heartfelt letter that was published on the front page of the 
newspaper in India, said, ``Thank you, India, for attacking 
these taxpayers. You are the best message for why investors 
should come to us in the Philippines. And it was, in fact, part 
of the reason that the Philippines grew as a center for call 
centers.
    So, I think when there have been inappropriate 
administration of taxes--rarely by legislation, more often by 
administration--it has generally backfired and reduced 
investment.
    Ms. DelBENE. Thank you. It is my understanding that, based 
on the JCT-provided data, when you look at all of the U.S. 
employees of firms that are based in countries that are 
jurisdictions targeted by the chairman's bill, you get 8.9 
million employees. So the Republican bill would place 8.9 
million U.S. jobs at risk. That is not to suggest that UTPR is 
necessarily good tax policy, or there aren't legitimate 
concerns about it. However, it seems that starting a tax war 
and putting at risk millions of U.S. jobs is not the right 
answer.
    I wondered, Mr. Barnes, in your professional opinion, what 
is the best way for the United States to move forward so as to 
make the UTPR less of a concern?
    Mr. BARNES. I think the short-term fix on Monday sets a 
path going forward.
    There are countries that I think we can agree are--I will 
call them full-tax, not necessarily high-tax countries, but 
full-tax countries. And I think we could either push for--maybe 
successfully, maybe not--push for a situation in which certain 
countries are acknowledged as full-tax countries and the UTPR 
need not apply.
    The other would be a mechanical calculation: find ways in 
which a taxpayer who, because of credits or other reasons, is 
below 15 percent this year, but over a 3-year average or 5-year 
average they pay reasonable taxes, they may be exempt from the 
UTPR.
    I think if the U.S. is at the table, then creative tax 
negotiators can come up with approaches that would fully 
protect U.S. tax on U.S. income. But we need to be at the table 
for those negotiations to be successful.
    Ms. DelBENE. Thank you so much.
    I yield back, Mr. Chairman.
    Mr. FEENSTRA [presiding]. Thank you. I now recognize Ms. 
Moore from Wisconsin.
    Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman, 
and I just want to thank this entire second panel. This is just 
like being in graduate school here.
    I want to just say to my Republican colleagues that a lot 
of things that you are raising about the treatment of our tax 
credits, about how data will be used are really legitimate 
things to raise. But you can't raise them if you ain't there at 
the table. And as many of you have discussed and our witnesses 
have discussed, just last week we won one of those arguments by 
saying that tax credits that are transferable can be treated 
that way. We got to stay in the fray in order to benefit from 
it.
    I agree with you, Mr. Barnes. I have never seen a 
corporation that wants you to raise one penny extra in taxes. I 
think that this entire panel and all of our colleagues on the 
other side have forgotten that we just lowered the corporate 
income tax rate from 35 percent to 21 percent. And we still 
hear this, you know, plaintive cry about how we just are taxing 
them to death.
    I also want to say that because of the way that the Tax Cut 
and Jobs Act was written up very quickly, that the 10.5 GILTI 
tax is actually at about 13 percent, given the lack of 
consideration about how that would interplay with other 
deductions and so forth that were not allowable. Am I correct 
so far, Mr. Barnes?
    Mr. BARNES. You are fully correct. Thank you.
    Ms. MOORE of Wisconsin. And I also want to say that, if we 
had just kept that 35 percent corporate tax rate, that would 
have been so much easier for United States to have complied 
with the GloBE regimen. And we didn't do that. So I just want 
some of the whining, some of it, to stop.
    Mr. Barnes, we have heard testimony here today about just 
how--and I have been hearing this for my entire professional 
life--about how adding or changing any sort of tax regimen 
creates all of this compliance and bureaucracy. And, you know, 
all of our graduate schools from the Wharton School aren't 
going to be able to figure this out. Even if they go to Duke, 
they can't figure out how to do it.
    Can you please give us a comparison of how not joining this 
global regimen, what the compliance problems will be versus if 
we join?
    Mr. BARNES. Thank you very much. The core problem is that 
the U.S. tax return, our GILTI regime, operate on what is known 
as tax accounting principles, and that is because our tax law, 
as developed by Ways and Means and everyone else, has special 
provisions for how you go from your income received in the door 
to a tax number. Under the GILTI regime, our companies will 
continue to need to use tax accounting to compute the U.S. 
GILTI liability.
    Under Pillar Two, there will be calculations based 
primarily on financial accounting. That is a different regime. 
In the U.S. that is GAAP. Outside the U.S. it is IFRS. And 
interestingly, there is no such thing as IFRS; every country 
has their own IFRS. So U.S. companies, if the U.S. does not 
join the Pillar Two exercise, will go through the full tax 
accounting world for GILTI calculations, plus the full 
financial accounting world calculations for----
    Ms. MOORE of Wisconsin. So it will be harder. Is that what 
you are saying?
    Mr. BARNES. Absolutely.
    Ms. MOORE of Wisconsin. It will be worse.
    You know, I went to Canada recently and, you know, one of 
my hosts said, ``I just don't--Fahrenheit and Celsius, it--you 
guys are just stupid. You are the only people in the world who 
do that.
    I just wanted to ask a question about this example we were 
given about the poor little daughter, you know, that doesn't 
cash app her parent like most of them do, but it is getting 
taxed. I just didn't think that was a--I was just trying to 
process that. It is just not an example of what you are talking 
about when we start talking about--can you give a better 
example than that? Because I think that one doesn't work. There 
is absolutely no tax liability on the daughter. She is more 
likely asking for Cash App.
    Mr. BARNES. This may be satisfying or may not. Let me try. 
I would go back to a comment Michael Plowgian said, which is 
that the U.S. today, under subpart F and GILTI, will tax a U.S. 
company on earnings in Singapore.
    So, to use my example before, the Singapore Government 
says, ``U.S. company, invest in Singapore. We are going to give 
you all these incentives. You will pay no tax.
    The U.S. says, ``Great, fine, terrific. But we have a GILTI 
tax, so we are going to collect 10.5 percent. The Singapore 
Government may not like it because we have undercut the value 
of their tax incentives, but that is absolutely consistent with 
international tax law.
    Ms. MOORE of Wisconsin. Thank you.
    And thank you, Mr. Chairman, for your indulgence. I just 
didn't want that California daughter to get too worried.
    Mr. FEENSTRA. No problem.
    Ms. MOORE of Wisconsin. Or the Virginia dad, rather.
    Mr. FEENSTRA. I now recognize Mr. Schneider from Illinois.
    Mr. SCHNEIDER. Thank you, Mr. Chairman, and I thank the 
witnesses for being here today.
    And, Mr. Barnes, I want to pick up on your Singapore 
example, since you brought it up. From a business standpoint, 
the three businesses you mentioned--a Singapore Business, 0 
tax; a Dutch business, 0 tax; but the U.S. business in 
Singapore, 10.5 percent tax--what is the strategic business 
impact of that disparity?
    Mr. BARNES. Well, for--because of the U.S. rules, because 
of GILTI and our foreign tax credit and our subpart F rules, 
you are always going to be taxed in the U.S. So I think the 
issue that comes up goes all the way back to the Base Erosion 
and Profit Shifting. If the U.S. company has a choice between 
high-taxed India, lower-taxed Singapore, they are inclined to 
go to Singapore, all other things being equal.
    Now, rarely is everything else equal, but let's assume 
everything else is equal. Because the lower taxes in Singapore 
will help you blend down the high taxes in India.
    Mr. SCHNEIDER. Got it. Let me turn to Mr. Schizer for a 
second, because I know we have all shared the concerns about 
sovereignty.
    What is the population of the Cayman Islands?
    Mr. SCHIZER. I do not know.
    Mr. SCHNEIDER. I will tell you. It is 69,000. How many 
companies, corporations are registered in the Cayman Islands?
    Mr. SCHIZER. Many companies.
    Mr. SCHNEIDER. A hundred and sixteen thousand, more than 
the people in the Cayman Islands. Why do you think that is?
    Mr. SCHIZER. Low tax.
    Mr. SCHNEIDER. No tax, right? Zero. Correct?
    Mr. SCHIZER. There are some costs, but yes.
    Mr. SCHNEIDER. The tax is zero. What is the implications 
for U.S. sovereignty with Cayman Islands' zero tax?
    Mr. SCHIZER. I think the answer to that question depends on 
how the U.S. approaches income earned in the Cayman Islands.
    Mr. SCHNEIDER. I think it is zero. It is up to us to make 
our decisions, and we make choices on how we tax those 
companies. Is that a fair statement?
    Mr. SCHIZER. Yes.
    Mr. SCHNEIDER. Okay. What is the impact on U.S. revenues 
for those 100,000 companies registered in the Cayman Islands?
    Mr. SCHIZER. Again, it depends.
    Mr. SCHNEIDER. It does?
    Mr. SCHIZER. Yes. If we wanted to tax it, we tax it. But if 
your point is it is an effort to try to reduce the U.S. tax 
base, that is true.
    Mr. SCHNEIDER. It does. In fact, that is BEPS.
    Mr. Barnes, isn't that the definition of BEPS?
    Mr. BARNES. It is. I would always say, though, you have to 
look at what the substance is in the Caymans. Is there 
substance or is there no substance?
    Mr. SCHNEIDER. That is a fair point. But isn't the goal of 
what we are doing here talking about changing the tax regime, 
trying to eliminate those tax havens, and get companies to 
register in the countries where they are actually doing 
business?
    Mr. SCHIZER. I am sorry, are you asking me or Mr. Barnes?
    Mr. SCHNEIDER. Mr. Barnes, Mr. Barnes.
    Mr. SCHIZER. I am sorry.
    Mr. BARNES. I think the key of what we are trying to do 
here is to take tax out of the equation as much as possible. We 
can't eliminate it completely, but let's get to business 
fundamentals, where your customers, where your talented 
workforce, where is your economic inputs.
    Mr. SCHNEIDER. So if there is a level playing field, all 
things being equal, whether you want to say it in Latin or 
English, in your opinion, do you think it is to the advantage 
of the United States because of our court systems, because of 
our universities, because of our workforce, of all of those 
things, in a level playing field would companies be inclined to 
at least look at setting up shop here in the United States?
    Mr. BARNES. They would. I think you have two things. You 
have a reduced incentive to move out of the U.S., and you have 
an improved incentive to move back to the U.S. or to expand in 
the U.S. instead of expand elsewhere.
    Mr. SCHNEIDER. And if we do nothing, and the rest of the 
world moves forward, do we lose, to some degree, the incentive 
for those companies that are moving profits from previously 
tax-haven countries to other countries?
    Are they likely to not come to the United States as much as 
they would go to the other G7 countries?
    Mr. BARNES. I think those companies would look at the 
complexity of complying with the U.S. rules and the Pillar Two 
rules around the world and be daunted.
    Mr. SCHNEIDER. On the other hand, if the United States goes 
to the table, works to influence--as others have said, we 
should be at the table influencing, the United States--I think 
it was Mr. Michel, you said this--we should be exercising the 
power of our influence.
    And Mr. Barnes, you said the rest of the world listens to 
the United States. Aren't we better served by being at the 
table and helping set the course of future tax structures in 
the world?
    Mr. BARNES. That is certainly my view, yes.
    Mr. SCHNEIDER. Okay. With that I yield back.
    Mr. FEENSTRA. I now recognize Mrs. Miller from West 
Virginia.
    Mrs. MILLER. Thank you, Mr. Chairman, and thank you all for 
being here today.
    It is of the utmost importance that we stop the OECD's 
forced march to socialism. I appreciate the opportunity to talk 
to our expert witnesses here today on how the Biden 
Administration has failed the American people and attempted to 
abdicate key congressional responsibilities to unelected global 
bureaucrats who do not have our best interest in their heart in 
the slightest. If the Administration fails to stand up for our 
workers and taxpayers, then everyone else in the world will be 
much more happy at eating our lunch while we are standing there 
with nothing.
    Ms. Herzfeld, have experts warned the UTPRs may violate the 
terms of bilateral tax treaties?
    Ms. HERZFELD. Yes, they have.
    Mrs. MILLER. Could you describe just how foreign 
governments could tax U.S.-based companies under UTPR?
    Ms. HERZFELD. So the UTPR is a complicated rule, but what 
it does is it looks at every company, every jurisdiction in 
which a multi-national operates, and it says, to the extent 
that anywhere in the world a company is not paying a 15 percent 
rate, then other countries have the right to tax that income. 
And it includes also the parent company's income.
    So it means that if, because of credits or other 
incentives, a U.S. company is not paying a 15 percent rate in 
the U.S., other countries have the right to tax that income. 
And so taxing another jurisdiction's income is a treaty 
violation.
    Mrs. MILLER. Can you elaborate on what actions countries 
are taking that might be considered as undermining the global 
tax deal?
    In your opinion, will this deal ever go into effect in 
countries like China, who are willing to always break the 
rules?
    Ms. HERZFELD. Yes, so I think one of your colleagues 
brought up before some actions other countries are taking that 
are not consistent with the global deal. I don't think any 
country specifically has said we will--we want to undermine it, 
but they are certainly taking actions that are not fully 
consistent with it.
    Mrs. MILLER. Thank you.
    Mr. Michel, the OECD arrangement doesn't stop countries 
from competing to attract business investment and jobs. It just 
makes the current U.S. system less competitive. What makes this 
agreement, as currently written, so lopsided against the U.S. 
system, and what tools will countries use to compete if it is 
implemented?
    Mr. MICHEL. Well, as we have been discussing, the--I think 
the agreement shifts competition from tax rates, which 
ultimately reduce economic inefficiencies--and as we were 
talking about before, less costs get passed onto workers and 
consumers and investors--and instead shifts competition to a 
war over subsidies.
    There has already been reporting of countries saying they 
are going to compensate their largest businesses by passing on 
direct subsidies to compensate for the higher tax rates, and 
this just opens up a whole world of cronyism, of this sort of 
corruption that comes along with attaching specific payments to 
specific companies, and the lobbying that goes on behind----
    Mrs. MILLER. So wouldn't you consider that all these 
subsidies and incentives is a type of global socialism?
    Mr. MICHEL. It certainly incentivizes more government 
involvement in business decisions than simply lowering tax 
rates does.
    Mrs. MILLER. So why would the United States negotiate our 
right to be a capitalist country? It just doesn't make sense to 
me.
    Mr. MICHEL. It doesn't make sense to me either.
    Mrs. MILLER. Okay, Ms. Gordon, there are likely numerous 
technical issues with the OECD model rules and guidance that 
have not received as much attention as the bigger concerns with 
the deal, which my Republican colleagues and I have been 
highlighting. Would you provide some examples that you are 
hearing from companies and your insight?
    And would you also tell me what your members' concerns are 
about sharing information, their information, under Pillar Two?
    Ms. GORDON. Congresswoman, thank you for your question. I 
will start with the second one.
    So, there are a lot of concerns with sharing information 
and having sensitive tax information spread around the world as 
might be possible if you file a return with the IAR, the UTPR, 
the global information return.
    As to the problems with Pillar Two, I mean, it is almost 
6:00, and so I don't want to keep us here all night. That being 
said, I think there are numbers of technical rules on, you 
know, where you are filing your return, what information 
exactly is required when you file it, who gets to claim the 
UTPR.
    I mean, there are so many issues----
    Mrs. MILLER. Numerous.
    Ms. GORDON [continuing]. And we have written hundreds of 
pages of comment letters that people can read later. Thank you.
    Mrs. MILLER. Thank you so much.
    I yield back.
    Mr. FEENSTRA. I want to thank all my colleagues. And to 
each of our witnesses, thank you for having a terrific and 
wonderful hearing this afternoon.
    Please be advised that the members have two weeks to submit 
their written questions to be answered later in writing. Those 
questions and your answers will be made part of the formal 
hearing of record.
    With that, the committee stands adjourned.
    [Whereupon, at 5:57 p.m., the subcommittee was adjourned.]
      

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