[Congressional Record Volume 169, Number 109 (Thursday, June 22, 2023)]
[Senate]
[Pages S2215-S2216]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       TAX CONVENTION WITH CHILE

  Mr. CRAPO. Mr. President, I thank Ranking Member Risch for his 
leadership in completing the resolution approving the ratification of 
this tax convention with Chile. And specifically, I am grateful for the 
opportunity to work together to include the following declaration in 
this resolution: ``In light of substantial changes made to the 
international provisions of Internal Revenue Code in 2017, the Senate 
declares that future tax treaties need to reflect such changes 
appropriately, including in Article 23. Therefore, based on discussions 
with the U.S. Department of the Treasury, additional work is required 
to evaluate the policy of Article 23 in addressing relief of double 
taxation and to agree on whether further changes to the terms of the 
Article are necessary for future income tax treaties.''
  In light of the reservation amending article 23, I yield to the 
ranking member of the Senate Foreign Relations Committee to elaborate 
on the importance of this declaration.
  Mr. RISCH. I thank the ranking member of the Senate Finance Committee 
for his work on getting bipartisan agreement on this declaration. This 
declaration is necessary, given the reservation amending article 23.
  The reservation regarding article 23 amends language addressing the 
scope of double tax relief in connection with income earned by a 
Chilean subsidiary of a U.S. company. That reservation, which was 
initiated by the current Treasury Department, calls into question 
whether article 23 provides sufficient relief for double taxation; 
specifically, in the case of a U.S. company owning at least 10 percent 
of a Chilean company, whether the U.S. would provide a credit under the 
treaty for income taxes paid or accrued to Chile by or on behalf of 
that U.S. company with respect to earnings that were also subject to 
U.S. tax under the global intangible low-taxed income, or GILTI, 
provision enacted in the Tax Cuts and Jobs Act, or TCJA.
  Although the Treasury Department did not agree to include a specific 
clarification in the reservation with respect to that question, the 
declaration in the resolution confirms that Treasury acknowledges that, 
in light of TCJA's substantial changes to the international provisions 
of our Tax Code, additional work is needed to evaluate the policy of 
article 23 and whether it is sufficient in addressing relief from 
double taxation. In other words, this declaration helps ensure that 
outstanding questions regarding the scope of double tax relief provided 
by article 23 are resolved before similar language is used in future 
tax treaties.
  Ranking Member Crapo, can you discuss why such a clarification is so 
important with respect to future income tax treaties to which the U.S. 
is a party?
  Mr. CRAPO. Thank you, Ranking Member Risch. Without that 
clarification, article 23 does not describe the primary mechanism that 
mitigates double taxation for U.S. companies doing business abroad.
  Before the Tax Cuts and Jobs Act, TCJA, U.S. companies' foreign 
earnings were generally not subject to tax in the U.S. until the 
foreign earnings were distributed as dividends to the U.S., a concept 
generally referred to as ``deferral.''
  For example, pre-TCJA, if a U.S. company operated in Chile through a 
subsidiary, the earnings of the Chilean subsidiary were generally not 
subject to U.S. tax until the subsidiary paid a

[[Page S2216]]

dividend to the U.S. parent company. In order to prevent double 
taxation of the foreign earnings, under section 902 of the Tax Code, 
the U.S. provided a foreign tax credit for tax paid on those earnings. 
In this scenario, with respect to tax paid by the foreign subsidiary in 
Chile, the U.S. company would receive a dollar-for-dollar credit 
against its U.S. tax liability once the income was distributed, and 
subject to tax, in the U.S. in order to prevent double taxation of the 
dividend income.
  TCJA made significant changes to these rules. For one, it ended the 
concept of ``deferral.'' As a result of TCJA, U.S. companies are now 
generally subject to current U.S. tax on their foreign earnings, even 
if they are not immediately distributed to the U.S. parent, under the 
global intangible low-taxed income, GILTI, which consequently 
eliminated the need to impose U.S. tax on dividends when ultimately 
distributed from the foreign subsidiary to the U.S. parent company.
  As a result, in order to mitigate double taxation, TCJA modified and 
expanded section 960 to provide indirect tax credits for taxes paid on 
GILTI. TCJA also repealed section 902 foreign tax credits because, 
generally, dividends received by U.S. companies from a foreign 
subsidiary are no longer subject to U.S. tax. Instead, U.S. companies 
receiving foreign-source dividends are generally allowed a deduction 
under section 245A of the Tax Code for those dividends received. 
Because U.S. companies' foreign earnings are now largely subject to tax 
under GILTI, the primary mechanism for relieving double taxation under 
current law is through an indirect tax credit under section 960. 
Indeed, recent IRS data confirms that an overwhelming majority of 
TCJA's new category of U.S. companies' foreign earnings subject to 
current U.S. tax requires a foreign tax credit to mitigate double tax 
relief.
  As Ranking Member Risch referenced, because Treasury did not agree to 
include in the reservation a reference to the primary method for 
alleviating double taxation on a U.S. company's foreign earnings, it 
calls into question whether article 23 provides sufficient double tax 
relief post-TCJA. While I understand this lack of clarification should 
not result in increased taxation on earnings of a U.S company's Chilean 
subsidiary based on current law, U.S. taxpayers may not have adequate 
protection from double taxation with respect to future treaties.
  In short, this outstanding issue is fundamental to one of the core 
motives for entering into income tax treaties, to mitigate double 
taxation to reduce barriers to cross-border investment. Thus, I intend 
to hold Treasury to its commitment to include language in future income 
tax treaties to more comprehensively address the post-TCJA foreign tax 
credit system. And if it fails to do so, I will not support approving 
ratification of any future U.S. income tax treaty.
  Mr. RISCH. I completely agree with the ranking member of the Finance 
Committee. I will carefully review and consider future U.S. income tax 
treaties to both ensure we resolve this important issue and to make 
sure Treasury follows through on its commitment to further address 
relief from double taxation in our tax treaties. I thank Ranking Member 
Crapo for his leadership on this issue, and we will continue to work 
together to hold Treasury to its commitment.

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