[Congressional Record (Bound Edition), Volume 161 (2015), Part 8]
[Senate]
[Pages 11707-11709]
[From the U.S. Government Publishing Office, www.gpo.gov]




             OECD BASE EROSION AND PROFIT SHIFTING PROJECT

  Mr. HATCH. Mr. President, I rise today to express serious concern 
about an ongoing project at the Organization for Economic Co-operation 
and Development, or OECD. It is called the Base Erosion and Profit 
Shifting--or BEPS--Project. BEPS is a program that is intended to 
address perceived flaws in international tax rules that have allowed 
multinational corporations to shift profits--but not necessarily 
corresponding economic activity--from high-tax to low-tax 
jurisdictions. These strategies, in some cases, had a negative impact 
on the tax basis of OECD countries, creating a need for solutions.
  Unfortunately, it appears that the project has moved well beyond its 
original mandate, and many U.S. companies are rightly concerned that 
they may be facing significant negative consequences. This should 
concern all of us in government as well.
  Let's talk for a minute about how we got to where we are today. In 
2012, the G20 tasked the OECD with developing a comprehensive and 
coordinated approach to addressing certain aggressive tax-planning 
strategies. As we all know, the G20 is an international forum for 
governments and central bank officials from 20 major economies around 
the world which meets periodically behind closed doors to discuss 
financial matters and, even though it has no formal charter, arrive at 
agreements.
  The G20's direction resulted, at least in part, because of the BEPS 
project. It was originally supposed to be limited in scope, with a 
focus on discrete actions to address inappropriate tax avoidance. The 
idea was to find ways to possibly arrive at consensus on how to prevent 
those strategies that result in very little or no taxation of profits 
or what some have come to call ``stateless income.''
  The OECD released what it called its BEPS Action Plan in 2013. The 
plan identified 15 action items for changes in tax policy. Among those 
action items were recommendations to modify domestic laws to, one, 
strengthen controlled foreign corporation or CFC rules and limits on 
interest deductions; two, prevent tax treaty abuse; three, increase 
taxpayer reporting requirements and information sharing among 
governments; and, four, develop a multilateral instrument to implement 
certain BEPS actions.
  Discussion drafts have been released on many of the action plan items 
and

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final reports are anticipated to be finalized and delivered to the G20 
later this year.
  The Obama administration's Treasury Department has been actively 
involved in the BEPS project. Last summer, Deputy Assistant Treasury 
Secretary for International Tax Affairs Robert Stack stated that 
``failure in the BEPS project could well result in countries taking 
unilateral, inconsistent actions thereby increasing double taxation, 
the cost to the U.S. Treasury, and the number of tax disputes.''
  Now, given this and other statements from Treasury officials, it 
appears Treasury believes its role in the BEPS project is to protect 
the U.S. tax base from erosion and to protect U.S. multinational 
companies from actions from other countries that could lead to double 
taxation and time-consuming disputes. In that regard, Treasury has been 
actively negotiating on behalf of the U.S. Government to reach 
consensus on the BEPS action items.
  These are laudable goals. However, I do not believe these goals have 
been achieved. Indeed, just last month, Deputy Assistant Treasury 
Secretary Stack himself faulted the UK and Australia for taking 
unilateral actions targeting U.S. multinationals, possibly contrary to 
the commitments those countries have made in their treaties with the 
United States.
  More importantly, I am very concerned there are bigger issues at play 
and that the BEPS project has far exceeded its original mandate. Once 
again, BEPS was meant to be limited in scope, focusing on the 
prevention of tax strategies that yield inappropriate results. Instead, 
it appears to have become a mechanism for rewriting global tax 
strategies--potentially including those commonly used by U.S. 
companies--behind closed doors without the input or consent of Congress 
itself.
  As we all know, only Congress can make changes to U.S. tax law. Yet 
no representatives from Congress have been offered a seat at the table 
in any of the BEPS negotiations. Sure, the OECD has been quite 
forthcoming in meeting with Members and congressional staff, but in the 
actual BEPS deliberations, all the decisions are being made by 
unelected bureaucrats in Paris and not by anyone from the Senate or 
House of Representatives.
  The Senate Committee on Finance, which I chair, is currently engaged 
in an effort that we hope will eventually lead to comprehensive tax 
reform. This has been a long-term effort and Members of both parties 
and both Chambers of Congress have been engaged in this endeavor for 
quite some time. Yet while Congress continues to work toward this long-
term goal, the Treasury Department is negotiating the BEPS action 
items, which may attempt to commit the United States to make changes to 
our domestic tax laws, without any substantive input from Congress or 
Congress's tax-writing committees.
  We know this is a problem. Indeed, certain positions already agreed 
to by the Treasury Department as part of the BEPS project could 
materially damage U.S. tax reform efforts. Congress and the 
administration need to work together on these issues. When I say ``work 
together,'' I do not mean that Treasury officials should only 
periodically come to the Hill in order to brief congressional staff on 
decisions that have already been made. I mean administration officials 
should not make any commitments that could impact U.S. tax policy 
without adequate consultation and explicit agreement from Congress.
  We all remember when, years ago, then-Treasury Secretary Geithner 
decided to reach an agreement with other officials in the G20 regarding 
funding for the International Monetary Fund or IMF. After reaching this 
agreement, without any significant input or consent from Congress, the 
Obama administration presented, and continues to present, the issue of 
altered IMF funding as an ``international commitment'' the 
administration made and Congress must honor.
  Put simply, that is not an appropriate model for pursuing and 
achieving changes to U.S. law. And if the administration intends to use 
a similar model for the changes recommended by the BEPS project, that 
is, as the saying goes, a dog that just won't hunt.
  I am going to put this as simply as I can. Congress is the steward of 
the American taxpayer resources. Those resources are not bargaining 
chips for international agreements that may or may not advance our 
Nation's interests. Make no mistake, international cooperation and 
consensus are important. I don't object to unified actions toward 
common goals and shared objectives, but when the resources of U.S. 
taxpayers are on the line--as they appear to be with the BEPS project--
Congress must play a significant role.
  Once again, some of the BEPS action items would commit the resources 
of U.S. taxpayers either in the form of alterations to tax rules 
governing the taxation of U.S. multinationals or in the form of 
resources American taxpayers will have to expend in order to abide by 
the terms of the BEPS action items.
  Last month, the OECD held a conference on the BEPS project here in 
Washington, DC. Prior to the conference, the House Ways and Means 
Committee chairman, Paul Ryan, and I sent a letter to Treasury 
Secretary Lew outlining our concerns with several of the actions 
proposed under the BEPS project, including country-by-country 
reporting, ``master file'' documentation, potential limits on interest 
deductibility, and others. Those specific proposals could have far-
reaching negative consequences for U.S. multinationals and the U.S. 
Government.
  For example, consider the master file documentation scheme envisioned 
in the BEPS project. Under this proposal, companies would have to 
provide additional detailed and intricate information about their tax 
plan and business models to foreign tax authorities. If we impose this 
requirement on U.S. businesses, what assurances do we have that these 
foreign governments would keep the information confidential? I don't 
know, and no one from Treasury has told me.
  What about countries with prevalent state-owned enterprises that 
would greatly benefit from this type of information? Wouldn't the BEPS 
proposal force U.S. companies to reveal sensitive information to 
foreign governments that either own or substantially back competing 
enterprises? I don't know, and no one at Treasury has told me.
  I could go on for quite a while about these proposals, especially 
given the broad scope of the BEPS project, the breadth of possible tax 
effects, and the potential negative impact these proposals could have 
on our companies and our economy. Needless to say, as the chairman of 
the Senate's tax-writing committee, I have many concerns.
  Before any additional steps are taken, and before we can even 
consider moving on any of the BEPS action items, we need more 
information. In fact, the President's lead negotiator on BEPS, Deputy 
Assistant Secretary Stack, stated we need to slow down the pace of the 
BEPS work substantially.
  We need to know more about the costs relative to the benefits of the 
BEPS proposals. We also need to know whether the IRS is capable of 
sharing sensitive tax information with foreign tax authorities without 
violating the confidentiality of American businesses. After all, the 
IRS does not have the best track record. Between the fraud and 
overpayment rates on various refundable tax credits and other breaches 
of trust at that agency, we have more than enough reasons to be 
concerned about whether the IRS can effectively and appropriately 
implement a plan for global information sharing.
  To address these questions, I sent a letter today to the Comptroller 
General asking that the Government Accountability Office engage with me 
and my staff to begin an indepth analysis of these issues, so we can at 
least get a sense as to how the OECD's proposals might impact the U.S. 
economy, including employment, investment, and revenues. In the coming 
months, I will be reaching out to other experts as well.
  It is difficult to imagine the analysis and discussions that would 
have to accompany consideration and adoption of

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BEPS-related rules and schemes can be completed by September, when the 
OECD has stated it hopes to render final action plans by the time of 
the next G20 meeting. But as I stated, even if final reports from the 
BEPS project are released on schedule, many, if not all, of the action 
plan items would need congressional action in order to be implemented 
in the United States.
  So, again, I urge Treasury to work very closely with Congress on this 
and not tie our hands as we move toward tax reform by consenting to bad 
outcomes. I urge them to consider the interests of U.S. taxpayers and 
not make any commitments that would impose unnecessary burdens on 
American companies and put them at a competitive disadvantage.
  The United States has always recognized the right of other countries 
to tax income earned within their borders, to the extent such taxation 
is consistent with treaty obligations. However, regardless of what some 
in other countries may think, the U.S. tax base should not be up for 
grabs in an international free-for-all, and I expect officials at the 
U.S. Department of Treasury to remember that. In fact, I demand they 
remember that.
  Mr. President, I will have much more to say on these matters in the 
coming weeks and months.
  With that, I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. ENZI. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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