The Senate ratified three tax treaties with Japan, Luxembourg and Switzerland on Wednesday, joining a fourth pact with Spain that won approval a day earlier.
The votes were lopsided as no more than three senators opposed each of the deals, which update rules aimed at reducing taxes on multinational companies operating in both the U.S. and treaty partner nations.
For years, Sen. Rand Paul, R-Ky., had been a key obstacle for ratification due to what he views as lax privacy protections for Americans working abroad. But in the end, Paul’s home-state GOP colleague, Senate Majority Leader Mitch McConnell, used his unique ability to control the floor schedule to win the day.
McConnell and Paul took swipes at each other on the Senate floor prior to the votes. In a floor speech late Tuesday, Paul said McConnell “sabotaged” his efforts to put privacy protections into the treaties.
McConnell on Wednesday morning responded by blasting Paul for holding up the treaty with Spain for six years, the Swiss pact for eight years and the accord with Luxembourg for nine years.
“Look, I’m a patient man, but my patience is not inexhaustible,” he said.
Paul’s efforts to add privacy protections were rejected by the Treasury Department under both Presidents Barack Obama and Donald Trump, as well as in the Senate Foreign Relations Committee, McConnell said.
Further, his efforts to “single-handedly rewrite international treaties” would have led to “years-long renegotiation of the treaties,” McConnell said.
McConnell pointed out that a Carroll County, Kentucky, company, North American Stainless — whose parent company is Acerinox, a Spanish company — had to pay a $15 million tax bill in April because the treaty with Spain had not yet been ratified. Before Tuesday’s ratification of the tax treaty with Spain, the company faced an additional $35 million in “unnecessary or redundant” taxes.
“Multiply this kind of story by all the other numerous Kentucky companies . . . then multiply by 50 states,” McConnell said. “That’s the scale of what we’re talking about, the highest consequences.”
McConnell noted the measures had overwhelming bipartisan support, as evidenced by ratification of an updated pact with Spain (Treaty Doc. 113-4). That treaty, ratified by Spain in 2013 and submitted to the Senate the following year, sailed through on a 94-2 vote Tuesday. It requires a two-thirds vote to ratify treaties in the Senate.
The treaty with Switzerland was ratified by a vote of 95-2 Wednesday; the Japan accord was ratified by the same margin. Paul and Mike Lee, R-Utah, were the only “no” votes on all three.
The Luxembourg pact was ratified 93-3, with Senate Minority Whip Richard J. Durbin, D-Ill., joining the two Republicans in opposition. On Tuesday, Durbin gave a floor speech singling out the Luxembourg tax treaty as an example of misplaced priorities, when instead GOP leaders should be bringing up legislation to lower the cost of prescription drugs.
“When you look at the issues that most American families want us to address, I would say the tax treaty with Luxembourg is low on the list,” Durbin said.
‘Severely damaged and short-circuited’
Paul on Tuesday disputed claims he has held up the treaties, instead blaming McConnell for the delays.
“The fact that this legislation hasn’t come up for several years is really due to the fact that the Republican leader has failed to engage in any meaningful compromise or discussion over these,” he said. “This process has been severely damaged and short-circuited by the Republican leader choosing to push this forward and destroy the negotiations that we were having at the time” with the Trump administration.
Paul complained that because of these treaties, many of the 8 million Americans living overseas will not “have any kind of protection of their privacy.” Instead, the IRS will be able to acquire “bulk exchanges of financial records” with little restraint, he said.
“I’m very, very concerned that over time, particularly with technology, that the IRS is gaining too much power at the push of a button to simply sift through our bank accounts looking for anomalies,” Paul said.
The four treaties receiving votes this week, along with pending pacts with Poland, Chile and Hungary, are with countries whose citizens and companies have a combined $1.2 trillion in U.S. investments, according to McConnell.
“We’re talking about a serious economic impact,” McConnell said in a floor speech Tuesday.
McConnell said North American Stainless has paid $60 million in taxes over three decades. He also pointed to the more than 1,000 Kentuckians employed by Switzerland’s Nestlé at its central Kentucky facility where it makes Hot Pockets, which McConnell called “a culinary staple of busy family workers and college students everywhere.”
McConnell, who is up for reelection in 2020, said the treaties were “painstakingly negotiated updates to existing agreements” about how commerce will be taxed and which country will do the taxing. That will mean “less confusion, more certainty and often fewer taxes for U.S. job creators.”
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