The Tax Times: US-Chile Tax Treaty Approved By the Senate Panel

Friday, June 2, 2023

US-Chile Tax Treaty Approved By the Senate Panel

According to Law360, the Senate Foreign Relations Committee approved a bilateral tax treaty between the U.S. and Chile on Thursday after Sen. Rand Paul failed to amend the agreement with extra privacy safeguards.

The panel approved the treaty 20-1, with Paul, R-Ky., as the lone vote in opposition. Paul's amendment that failed would have included language adding more requirements the U.S. would have to meet to collect the bank records of American citizens in Chile.

The amendment would have required the U.S. to state how the bank records it seeks are relevant to an investigation of the tax treaty provisions or suspected noncompliance with domestic tax laws covered by the agreement, according to the amendment's text.

In opening remarks, the panel's chair, Sen. Bob Menendez, D-N.J., said ratification of the U.S.-Chile tax treaty was necessary to keep American taxpayers on equal footing with Chinese enterprises, which benefit from a recent treaty between China and Chile.

The China-Chile treaty puts Chinese enterprises "at a competitive advantage in terms of investments and engagement in the economic market in Chile," Menendez told reporters following the meeting. "Today, we move closer to leveling the playing field and giving the American companies the same opportunity."

The Panel Approved The Treaty Last Congress But Failed
To Consider The Agreement On The Full Senate Floor.

The U.S. Chamber of Commerce had urged the committee to approve the bilateral treaty and told the Senate the delay in its ratification could slow the transition away from fossil fuels.

The Chamber said in a letter dated Wednesday, May 31, 2023 that the treaty's ratification has become an "urgent priority" for U.S. companies with a presence in Chile. Without ratification, U.S. companies face an aggregate effective tax rate of up to 44.45%, whereas companies headquartered in countries with a tax treaty in effect with Chile "benefit from much lower rates," according to the Chamber's letter.

The treaty includes two changes needed to comply with provisions under the 2017 Tax Cuts and Jobs Act, a senior U.S. Treasury Department official said in October.

The changes, referred to as reservations, were in response to two items in the TCJA: the base erosion and anti-abuse tax, which limits deductions on payments by a U.S. company to related parties abroad, and the overhaul's provision regarding the distribution of certain foreign dividends.

Most outstanding treaties have been held up by Paul since he joined the Senate in 2011, due to his concerns about privacy safeguards. The Senate in 2019 ended a yearslong impasse on several tax accords, but the treaty with Chile wasn't among them.

The National Foreign Trade Council applauded the panel's approval of the U.S.-Chile tax treaty in a statement and urged the full Senate to consider it quickly.

"The U.S.-Chile tax treaty will offer U.S. companies operating in Chile long-sought certainty that will allow them to fairly compete in a country with enormous potential in Latin America, a region where the U.S. currently only has two other treaties," said Anne Gordon, the business group's vice president for international tax policy.

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