US-Chile Tax Treaty Inches Toward Senate Vote

Bloomberg Law News 2023-05-19T09:31:56819820211-04:00

US-Chile Tax Treaty Inches Toward Senate Vote

By Chris Cioffi 2023-05-18T04:45:53000-04:00

• Pact hit snag over foreign tax credit language

• Senators of both parties say agreement on language

There’s progress on the US-Chile tax treaty, after lawmakers worked out concerns over language on
foreign tax credits, which has slowed momentum toward ratification.

A US-Chile tax pact dates back to 2010, but it’s still not gotten a Senate floor vote despite an OK from
the Senate Foreign Relations Committee as recently as last year. Majority Leader Charles Schumer
(D-N.Y.) and other lawmakers sought to move it during the early days of this Congress while there
was floor time available, but some Republicans balked.

Now, lawmakers say they are moving forward.

“The ink is dry,” said Senate Foreign Relations Committee ranking member Sen. Jim Risch (R-Idaho).
“We’re going to get this done very quickly.”

Panel Chairman Bob Menendez (D-N.J.) said Tuesday he plans to move a resolution consenting to
ratification of the treaty on his committee’s calendar for a markup, now that lawmakers are on the
same page.

“I look forward to moving ahead and putting it on a business markup,” he said. That would likely take
place after lawmakers return from a scheduled recess that begins next week and lasts until after
Memorial Day.

Senate Finance and Foreign Relations Committee lawmakers and Treasury agreed late last week on
language that addresses lingering concerns related to double taxation because of changes made
under the 2017 tax law, according to a senior Hill source familiar with the negotiations. The source
requested anonymity because of the sensitivity of the negotiations.

The deal leaves the treaty and its reservations unchanged. Reservations are additions to treaties that

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US-Chile Tax Treaty Inches Toward Senate Vote

change the legal obligations under a treaty for the US, but don’t change the treaty’s text. But there
would be additional language in the committee’s report to clear up the interpretation on those issues
related to double taxation.

Separate Declaration

A separate declaration will be added to the ratification resolution, saying the Senate and Treasury will
continue conversations and remedy future tax treaties and conventions to reflect updated law, the
source said.

Because Senate lawmakers don’t ratify treaties—they consent to ratification through approval of a
resolution—the declaration reflects an agreement between the two branches and wouldn’t create any
new obligation or change the rights of Chile in any way. Instead, it would provide recognition between
the two branches that unresolved issues remain.

“The bottom line is we want to clarify how the United States will treat income so that we avoid double
taxation,” said Senate Finance Committee ranking member Sen. Mike Crapo (R-Idaho), who had
been one of the holdouts.

Crapo sought changes in the treaty to account for changes made in the 2017 tax law, to ensure
companies are getting foreign tax credits in certain circumstances.

Assurances the language would be adjusted in the future was enough to earn his OK to let Chile
move ahead, he said.

The US and dozens of nations have tax treaties to foster cross-border investment and shield
companies from being taxed twice on the same income. The agreements also contain a framework
allowing the resolution of tax disputes between companies and governments and offer lower
withholding rates.

The treaty is one of several that have not yet been cleared, in part, because of opposition from
Senator Rand Paul, a Kentucky Republican.

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US-Chile Tax Treaty Inches Toward Senate Vote

The treaty still has to go back to Chile for its congress to approve reservations the US has added, a
Treasury official said last year.

Treasury declined comment for this story.

If the US-Chile treaty moves forward, it would be just the second income tax treaty the US has in
South America, according to Treasury. After years of opposition from Paul, the Senate in 2019
approved protocols to amend treaties with Japan, Luxembourg, Spain, and Switzerland.

To contact the reporter on this story: Chris Cioffi at ccioffi@bloombergindustry.com

To contact the editor responsible for this story: Kim Dixon at kdixon@bloombergindustry.com

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US-Chile Tax Treaty Inches Toward Senate Vote

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