At Senate Finance Committee hearing, Portman urges Treasury Secretary Yellen to change foreign tax credits and negative consequences for our economy

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June 7, 2022

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WASHINGTON DC – Today, U.S. Senator Rob Portman (R-OH) asked Treasury Secretary Janet Yellen about the Treasury Department’s final foreign tax credit rule that went into effect earlier this year, making more difficult competition for our companies and our workers. around the world. Senator Portman was particularly concerned that the department did not allow sufficient feedback on the final settlement, which was significantly different from the proposed settlement, before it was implemented. He also asked the secretary if the department would be willing to consider changes with respect to withholding taxes for services, in particular, to help protect US-based jobs.

A transcript of Senator Portman’s opening statement and questions can be found below and the video can be found here.

Senator Portman: “Thank you, Mr. Chairman, and thank you for focusing on the retirement policy front, and to Ranking Member Crapo and Senator Cardin, thank you for asking the question. I appreciate your willingness to continue to provide technical support and get us through this. This is one of the great bipartisan opportunities we have that really helps the people we represent at a time when people’s savings are under increasing stress. And during COVID, a lot of people have taken money out of their savings. It will help them save for their own retirement, through private retirement, and addresses the four or five concerns that, on a bipartisan basis, we have all raised about the retirement system. So thank you for working with us on this, and thank you to Senator Cardin for raising the issue.

“With respect to foreign tax credits, I am very concerned about the new regulations, particularly the lack of notices and comments in the final version of them. It’s a pretty simple question for me because countries around the world offer foreign tax credits so there’s no double taxation. So if a US company pays taxes overseas, you don’t want to double down and pay taxes here because you want more US companies doing business overseas. I’ll give you an example, in my hometown of Cincinnati, Proctor & Gamble has over ten thousand employees, 40% of those workers support global sales – international sales – outside of the United States. So that’s great for us, a lot of them are service jobs, back office jobs, high paying jobs, white collar jobs that help strengthen our Ohio economy, but that’s produced throughout the country. And so my fear is that the interest in avoiding double taxation will be compromised in the face of these new regulations. After the TCJA, which was in 2017, we saw that if companies were able to compete and workers were about to compete, they would do pretty well. In fact, a lot more money has flowed back into this country because of it and we’ve completely stopped reversals. Something that we are all wringing our hands about and worrying about is that companies are literally becoming foreign corporations to avoid tax laws here. We stopped them, closed them.

“So what I think you’re doing right now with these new regulations is taking us in the wrong direction and back to where we weren’t competitive. So I understand that you have indicated that you want to make changes to the part of the rules on cost recovery and withholding of royalties, but I also understand that you have indicated that you will not be changing the credibility rules – the ability to take credits – with respect to withholding on services. And again, that’s a big part of what we do in this country. My question would be, number one, do you agree with me that we want to have global companies here in America that create jobs here and therefore benefit from what, again, the global community is doing, namely these tax credits, including for services or are we here on another philosophical level? It would be useful to know that. And two, would you be willing to take a look at those regulations with respect to services, in particular, to help protect jobs here and in particular consider further changes for withholding taxes on Services ? »

Treasury Secretary Janet Yellen: “So let me say first off, of course we will look at any concrete suggestions you have and work with you. We understand there are concerns about these regulations and we will certainly review them and consider feedback. from a philosophical point of view, let me say, we believe these regulations are very important to protect the crucial interests of the United States and the fundamental principle is that we should allow credit for foreign taxes only where the foreign tax jurisdiction has the primary right to tax income. What we’re seeing around the world are new types of taxes, like digital services taxes where foreign countries are basically trying to expand their taxing jurisdiction through extraterritorial type taxes.And these are taxes that should not be entitled to take the foreign tax credit and if we grant it, we we’re just encouraging countries to impose taxes that we believe, in the case of digital services taxes, we’ve found to be unfair trade practices.”

Senator Portman: “Mrs. Secretary, please allow me to interrupt you as my time is limited. I do not disagree with you on digital service taxes, that is not the issue here. And I understand your position on that and I tend to agree with your position. I think businesses have been unfairly targeted, when it comes to digital services taxes. I’m talking about services tax withholdings and I think it’s important that we have final regulations that have been advised and commented upon by American workers through American companies, because they are very different from the initial regulations in this respect, so that is the question that I am focusing on today. today.

Yellen Secretary: “Well, we will certainly work with you on this and we reach out and understand what the concerns are with these rules.”

Senator Portman: “An idea that’s been floated is a one-year delay, to give us a chance to get the notice and comment and understand it better, if you think about it.”

Yellen Secretary: “If there are changes, they can be applied retroactively.”

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