On July 31, 2019 we posted Senate OKs Tax Treaties With Spain, Japan, Switzerland & Luxembourg, where we discussed that Senate approved on July 17, 2019 three bilateral tax treaties with Switzerland, Luxembourg and Japan, one day after approving a treaty with Spain.The treaties were approved after years of inaction on the agreements, a development welcomed by a trade group that represents multinational corporations.
This first round of approved treaties were protocols, which update existing treaties that are, in part, designed to help prevent companies from being subject to double taxation.
Pending new tax treaties that weren’t among those voted on when the U.S. Senate recently ended a years-long impasse could face additional delays, in part because the U.S. Treasury Department wants to add a caveat that may complicate the approval process.
But three treaties that remain pending are unlikely to move through the Senate with the same relative ease of the first four, in part because these new agreements could override a provision in the Tax Cuts and Jobs Act unless Treasury intervenes. Specifically, Treasury has requested reservations concerning the TCJA’s base erosion and anti-abuse tax provision that could require the U.S. to renegotiate the treaties. The Hungary and Poland treaties would replace ones from the 1970s and the Chile treaty would be that nation’s first with the U.S.
Because These Are New Treaties Rather Than Protocols,
They Could Override The TCJA.These new treaties would trump the statute due to the “later in time” principle, which refers to the 1888 U.S. Supreme Court case Whitney v. Robertson .
The ruling states that if treaties and legal provisions are inconsistent, “the one last in date will control the other." If the new treaties override the U.S. tax overhaul, it would mean the TCJA’s base erosion and anti-abuse provision wouldn’t apply.
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