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1:04:23

about uh so we just finished a uh a voting series and I think that more of uh of our folks will be here but I want to thank you all for being here today this is uh incredibly important some of the things we get a chance to talk about and and the issue

1:04:40

today to me is incredible I I think this is one of the most complicated issues that's come up uh and while I try to avoid that when I'm back home people will still ask me to do it I said listen I live in a world of acronyms I have no

1:04:52

idea nor neither do you as to what's going on but we will try to address at least the start of it today on on a global tax situation that makes no sense to me for America but so I want to thank you all for being here today we'll be talking about oecd's

1:05:06

pillar one negotiations and I'm looking forward to the opportunity for my colleagues on both sides of the aisle and myself to hear our Witnesses testimony and perspective on oecd pillar one and what the Biden's administrations negotiations

1:05:22

mean for America so just clearly starting off and I asked Elise who put all this together who she serves with me in our our office uh if you could put some gasery together so we could look at all these acronyms and give us some kind

1:05:34

of an idea of what it is that we're talking about and it's almost impossible to do but the organization for economic operation and development is the oec the Biden Administration is negotiating a bad business deal for

1:05:48

America with us companies and taxpayers will fit the bill the this pillar one deal negotiated at the organization for economic cooperation and development and was originally intended to eliminate the digital service tax to create a fair

1:06:03

playing field globally but in reality their proposal will not equalize the playing field this tax burden will fall disproportionally on American companies which are nearly half of the largest and most profitable in the world I bought

1:06:17

several things today that just props and and if we can do we have the one so this is atlas with the whole world on his back and instead of Atlas let's imagine this as America and somehow we are saddled with the idea that if it's to be it is up to

1:06:37

us and we must be the participants at an unusual level in order to make some of these things work I'm I'm sorry I was born in America my my business is all America everything I've done as America and if it hadn't been for America there

1:06:50

would probably be not the world that exists today because of World War I and World War II and we continue down a road which is really scary the Biden Treasury Department has worked with oecd and foreign governments to craft this pillar

1:07:02

one proposal instead of with the legislative body which represents the Americans that will have to pay for this deal and in my eyes the worst part of this negotiation is treasury's complete lack of cooperation with Congress on

1:07:21

oecd pillar one the Biden Administration leap fraud Congress and put the interest of foreign governments ahead of the concerns of the men and women elected to represent Americans taxpayers we will do our due diligence to protect American

1:07:35

companies and consumers and ensure they get a good deal let's State the facts here 2/3 majority is required in the senate for enactment of pillar one in today's political environment it is hard to believe that we get that much support

1:07:50

even on naming a post office let alone an international tax treat treaty it's simply not feasible without taking into consideration frequent and significant input from Congress the aspect I find most ironic pillar one falls apart

1:08:04

without the United States invested interest literally the proposal written by oecd requires the United States to be involved in the final deal but why may ask without America's taxing rights under uh pillar one collapses that tells

1:08:20

me everything I need to know and if we can we'll give Atlas break I just want you to look at the number of countries they're involved with this and it would be an interesting exercise for somebody to take a look at this and understand where where is

1:08:37

America who props up what is there's 145 different countries I mean I'm trying to look at some of these and quite frankly and not that I'm uneducated but I have no idea who these countries are where they're located and more more critically why is

1:08:52

it involved in any kind of attack tax policy that we're trying to develop so thank you now the bid Administration needs to be transparent with Congress on strategy on pillar one Congress has requested Revenue estimates from the Biden

1:09:05

Administration they have failed to follow through on this requests previously secretary Yellen acknowledged that if enacted pillar one would reduce us revenues through treasury's public comment period us businesses pointed to

1:09:20

significant flaws with pill pillar one now I'm concerned that the Biden treasury is putting the interest of foreign governments before us businesses and the American economy just this week in the Wall Street Journal it was noted

1:09:33

the benefit to America still hasn't appeared the O deal that Treasury and secretary Yellen just assigned at the United States up Force so we still don't know how does that help us but the facts are simple through pillar one

1:09:46

negotiation us companies would bear far more than our fair share out of the 145 countries involved and confirm Med this week by JCT estimates more specifically if pillar one would have been in place in 2021 the us would have lost 1.4

1:10:02

billion in tax revenues at the end of the day folks this is about the US economy and security is the Biden Administration going to sacrifice the financial success of a US businesses and our economy for International Accounting

1:10:15

bureaucrats approval or for Europe to benefit from our economic success and we're not going to stand by idly and watch the Biden Administration and Treasury Department sacrifice American tax dollars for political gain and I believe we will find out today

1:10:29

that my colleagues feel exactly the same way this deal diminishes the economic security of the United States at a time of global instability and we just cannot take that risk I look forward to hearing from our panel of witnesses to discuss

1:10:43

with this sub committee their expertise when it comes to oecd and international tax and and I I really appreciate their outlook on pillar one so now I'd like to recognize my friend from California Mr Thompson for his opening statement

1:10:59

chairman Kelly thank you very much for holding today's hearing and thank you to all the witnesses uh for being here today today's hearing is about a topic of great importance it's a very technical and weedy topic uh but that's

1:11:12

exactly what this subcommittee is for uh doing a deep dive on some of the thorniest tax to topics facing our nation the purifer of digital service tax over the past 5 years is concerning to members on both side of the aisle these

1:11:29

taxes as imposed discriminate against some of the most Innovative American build businesses and act as a quick and politically convenient Revenue grab for the governments who impose them pillar one of the oed's inclusive framework is

1:11:46

the world's attempt to agree to roll back these discriminatory taxes by creating a novel framework work to reallocate a share of the most profitable company's profits to the jurisdictions where their customers live the human resources that have been put

1:12:03

into this uh into devising this brand new international tax frame are astounding the Biden Administration and other delegates uh at the OC oecd should be committed for their tireless dedication to the task their goal is an

1:12:20

admirable one providing stability to the international tax system with a stable tax system everyone wins business wins when it knows what its tax bill will be when it seeks to invest in foreign markets governments win when they know

1:12:37

they can uh rely on a stable Revenue stream to fund their operations and everyone wins when we avoid costly and protracted transfer pricing disputes which wastes both government and private resources any multilateral uh negot

1:12:53

negotiation such as this one uh discussed here is bound to be a tough one no doubt members will be discussing the jct's report that was released to accompany this hearing showing that the flow of funds between the United States

1:13:08

and other jurisdictions will uh generally be negative for the us we are in jct's estimation going to be losing $1.4 billion each year under the pillar one agreement for some that might be the end of the discussion why give up

1:13:26

Revenue to other countries they'll ask my view is that we need to understand the benefits of the agreement and not just look at the cost what are the benefits of the international uh stability the agreement could potentially provide for instance amount

1:13:42

B if other countries will accept will exceed to the Biden administration's red line to make amount B mandatory could present a real benefit for us business buiness by significantly reducing transfer uh pricing disputes and perhaps

1:13:58

more important those who look at the JCT report and say that we should pack our bags and go home should ask themselves what's the alternative are advocates for abandoning pillar one then suggesting that the patchwork of uh DST that will

1:14:16

doubtlessly spring into place are preferable to the pillar one proposal and if not how do you believe believe that the United States can Stave off those taxes to be clear I'm not arguing that the administration should sign just

1:14:31

any agreement a final pillar one deal must provide protection against unilateral DST and promote a high level of tax certainty and stability without conceding on key us interests that being said the questions I've raised are

1:14:50

serious ones that must be addressed if one Advocates abandoning the oecd process and the Very nature of those questions is why I remain supportive of the administration staying at the table and devoting themselves to this

1:15:06

crucially important Endeavor as they say if you're not at the table you're on the menu and Mr chairman before I yield back uh I just like to ask uh that if we do this again uh I would hope that we would invite the treasury Department uh whose

1:15:22

represent in us at us you representing us at the oecd matter if you recall we had them before when we discussed this and I found them to be uh very helpful again Mr chairman thank you thank you Witnesses and I yield back thank you and

1:15:38

Miss yelon we'll be here very quickly the beginning of April so we'll have a chance to talk to her about that I I'd like now to introduce the panel why want to tell you thank you all for being here you give up a day of your life to come

1:15:48

here now CLA and calendars don't seem to matter in this business we had it scheduled for 2:00 but then we were asked to go and vote which is kind of really why we were elected so I want to thank you for coming here today to discuss with us

1:16:03

with us and I I find to be a very complicated issue but uh Megan funer is with us today and she's a senior director of policy tax and trade at the informational uh technology in uh Industry Council Rick Miner is a senior

1:16:16

vice president International tax council at the United States Council for International Business thank you Gary sprag is partner at Baker McKenzie Daniel bun is president and CEO of the tax Foundation thank you all for joining

1:16:30

us today your written statements will be part of today's hearing and you each have five minutes to deliver your oral remarks Miss bukher please chairman Kelly ranking member Thompson and members of the tax subcommittee thank you for the

1:16:43

opportunity to testify today my name is Megan Funkhouser and I lead International tax policy for the information technology Industry Council also known as ITI in this role I represent the global technology industry's perspectives before policy

1:16:56

makers in the United States and abroad including on the efforts in the oecd G20 inclusive framework that are the subject of today's hearing I's membership comprises leading companies from all corners of the technology sector

1:17:09

including Hardware software Digital Services semiconductor platform Network equipment Cloud cyber security and other internet and Technology enabled companies that drive Innovation and rely on Technologies to evolve their

1:17:23

businesses I's membership includes many of the largest Us corporate taxpayers and top investors in research and development contributing to us competitiveness and the strength of the US economy that is why we greatly appreciate this committee's leadership

1:17:36

in advancing the progrowth tax package that passed the house earlier this year thank you for convening today's hearing to discuss updating International tax rules through pillar one ITI greatly appreciates members interest in and

1:17:49

engagement with the inclusive framework's efforts from participating in meetings in par Paris and Berlin to encouraging the treasury Department to hold a consultation on the draft multilateral convention to implement amount a of pillar one as well as

1:18:02

sending many congressional letters and statements particularly those expressing strong bipartisan opposition to Digital Services taxes absent robust us engagement including that of Congress there is little chance of resolving outstanding

1:18:16

issues with pillar one and crafting a final package that provides certainty and predictability for taxpayers that is why I'm glad the committee is holding this hearing today all of I's member companies rely on clear and established

1:18:28

tax rules to innovate and grow their operations however the proliferation of Digital Services taxes has contributed to the fragmentation of the international tax system by departing from long-standing International tax Norms such as neutrality efficiency

1:18:43

certainty and simplicity the first generation of Digital Services taxes targeted globally engaged companies that provide services like digital advertising and digital intermediary Services subsequent iterations expanded to capture nearly all non-resident

1:18:57

companies engaging with the market we have also seen governments adopt novel approaches to introduce extr territorial me measur means of corporate taxation which contribute to uncertainty and instability for taxpayers congress's

1:19:11

consistent bipartisan opposition to Digital Services taxes and other novel approaches has undoubtedly helped to stem the further proliferation of these damaging measures as have the office of the US trade representative section 301

1:19:24

investigations ultimately Global tax policy challenges require Global tax policy Solutions which is why ITI supports reaching a multilateral consensus-based solution that withdraws Digital Services taxes and prevents their future introduction in light of

1:19:41

Alternatives ITI sees potential in the draft multilateral convention for developing a multilateral consensus-based framework to alleviate the negative consequences of the increasingly fragmented and controver heavy International tax environment I

1:19:56

would like to request to submit I's response to treasury's consultation for the record but want to highlight here three buckets one relieving double taxation two securing the removal of Digital Services taxes and relevant

1:20:08

similar measures and three ensuring tax certainty first ITI firmly believes that income should be taxed once we have concerns with the extent of relief in some circumstances where a company is already paying taxes on residual profits in a jurisdiction

1:20:23

as well as the menu of options and limited commitments that governments have to fully relieve double taxation two on the removal of Digital Services taxes ITI recommends strengthening the definition of prohibited measures to

1:20:35

reduce subjectivity as well as introduce an enforcement mechanism to give greater weight to the political commitment to withdraw a digital Services tax or relevant similar measure third and finally the approach under consideration

1:20:49

in pillar one would represent a significant overhaul of international tax rules providing certainty particularly Advanced certainty for taxpayers and tax administrations alike as they adapt to new rules will be critical for supporting an environment

1:21:03

that Fosters investment and Innovation taking a step back to consider the bigger picture ITI also supports extending the standstill on the imposition of newly enacted Digital Services taxes discouraging the Canadian government from advancing its Digital

1:21:18

Services tax proposal securing a robust amount B and confirming the treatment of pillar 1 taxation for the purposes of pillar 2 again absent robust us engagement including that of Congress there's little chance of resolving these

1:21:31

outstanding issues and crafting a fin final package that provides certainty and predictability for taxpayers thank you again for the invitation to testify and I look forward to answering your questions thank M MOS Mr Miner you recognized uh good afternoon

1:21:45

subcommittee chairman Kelly ranking subcommittee member Thompson and other members of the subcommittee on tax thank you for the invit ation to testify at this hearing on pillar one my name is Rick Miner I am the international tax

1:21:57

Council for the US Council for International Business pillar one is the attempt to change the international tax system to reallocate taxation rights to the market jurisdictions and eliminate the discriminatory network of digital

1:22:11

service taxes and other similar measures such measures threaten to expand globally jurisdiction by jurisdiction and further destabilize the international tax system the multilateral convention provides the legal framework and detailed rules for

1:22:25

the implementation of the so-called amount a taxing right and the removal of dsts amount a is a novel regime that applies on top of the existing us International tax rules for NS scope us multinationals amount B is a simplified

1:22:41

set of rules outside the mlc for the common pricing of routine crossb distribution services uscib makes four recommendations in reference to pillar one number one the elimination of double taxation is a high priority for us

1:22:57

multinationals let me repeat that the elimination of double taxation is a high priority for us multinationals a pillar one solution that does not effectively eliminate double taxation in its application is not sustainable over the

1:23:12

long run us CIB members remain concerned that the draft mlc does not adequately deliver on this on the objective to avoid double taxation this should be a key priority for governments and and the US business Community when considering pillar one

1:23:29

number two the definition of dsts and other relevant similar measures in the draft mlc must be revised the prevent the prevention and roll back of dsts must be comprehensive or the mlc will fail to stabilize the international tax

1:23:45

system one of the critical objectives of the pillar one project is to remove harmful tax measures that Target us compan companies these taxes are becoming more common and the mlc should ensure that dsts and other measures are

1:23:59

withdrawn and not enacted in the future the mlc should not enable countries to make a choice between amount a and dsts the message from the US should be that discrimination against us companies should not be permitted in any case

1:24:15

fiscal measures specifically targeted at us multinationals should never be a legitimate tax policy in a stable International tax system we note our disappointment that Canada has not respected the DST standstill agreement that was recently extended their

1:24:32

continued insistence on moving forward with their DST puts at risk the principles of the broader project of pillar one number three the scope of amount B needs to be expanded progress could be achieved now with a creation of

1:24:46

a robust and explicit road map of future design features including the extension of amount B to retail sales as well as to sales of digital goods and services amount B is an important component of pillar one given the potential for it to

1:25:02

deliver significant Tax Administration efficiencies tax controversies regarding routine distribution structures are timec consuming for tax administrations and taxpayers alike all involved could benefit from the use of pricing safe

1:25:16

harbors that are broadly respected across jurisdictions we are concerned that the current design of a m b falls short of the stated objectives of the oecd in its original blueprint the oecd and inclusive framework must continue their

1:25:30

efforts to negotiate and ultimately agree upon an amount B design that is acceptable to all stakeholders and adopted globally number four uscib encourages the Biden Administration and US Congress to remain engaged in the

1:25:44

oecd process the common mission is to ensure a comprehensive and durable multilateral solution to these complex International challenges now and going forward since the pillar one solution was proposed uscib has offered practical

1:26:01

solutions to advance the design of its components although we have not had a seat at the table in these yearslong inclusive framework government negotiations we can imagine a reality in which these rules can exist in some form

1:26:17

if the final rules stabilize stabilize the international tax system we are available for any further requests for discussion on these topics Beyond this hearing thank you for your attention thank you Mr Meer Mr spray you recognized for five

1:26:35

minutes sorry chairman Kelly ranking member Thompson and members of the subcommittee uh thank you for the opportunity to testify today on the oecd's pillar one project I'm a partner with Baker McKenzie based in paloalto California I have practiced

1:26:50

International tax law for over for 40 years I'm an Adjunct professor of tax law at the UC College of the law San Francisco my testimony will address amount b as described in the February 19th report I provide these comments on my own behalf and they do not

1:27:05

necessarily reflect the views of Baker McKenzie or its clients amount B proposes a simplified and streamlined approach to set the transfer price to be paid by a market State distribution entity to acquire goods or services from

1:27:19

a related non-resident supplier for sale in the market State the essential promise of amount B is to increase certainty and reduce controversy for taxpayers and tax administrations with respect to relatively straightforward

1:27:33

transactions it potentially applies to all MNC groups not just the small number of amount a taxpayers amount B is also an integral part of the pillar one project to restore stability to the international tax framework the instabilities arising

1:27:49

from dsts and other unilateral measures are well known less well publicized are the instabilities created by aggressive transfer pricing positions taken by various foreign tax administrations related to the inbound distribution of

1:28:03

goods and services particularly those of us mnc's amount B is designed to stabilize cross bber tax risk arising from those transactions in its current state however the amount B proposal is not likely to achieve its data goals the

1:28:19

three major issues are the Naros scope scope of Industries covered by Mount B adopting the rules is completely optional for all jurisdictions and the possibility that a further subjec Dev element will be introduced to the scoping criteria US

1:28:35

Treasury has publicly remarked on those deficiencies the amount B report expressly excludes the distribution of software and Digital Services this exclusion precludes amount B benefits for some of the most Innovative and

1:28:50

dynamic sectors in the US economy this also removes Mount B protections from many of the US Enterprises which have experienced the sort of aggressive transfer pricing assertions outside the United States that helped Inspire the

1:29:04

idea of amount B in the first place at a minimum any amount a taxpayer in any sector should be brought within scope of amount B the second significant deficiency is the permission granted to all jurisdictions to opt out of the mount B

1:29:20

regime that optionality will impair the benefits of predictability and stability for us mnc's these are not theoretical concerns immediately upon the release of the report New Zealand announced that it will not participate in the mount B

1:29:36

project and will not regard any application of the mount B pricing Matrix as evidence of arms length pricing Australia followed soon thereafter with the statement that it favors optionality the third major issue is the

1:29:50

possibility that an additional optional qualitative scoping Criterion might be added to the amount B rules the effect will be to introduce a subjective step that jurisdictions may use to exclude Distributors from amount B India has

1:30:07

stated its support uh for this approach so here are some suggestions for a way forward there's no need for negotiations over the terms of amount B to cease amount B will be incorporated into the oecd transfer pricing guidelines not in a multilateral treaty

1:30:26

the scope of amount B could be widened to include digital goods and services in the future if the initial amount B guidance retains its current limited scope the oecd oecd should commit to a workstream and provide a timeline to

1:30:40

identify the appropriate compa roles for the distribution of digital goods and services so that those sectors can be brought into the simplified and streamlined approach I was pleased pleased to see recent comments by US

1:30:53

Treasury that the US is still working towards a mandatory amount B further the IRS should consider negotiating competent Authority agreements with major US trading partners to achieve broader coverage and mandatory treatment

1:31:08

on a bilateral or multilateral basis those agreements can build on the work already accomplished at the oecd the pricing mechanism described in the mount B report is well founded in transfer pricing Theory and could easily be

1:31:23

integrated into a competent Authority agreement us leadership on that point will be useful to counteract the negative drag on the initiative created by tax administrations publicly embracing optionality or opting out together thank you for your attention

1:31:38

and I would be pleased to respond to any questions from the subcommittee thank you Mr spr Mr bun you recognize chairman Keli ranking member Thompson and distinguished members of the subcommittee on tax thank you for the opportunity to testify on the oecd's

1:31:54

pillar one project I am Daniel bun president and CEO of the tax Foundation I think it's best to think about this project in the context of what policy makers might value and there's three different things that you might value

1:32:09

you may choose differently but I think there's three things in this context that you might value and I'll run through them and provide a little context for each first I think on a bipartisan and bamal basis there's a value to eliminating

1:32:24

discriminatory Digital Services taxes and I think as you hear from the witnesses uh today you've heard that there's more work to be done that there is not while while amount a does provide a potential path to eliminating some

1:32:40

Digital Services there is much more work to be done to accomplish that goal if this is going to be the path forward I know some members um on the Republican side of this committee have worked on leg legislation to be beef up uh us

1:32:54

potential retaliatory tools to countries that have unilaterally uh impose these Digital Services taxes unfairly against uh us businesses and tools like that can be useful but I'm concerned given the progress um that is has been made and

1:33:11

the lack of progress in some cases with removing Digital Services that an approach like that could spill into another round of attacks and trade War another thing that you might value is control over what is the US tax base uh

1:33:26

this this subcommittee the full committee uh is given the uh responsibility for writing us tax laws um what this deal would require would be as a multilateral negotiation um some changes to the US tax base and impacts on us tax revenues that have already

1:33:44

been described uh chairman Kelly you appropriately mentioned that there would be an outsized burden on us business businesses The Joint committee's analysis points this out where 70% of the profits that they measured that

1:33:57

would be in scope for amount uh a would be from us businesses or us business segments now the 1.4 billion in Revenue loss jct's uh preferred estimate is not massive um but it is Meaningful and I think it's even more meaningful if you

1:34:13

think of the interplay between uh amount a and the global minimum tax these things change incentives the global minimum tax and the tax cuts and jobs act changed incentives for where us businesses or where multinationals

1:34:27

generally might want to put their high value assets or their High return activities and if more of the high value assets and high return activities are in the US then over time and if that Trend continues over time then there will be

1:34:43

po potentially more exposure for the US tax base in the context of amount a so we think need to think about these things in tandem those incentives are somewhat intertwined finally you may value the uh benefit sometimes the cost

1:35:00

of being engaged in multilateral forums uh obviously getting a uh a deal like this together requires give and take across different uh uh desires from different countries continents uh and jurisdictions that may not have

1:35:17

otherwise been interested at all in some sort of multilateral agreement uh the deal that's available now while it has drawbacks I think it's worth thinking of like what might happen if this falls apart what what might be next

1:35:31

is it a some some sort of tax and trade war or I think it's worth uh the committee's time to look at what the United Nations is is trying to do in in setting up its own multilateral tax negotiation I don't know what the future

1:35:45

looks like without an amount a uh but it's it's important to think through the value or in some cases the cost of being engaged in a multilateral way I will also mention that unilateral approaches many of them taken by uh foreign governments uh are are not

1:36:05

necessarily creating any sort of certainty for taxpayers uh there's all sorts of mutations and multiplications of these Digital Services taxes but there's a bias towards taxing additional profits or revenues in some cases in

1:36:19

Market jurisdictions I think I think some members of this committee will remember the destination-based cash flow tax uh debate uh many years ago back before the the tax cuts and jobs act and that was a bias towards taxing in the

1:36:32

market as well and the Joint Committee points out that that would have been more efficient than pillar one amount a um and with that I thank you for your time and I look forward to answering any of your questions thank you Mr BR thank

1:36:46

you all for being here you know uh the complic this is so complicated it I Marvel with the way you all just go through it it's like this this this this and this but for the average American uh to sit back and try to understand what is it that we're trying

1:37:01

to put together and why is it that we're trying to put it together to begin with the other question I have is uh is there some reason the administration didn't actually work with Congress because this is kind of uh one

1:37:16

of our basic responsibilities it would have been nice to be included uh so having said on that and trying to to be a wise guy about this but I'm serious about this I I cannot imagine bypassing this committee and saying we'll let you

1:37:28

know when we come up with a deal and then you guys can just jump on and everything is going to be fine so please help me to understand how enacting pillar one and its current form is pragmatic is pragmatic for the US economy and more specifically for

1:37:40

American businesses where is this as I'm an America First Guy where is this that it somehow enhances our ability to compete globally and maintain our position by the way I don't want to just participate in a global economy I

1:37:56

want the United States to dominate it because I think it's the only way we can save the world as we go forward but at any of you can help me understand this because this is so bizarre to anything I've ever come up with in my life and I

1:38:06

admit I don't have a degree in anything that you're talking about I would never try to do my own taxes because I know the danger especially being a member of Congress if you make a mistake uh but any of you that can discuss tell us tell

1:38:19

us more if you can how does this what where does this fit in to us and where is it that it helps America thank you chairman for the question I think it's incredibly important and why I'm so glad that we're having this hearing today because as I

1:38:36

mentioned in my remarks I think the best way to have a better amount a outcome that makes sense for the US will be through Congressional engagement and through opportunities like today to talk where in US industry sees the concerns

1:38:48

with how it is currently drafted and work towards making it a better final package that does provide certainty and stability because the the US US economy benefits from the global economy us businesses are in the leadership um and

1:39:04

so this is why we're excited to have this conversation today is to talk through how can we make this a better package um with you so thank you anybody else want to weigh in sure uh uh if I may sir uh the the challenge

1:39:19

here is avoiding what I described as a a difficult digital tax and trade War so where this began was some European countries interested in taxing in a discriminatory way some us companies and then as the uh discussion developed it

1:39:36

was pretty clear that the way out of this was either either going to be a multilateral agreement or some sort of uh of trade war and that's where the real impact to every everyday Americans could have come down you know it's it's not really um

1:39:51

uh easy to say that oh well we're we're working towards this multilateral agreement because of XY or Z but one of the things when we think of the prices that people face uh in the grocery stores or or manufacturers face with

1:40:04

their uh suppliers tax and trade War can increase those things and I think that's one reason to continue to seek a solution to avoid that kind of outcome okay listen I appreciate so far and we have many people that want to ask

1:40:19

questions today so I'm G to now have Mr Thompson weigh in from his side what he his concerns are Mr Thompson thank you Mr chairman Mr Spar uh in your written testimony you state that the number of mutual agreement procedures or map cases

1:40:34

open for transfer pricing matters has Spike since 2016 you also point out that IRS figures show an increase in the number of cases related to Distributors from approximately 39% in uh 18 to around 53% in 2022 I'd like to get a

1:40:53

sense of the real world impact of these disputes on our American businesses based on your experience as an international tax attorney about how much time and money do our us businesses spend on these protracted transfer price

1:41:08

uh pricing disputes and what impact would such an increase have on the IRS now Mr Thompson thank you for that question your question addresses a Central purpose of the simplified and streamline approach of amount B it's

1:41:27

it's hard to quantify an average cost by company or by dispute but there's no doubt that the costs are large in many cases large enough to make a CFO WIS uh so let me describe the reason why these costs are so are so high first you you

1:41:44

referred to the the map program which that's the government to government uh process where the two tax administrations try to resolve uh a dispute uh usually raised by the foreign Tax Administration but the majority of the costs for American Business are

1:42:01

incurred before the case even makes it to map um map is the ultimate recourse but before a map case arises the taxpayers had to address these issues on audit in front of the foreign Tax Administration those are the costs that

1:42:16

amount B is trying to contain uh the costs are high because transfer pricing issues are intensely factual and there's lots of room for interpretation so at both the audit and map levels there substantial costs of internal resources as well as

1:42:34

external fees some jurisdictions are notoriously more challenging than others both internal and external costs are higher for audits in those jurisdictions if amount B succeeds I would expect a reduction of burdens on taxpayers because the purpose is to

1:42:54

provide the simplified streamline approach to transfer pricing for inbound distribution and I also expect a reduction of burdens on the IRS because if we can resolve more of these cases on audit fewer cases then have to come to map and the US won't

1:43:12

have to devote the same resources to map for those cases that do make it to map I would still expect that those issues would be narrowed the IRS the foreign administration level because there' be a more narrow game plan or or or or course

1:43:28

if you will to settle uh those disputes within the simplified and streamlined approach so while I can't give you a precise number you know across all of us multinationals it's very large and I expect the the largest reductions in

1:43:42

cost would be at the company level but significantly reduced at the IRS level as well thank you thank you very much uh Mr bun uh USR found that the digital service tax adopted by Austria India Italy Spain turkey and the UK were

1:44:01

subject to action under three section 301 because they discriminated against us digital companies uh were inconsistent with principles of international Taxation and burdened US companies uh what would it take for a digital service tax to not be

1:44:17

discriminatory against us multinational corporations uh is it actually possible to have a DST that is not discriminatory against us multinational corporations and if such thing could exist would their proliferation be a desired

1:44:37

outcome thank you for the question in one sense no uh the US has an outsized share of these large digital companies so if you have even a digital Services tax that doesn't have a revenue threshold um there would be some deao

1:44:51

discrimination against us companies um but if you would say that even that deao discrimination doesn't count you know it's there's no Revenue threshold or or something like that the prolifer prol prol proliferation of such a policy

1:45:07

would still be bad this is a tax on gross revenues uh and countries should not be taxing businesses on their gross revenues net income tax is where the policy should be focused or including uh Digital Services in the context of a

1:45:22

value added tax or something of that nature thank you very much Mr chman y'll back Mr Spiker you're recognized for five minutes thank you Mr chairman um you ever have one of those occasions every time you think you start to

1:45:33

understand something um your head starts to spin um Mr spr um I'm partially going to um because of uh your specialty um we were back here trying to have a conversation of different ways you could have leakage but I first want to make

1:45:47

sure I understand some of the most basic part of the math um um I have um an 11% gross rate of return so 1% is now subject and I take 20% of the 1% and then that's now subject to an allocation internationally is that a fair way to

1:46:07

I'm I'm trying to make it as simple as possible am I am I okay so far for the base 10% that is basically sheltered um you say it's gross but um I is it a classic gross as we would do our accounting in the United States of my

1:46:27

Capital expenditures my interest costs my carrying costs my Personnel cost my healthare costs those um as my my base expenses um shielded within so I can get up to 10% rate of return before I'm subject to the formula well yes um you're you're

1:46:45

referring to the mount a formula now correct not the just the a yeah and and so the 10% is indeed on operating income so that is after all of the Normal book expenses have been deducted so the 10% figure in your case would be profit

1:47:03

after all normal expenses and then if your company was in scope $20 billion and had 11 11% operating profit then indeed that 1% would be subject to amount a 20% of the one 25% of 25% of the one correct sorry okay um now if I came to you and said

1:47:23

you're my counsel find me a way as a let's let's pretend I'm an AI company so I can put my stacks anywhere I can put my servers here I can move my IP anywhere you know and how how's it anywhere um is there a way as you understand the model right now to

1:47:45

somewhat gain this system not really by by not by moving assets like that around because the pool of profits is global profit is the entire Consolidated profit of the group so you you could establish a new operation in a different country and

1:48:04

maybe earn income in that country instead of a different country but the allocation under amount a is based on global Consolidated profit you see part of this was a derivative was Mr bunnett said if I'm in a different country and

1:48:20

do I have different things that I could stack up as as part of my expenses um my cost of doing business um either that or that country has certain different types of credit mechanics or um that would change my definition of first the first base of the

1:48:40

10% does that make sense Mr Ben so I distinguish between what it looks like for the company which Mr sprag just described um and the country so what I was getting at is it depends for the country and the country's tax revenues

1:48:58

where you have your high value high margin things the allocation for the company you know regardless of where they have their stuff um it'll still be 25% of that 1% but if all 11% of those profits are in the US then it will

1:49:15

matter for the US Treasury okay for that 1% Miss f um and and here's where we've been sort of trying to gain this out in our heads and see if we're missing anything if I'm in a world it's a decade from now and um I'm running parts of my

1:49:33

Factory on AI or other types of technology in the future or I have a company that's you know doing synthetic biology and those things is the design of this model do you believe it is robust enough to handle the economic disruptions that

1:49:53

we all expect over this decade on on the part of the model you're describing yes because it just starts with for us companies Gap financial statements okay whether you're a you know potato chip manufacturer or an AI um company or some

1:50:10

other Enterprise it doesn't really make any difference well because in that AI model you almost could have no domicile other than wherever the processors are and the IP can in in in a weird way can almost float um yeah I mean I I I I doubt a$ 20

1:50:28

billion Enterprise would ever not have a doile somewhere I think I think what you're referring to is the potential to move as Mr bung was describing productive assets from one country to another and that would produce more or

1:50:44

less income in the particular country but for amount a purposes you don't start with a particular country income you start with the combined worldwide Consolidated group and your Gap financials so so the consequence would be if you put

1:51:00

Say by virtue of AI or whatever all of your income in one country but you still had to allocate out some amount to other countries under mount a then it's that one country that would be the country that has to you know relieve double

1:51:16

taxation due to the allocation out to other countries but Mr chairman thank you for your tolerance actually that was actually very helpful so thank you Mr douget you recognized thank you Mr chairman and thanks to each of our

1:51:29

Witnesses for your very insightful testimony it seems to me whether you're a small business on Main Street or a multinational spanning the globe one of the most important things is to have some stability some certainty so that

1:51:43

when decisions are made about investing in plant and Equipment expanding a Workforce you have some sense of how much risk you're uh experiencing uh and the less uh chaos we can have the better uh and avoiding a a number of countries coming forward and

1:52:02

taxing on their own instead of working this out is really uh anti-business in nature uh that kind of conflicts with what's been going on here in the Congress over the last year we've had a substantial chaos caucus took us right

1:52:18

up to the brink of defaulting on the full faith and credit of the United States for the first time in our history has taken us again and again right to the brink of shutting down the government in fact right now we don't

1:52:30

know if the government be shut down by the end of the month on more than half of the budget that should have been approved last September for the remainder of this fiscal year and I hate to see that kind of chaos added to what

1:52:42

is already a challenging multinational situation uh Miss Funkhouser you have referred to the need for Global Global Tax Solutions and I think you're absolutely right let me just ask you if you believe that the United States

1:52:57

suddenly withdrawing from the oecd process uh would be harmful to us business thank you very much for the question congressman and I I would say yes um that would be very harmful from us business because when you think about

1:53:12

how to secure the best outcomes for us business and US competitiveness it comes from the US being part of the conversation and driving the outcomes that benefit the US economy and the US people and so as we think about

1:53:23

certainty to your point it is looking at how can we provide certainty for these um companies and Mr bun uh you've used a what is a very controversial term here in congress with some and that is the term multilateralism we have some people

1:53:37

that don't believe in anything International don't even support NATO these days but you say multilateralism is better than multiple rounds of ATT taxs and trade War do you agree with Miss Funkhouser that it would be extremely harmful to us business

1:53:53

interests to suddenly withdraw from the oec negotiations that are still very much underway I think at this point there's a lot of work to be done and that requires remaining engaged the challenge is whether the goals that Congress um has

1:54:11

for the treasury to achieve whether those will be achieved uh at some point there will be a final deal and that's when the decision I think should be made and Mr Miner while there's still much more work to be done do you also agree

1:54:22

that uh it would be a mistake for the United States to just fold up its tent and withdraw from the oecd uh yes that's that's that's a clear position of of my members and you know we we we don't have a final mlc uh the uh amount B rules are still in flux uh

1:54:39

so that that is our recommendation is to stay the course of the multilateral process for now but also have a meaningful engagement between Congress and Treasury each of you for that Mr chairman I'd ask unanimous consent to

1:54:53

put into the record a letter uh that has been sent uh to the Appropriations Committee by uh a number of members including five from this tax subcommittee that are urging that uh we end all funding for oecd and essentially

1:55:10

withdraw from the negotiations because we won't be funding it anymore uh I think that would be a serious mistake uh I think it's anti-s business in nature it's contrary to the needs of our business Community we need to stay

1:55:25

engaged we cannot wall ourselves off from the rest of the world uh our business Community certainly can't do that and they need our support these negotiations have not achieved their full objectives yet but that doesn't mean uh that you you quit we need to

1:55:40

continue to be involved I would say also uh that there are a number of American companies who would owe tax here under pillar one as currently prepared as best I can tell uh including American pharmaceutical companies that book most

1:55:58

of their profits abroad uh and pay tax on a little reported profit here for examp for example ABY sells 75% of its drugs here in the United States yet for years it's reported a loss in the United States with billions in profits booked

1:56:15

abroad so uh pillar one is not just about add additional tax revenue for other countries it has some potential particularly in the pharmaceutical area here in the United States I hope these negotiations continued and the uh the

1:56:30

efforts by Republican colleagues to undermine oecd will be uh defeated I yield back Mr her Rick nice five minutes thank you Mr chairman thank the witnesses for being here really appreciate it since I've been on ways and means I've been following this

1:56:44

pillar one issue in written multiple letters to treasury to uh ask for the revenue modeling so that we better understood where their estimates are coming from and the impact of the oecd pillar one agreement and of introduced

1:56:59

legislation to force the treasury to provide this information to Congress I think it's important that we know uh what they're using to determine the impact and after years of the pressure the treasury finally provided the needed

1:57:10

information to JCT yesterday JCT released a report providing background and Analysis of the taxation of Multinational Enterprises and the potential reallocation of taxing rights under pillar one JCT estimates that in enactment of pillar

1:57:25

one amount a would have resulted in a revenue loss of $1.4 billion to the US Fisk in 2021 ultimately confirming that this is a bad deal for Americans putting the projected losses to the US Fisk aside there is good reason and

1:57:40

motivation to find a solution that would convince countries to remove and or deter implementation of digital service taxes that Target our us business businesses with malign intent but here in lays the problem the treaty as it is written Now does not

1:57:56

completely solve the problem which is to eradicate all novel extr territorial digital service taxes and other discriminatory measures also I'm concerned that countries will still be able to aggressively Target us companies while claiming their revenue

1:58:10

reallocation it is clear that the negotiation was conceived as an economical solution and one worth pursuing but has quickly turned into a political negotiation with massive amounts of complexity and key economic principles missing from the final

1:58:24

product it's always going to be an uphill battle getting 140 countries to agree on an international agreement that stands on complete economic principles because every country every country has different preferences that fit their

1:58:36

needs their wants their politics and economic agenda should we Abandon All hopes of finding a solution to eradicate novel discriminatory taxes around the world I would say no but I have a deep concern with the treaty as it is

1:58:50

presented at the oec oecd currently Mr bun the draft treaty lists nine dsts and similary discriminatory measures that are subject to be replaced by pillar one the rules are written in a way that countries can adopt pillar one or

1:59:06

capitalized on the redistributed tax revenues or have the option to keep their dsts in place I find this leniency to be problematic since overreaching goal is to find compromise where all dsts and discriminatory taxes are eliminated does the draft treaty as

1:59:25

written lead you to believe that all dsts will be removed and is there a door number two so to speak uh for new discriminatory tax measures to be implemented in the future thank you for the question no I do not think the draft treaty would

1:59:41

eliminate all discriminatory taxes and yes I do think uh that it leaves open the possibility for new um either mutated forms or or proliferated forms of Digital Services taxes and I do agree with Miss fun cower that we do need to

1:59:56

stay at the table that we figure out what's going on because if you're not at the table you're on the menu as the old saying goes and so we're the ones that are the targets of these dsts primarily and we have to have a way to figure

2:00:07

these out as opposed to creating a trade War Mr bun also under a formulaic system such as amount a the formula can be manipulated is there also concern that governments could modify their current DS to work around the current

2:00:22

definition yes uh you could uh apply your DST to foreign and domestic businesses and potentially use that as an escape route to be able to maintain a DST and I think that could be the route that some countries that are that are looking at this deal would

2:00:40

take thank you Mr Miner we've already heard that some countries such as Australia will keep uh will likely opt out of using a mount B construct uh set aside by the oecd last month opting instead to use their existing transfer

2:00:54

pricing mechanisms how does optionality like this undermine the certainty and stability that has long been the primary goal of this policy yeah well it's it's very problematic and um we we don't uh we're not very happy about that because

2:01:10

um that kind of sends a signal to other uh members of the inclusive framework that you know that that may be an option for for whatever purpose um so so action like that unfortunately significantly undermines the the the pillar one

2:01:27

principles um and we're we were surprised to see that happen actually but there there's no there's no guarantee that other other countries might want to go that route but it it it does under undermine the principles of the pillar one solution I think it's

2:01:43

worth noting Mr chair if I may have just 30 seconds that there's a group of us went to the oecd back in August August and uh it's a different conversation when you meet ey to eye with somebody versus uh sending text messages back and

2:01:55

forth or you know certified letters emails and what's interesting with oecd and I brought this up to our leader of the oecd who is a former uh consultant with one of our large tax cons or large Consulting groups in the United States

2:02:10

and my point to her was is that I know that you know how important tax code is to making uh strategic decisions in companies not just in the United States but around the world and so this is not any different based on how we determined

2:02:24

and and work this out and the United States involvement will change and possibly change how companies do business around the world and we need not give up our tax dollars in search of a solution to move around the world when

2:02:40

we have done the right thing with guilty and fit to make sure that we fix it is it perfect no it's not but we've got to do the right thing and make sure that we keep our company safe here create jobs here put Americans to work here and

2:02:51

collect appropriate taxes here I thank you all so much Mr Larson you recognized for 5 minutes thank you Mr chairman and um I want to thank all our witnesses as well and U I want to continue along the line of my colleague Mr uh doet and uh say

2:03:09

that I think uh especially as we sit up here and ask our experts questions that it seems to us that stability uh is optimal in this situation and that uh we want to uh make sure as well that uh stability certainty and avoiding

2:03:30

chaos the chaos that will obviously come from any kind of trade war that would ensue because we haven't remained at the table and focused on working this through so uh we cannot allow our American Innovation uh that's fundamental to the

2:03:51

fabric of our country to be curtailed or punished by unilateral taxation from dozens of other countries I think we're all in a agreement on that U but I have a a process question and um Mr bun I'm going to direct it to you but anyone can

2:04:09

feel free to jump in as well but U uh the way it's been explained to me at least that uh amount a would be delivered through a multilateral convention um or mlc I guess as it's called which would first be signed by the treasury

2:04:32

Department then similar to our bilateral tax treaties be ratified by Congress is that correct Mr bun ratified by this the Senate yes so can you please explain the role Ro of the house in this process and the role of the Senate as you see it so

2:04:56

the thank you for the question um so the Senate would have to ratify the treaty um with 2third majority uh the Senate has not been um uh does not have a great reputation for acting quickly on tax treaties uh does not have our

2:05:11

legislation in the house either for that matter but uh I walked into that one um the uh other piece of this uh and others on the panel May um elaborate would be implementing legislation so there's part of this agreement that is us giving up our

2:05:28

taxing right um but there's also legislative changes that would have to be done for us to claim uh the new the new taxing right Mr sprag yeah no I I agree with that um for us to tax inbound amount a we need to change our so-called effectively

2:05:46

connected income rules to to give us tax Nexus over the other country's allocation of amount a to the United States so the the house as the um body responsible for originating tax legislation uh would be in charge of that revision and also in terms of you

2:06:07

know ratifying the treaty I would think the expertise in the house you know there's plenty of reason for you to be thinking carefully about these issues and you know giving your advice to to the Senate Mr Miner yeah I I I would just uh Echo that

2:06:23

that sentiment about the importance of the house um in this committee specifically being being very engaged on the development of the mlc uh the next step and including amount B and also uh considering um what type of legislative changes would be

2:06:41

necessary to to possibly implement the mlc thank you Miss funen Houser uh yes and and I appreciate the question and believe that it is very important that the house and particularly the subcommittee is having this conversation

2:06:56

because it has to do at the end of the day with us competitiveness and how companies invested in the United States are able to engage with customers and consumers around the world and so therefore I'm very glad we're having

2:07:06

this conversation today and see that as an important role of the subcommittee do you ever sit here and wonder as Witnesses what you would do in our role is there anything specific that you would say I don't understand why Congress just doesn't

2:07:22

do fill in the blank we'll start with you Funkhouser um I'll say at this immediate moment I actually don't have something in mind because I've been very focused on this hearing um but I do look forward to staying and touch as we work forward in this

2:07:37

process Miner I I I think starting off with this hearing is a good idea and and I I would like to continue a dialogue between you know this committee and and also the business community on a regular basis because of the complication of the issue yes Mr

2:07:55

sprag I guess I would encourage treasury to keep engaged and try to work as hard as they can to get a deal that's good for America Mr dun Mr bun I think um one of the things that could be helpful is some sort of trade promotion Authority

2:08:10

in the tax area specifically where Congress lays out priorities before the negotiations even begin I like that thank you w i you back thank you for the Y no that's that's fine uh you're going to have a couple weeks you'll be able to

2:08:25

talk to the secretary treasur will be here it's really I think it's encouraging the fact that's why we're here today so thank you all for being here Dr Ferguson you're recognized for five minutes thank you Mr chairman and

2:08:37

to the witnesses thank you for being here I must say your answers regarding what Congress should be doing are much more kind than what I get out of my district most of the time so thank you for your your gential response respon

2:08:48

say Miss Funk Houser let me let me start with a question to you when we're looking at this proposal this is a digital Services tax okay so we're talking about taxing the services in the digital Arena so much of that is based

2:09:04

on data and the value of data do you ever wonder then given the fact that the US has the highest quality data and the most tradable data in the world does this open up do you think think that this Avenue would open up problems with

2:09:22

other countries taxing our the value of our data not the services but the value of the data do you see that as a concern thank you for the question Dr Ferguson and I'll say we have applauded the efforts of this committee as well as

2:09:36

the administration when it comes to extending the World Trade organization's moratorium on customs duties on um electronic Transmissions because this does get to some of what you're talking about when it comes to how companies are

2:09:48

able to engage abroad and and stay competitive and so we see maintaining the moratorium on Customs electronic Transmissions as critical to maintaining us competitiveness okay thank you Mr bun um when we look at the the JCT score of this I mean their

2:10:08

range is like a billion a billion 4 to 400 billion right um I mean do you think that it's responsible to be mov moving in this direction without more complete data and understanding exactly the impact that this would have thank you for the question uh so if

2:10:29

you read through the JCT analysis one word that pops up regularly is uncertainty uh there's not in my view uh a point at which we will have much more certainty on those sorts of numbers than now and that range 100 million to you

2:10:46

know 4.4 billion that that that is a meaningful range uh and again it's a you know a single-ear estimate not a 10-year estimate like JCT is normally able to provide but there's just so much complexity in the policy itself that

2:11:01

this is not like you know changing the corporate tax rate and JCT being able to do that in their sleep this is a very difficult and comp complex policy that makes it hard to estimate so so advancing without a without the rules

2:11:15

been being written and understood stood seems pretty irresponsible to me at this point I I I agree and one of the things that is uncertain is how companies the the data that the companies themselves would use to comply with this is not all

2:11:32

sort of in one place or or clearly um available for analysis okay this question will be for whoever can answer it um and if you know we I'll just kind of Point as as we go along here do you think that there's a situation

2:11:48

where the money the the the taxes levied here could wind up going to China at any level Mr BN I'll start with you yes the allocation yes that that's fine Mr sprag well I haven't seen statistics but if China is a net beneficiary of amount

2:12:14

a then they would be able to tax the net amount a transfer but I've not seen any statistics on this okay Mr Miner but Dr Ferguson could could I respond to your taxing data Yeah question well I tell you what real quickly let me get through

2:12:27

this so we got enough time Mr Miner yeah I I I haven't looked at that issue okay Miss Punk cower no I do not have statistics on that okay Mr frag back to you for just a quick response on the on the data taxing data yeah no it's it's a

2:12:41

very interesting question and the original dsts actually um tax the transfer of data so one of the advantages of getting rid of the dsts is to take away that tax that exists today in the DST countries on transfers of data and keep in mind that the EC not

2:13:02

too long ago proposed a general tax on data transfers the the tax world is in a very unstable place at the moment with ideas like the EC data tax the DST you know withholding tax on digital services so to the extent that the system can be

2:13:20

stabilized to get rid of all of those departures from International taxation Norms that I think is what would be good for us business okay thank you for those comments I'll say this we should not be considering or supporting any

2:13:33

legislation that allows $1 of US taxpayer money to go to the Chinese Communist party with that Mr chairman I yield back very good Miss Sanchez you recognize for five minutes thank you Mr chairman I want to thank our Witnesses for being here today

2:13:48

uh I have to confess I am not a tax attorney I am an attorney and sort of trying to wrap my head around pillar one sometimes is like trying to wrap my head around the rule against perpetuity which takes a while until you're familiar with

2:14:01

it um so today we have heard some concerns about pillar one but we also heard some suggestions for how we could Improvement pardon me improve it and while um some of my Republican colleagues are pulling the fire alarm I

2:14:16

just want us all to remember that these negotiations have spanned more than one Administration and in fact most of the initial work on pillar one happened under the Trump Administration but it's also important to keep in context um the

2:14:31

overall um picture of pillar one and what we were trying to do um in terms of uh tax policy and essentially we were trying our American negotiators were trying to stop a trade War they were um defending American businesses who were

2:14:50

openly targeted by other countries digital service taxes and us negotiators have focused on trying to secure certainty for American companies and that's a theme that I hear over and over from business certainty uh stability

2:15:05

Clarity are all important so surely I think we all agree that we should protect American businesses against increasingly aggressive and confiscatory audits of their transfer pricing and I think we should be focused in on

2:15:20

how we can refine pillar one to best protect us interests without again forgetting why we entered these negotiations in the first place um Miss Funkhouser your industry is probably most directly targeted by dsts can you

2:15:36

describe what you think will happen if pillar one fails thank you for the question and I think it's a critical question to keep in mind as we're considering this and I think in the absence of a multilateral consensus based solution we will see further

2:15:50

proliferation of unilateral uncoordinated taxes that that are imposed on gross revenues and are targeted to either um a specific subset of companies as we've seen in some of the dsts to date with us companies um or non-resident companies altogether and so

2:16:06

that would have a devastating effect on the international tax and trade environment and based on your experience following dsts do you think that aggressive taxes being pushed by other countries will stop at digital service taxes or do

2:16:20

you think that other countries will continue to try to find new and different ways to Target us companies we have already seen a um an increase in novel approaches if you will to to taxation I think the first generation of

2:16:33

dsts was focused on like I meant um digital advertising user data Etc um the next ones went to effectively anything that happens over the internet as we see in India's Equalization Levy and then we've also seen um changes like the

2:16:47

Australian taxation offices Revis Dr uh software payments ruling which is looking at a new way of diver diverting from long-standing International tax Norms um so although we've heard concerns today about pillar one and

2:17:00

we've heard obviously some suggestions from our panelists about how we can improve and refin it within the parameters of how it currently exists um and I think my colleague Mr doet said you know what happens if United States

2:17:13

says well we don't like pillar one we're just going to walk away from it you know does it really behove us to stick our head in the sand and hope that the problem of digital service taxes and other new problematic taxes by under

2:17:25

their countries are simply going to go away any of the panelists care to comment on that that we should just walk away blow it up walk away uh no I strongly support continued engagement by the US government because again without strong

2:17:40

engagement from the US government we cannot um make this a better pillar one deal for the US economy and for us competitiveness anybody else care to China in yeah I I will I the dsts aren't going to just go away if uh amount a or some

2:17:59

other similar agreement is not uh negotiated and agreed to I think the countries have made that pretty clear Mr bun I would agree the challenge here is to get an agreement that fits the priorities of this committee this Congress uh and that's I don't think

2:18:18

that's the current draft um but uh to continue working towards that so it's it's worth it to roll up our sleeves try to do the hard work figure out what is the you know negotiations are based on compromise as well but what is the best

2:18:31

deal that we can get and how can we best try to protect us companies us Innovation by sticking with the confines of of pillar one yes yes that's correct all right I appreciate our panelists and I yield back Mr is you recommend us for 5

2:18:49

minutes well thank you Mr chairman and thank you to our panelists today you know I've been concerned about the proliferation of the discriminatory Digital Services taxes since I came into office in 2017 which is why I encouraged the

2:19:01

previous administration to engage with oecd be's 2.0 project which turned into the pillar two the two-pillar process that we see today the goals of this project were to eliminate dsts provide tax certainty and simplification for

2:19:16

businesses in the ground digital economy and that's where the negotiations were going before the Biden Administration came in and changed the direction well I've been an Ardent oppos an Ardent opposition to pillar two the global

2:19:30

minimum tax especially the utpr provision I was hopeful that pillar one would fulfill the stated goals of the original project unfortunately what we're seeing is that more countries like Canada are enacting dsts and the oecd

2:19:44

issued a convoluted 800 page deal quote unquote that leaves more questions and answers because of this it's my belief that this deal now represents a foot in the door for more extr territorial taxes unsuccessful businesses and that it's a

2:19:58

deal that's out there but it's not necessarily that we should accept a bad deal Additionally the deal doesn't uh consider how businesses actually operate in the real world pillar one's uh marketing and distribution safe haror

2:20:11

fails to adequately account for taxes paid in Market jurisdictions under franchise or split own ownership structures this would force us companies to overallocated profits to Market jurisdictions resulting in more tax paid

2:20:24

to foreign governments and less tax paay to the United States as with the Biden treasury Department's failure to grandfather guilty and failure to protect us research and development incentives the administration's once

2:20:36

again failing to protect us taxpayers and US tax collections I've heard from one US Fortune 200 company that the failure to properly protect franchise or split ownership structures would result in an annual reallocation for that one

2:20:51

company of 500 million to up to a billion dollars of us Revenue to over 100 foreign countries with significant share going to already wealthy countries like Germany and Spain as my colleagues have noted the recently released JCT

2:21:06

report notes that a plurality of inscope companies would be from the US and 70% or $135 billion of amount a would be from American companies likewise the US Treasury would forego between 100 million and 4.4 billion depends on that

2:21:22

large range of per year of tax receipts uh and we're and while we're granting a new tax right to other countries it's my understanding that our Treasury Department is aware of the split ownership isue has done nothing to to

2:21:34

fix it despite negotiating one of the most complex confu confusing and harmful deals that I've ever seen the Biden Administration claims that protecting our franchise and split ownership companies is just too too complicated I'm tired of hearing about this

2:21:50

administration's Hollow excuses the massive reallocation of us revenue is also not limited to us companies operating in franchise or split ownership structures another us Fortune 200 country company that is highly profitable in the United States would be

2:22:05

forced to reallocate between 500 million and a billion dollars of us Revenue annually to European and other foreign countries even though these foreign countries have no economic Nexus in the US Revenue so for just two countries

2:22:18

we're already up to almost $200 billion of us Revenue sent overseas Mr Miner do you have any views of the marketing and distribution Safe Harbor and and treasures failure to protect our us-based franchise and split ownership structures yeah well thank you

2:22:32

for the question uh the two instances that you described um have uh are are two of the issues that that we've highlighted in in our comments about um making improvements um to the um the um marketing distribution Safe Harbor

2:22:50

calculation um but but we have we have a number of issues um with the mdsh based on the modeling of our of of Our member companies that it does not seem to um fully eliminate double taxation based on those calculations um it's a it's a

2:23:06

unique formula it's not related to the transfer pricing principles that are that are broadly adopted um so we we also share your frustration that those two instances that you described have yet to be resolved um they they may

2:23:21

still be resolved I think the other one relates to the autonomous domestic business exemption uh which uh does not apply to us Consolidated groups and we think there are good arguments consistent with the principle of that

2:23:34

exemption that that should allow uh carve outs under under certain conditions and uh we we we hope that those those uh suggestions are still in play thank you Mr chairman chman the JCT report underlines my ongoing concerns with pillar one's current

2:23:51

structure as as a house Ways and Means tax subcommittee we should be firm in our commitment to putting the United States first maintaining our tax sovereignty and not giving into Global demands and the JCT analysis confirms

2:24:02

that pillar one as currently negotiated by the Biden Administration does not accomplish the original goals set out when we begin this exercise in 2018 with that I'll you back thank you mban rep niiz for five minutes thank you

2:24:15

Mr chairman and thanks to all Witnesses for joining us today I appreciate it um I appreciate the opportunity to highlight the concerns around discriminatory Digital Services taxes and the need to ensure that a pillar one

2:24:28

deal protects American businesses and workers against uh Patchwork of unilateral dsts that only happens if the United States continues to hold strong on demands for improvements to the current multilateral convention um Mr Miner if a critical

2:24:45

number of countries were to to sign and ratify the multilateral Convention as it is drafted today would that put an end to dsts and relevant similar measures well that that that would for those uh jurisdictions that sign sign on to the

2:25:00

amount a um with the caveat that we we still have problems with the way the um the DST review in the current version of the mlc is drafted and and so we've we've provided Our advice on to how how to improve on that um that does leave

2:25:14

the issue of uh jurisdictions that decide not to sign up for the mlc uh you know under under that situation they're still free to pursue dsts but I I I'm I am hopeful that there might be a trend then at that point against against the

2:25:32

proliferation of dsts because uh I think the US still has uh a number of options to go forward uh against those jurisdictions as it sees fit if that is the case thank you um a top Canadian finance department official recently said that Canada is

2:25:50

advancing its plan to impose a digital Services tax even though the US is opposed in part because the US has not retaliated against seven other countries such as India France or turkey that have adopted dsts um these countries taxes were found

2:26:07

by USR to discriminate it against American companies and workers and following the USR investigations the US agreed to impose and then immediately suspend tariff on these countries as part of a political agreement um which was

2:26:21

recently extended through June of this year um focused on reaching a multilateral agreement on at the oecd um Miss Funkhouser what do you make of the contention that it's okay for Canada to impose a discriminatory tax because the

2:26:35

US has not yet retaliated against other countries with these taxes thank you for the question representative Del and thank you for all of your work with the Congressional digital trade caucus to push back against dsts particularly the

2:26:46

Canadian proposal um I do not agree with the contention that it would be okay for the Canadian government to move forward with this unilateral measure um on one it is modeled after the French DST it's not identical but it's very similar

2:27:02

which the uscr has found to discriminate against us companies it also comes at a point in the multilateral negotiations that are trying to remove unilateral measures and if the Canadian government moves forward it could lead to perverse

2:27:15

incentives to actually finalizing those multilateral negotiations um so how do you think well I guess I was going to ask how that impacts the oecd process and so you you think that it's Canada's um actions will impact the oecd process yes I believe

2:27:32

that if the Canadian government moves forward with a DST it could Inspire similar actions from other governments and then that would just increase the amount of perverse incentives you have when it comes to actually coming to a

2:27:42

final compromise that provides for the reallocation of taxing rights and provides for the withdrawal of Digital Services taxes so um so their logic um if that holds then anybody could say we're going to go adopt a tax um that

2:27:56

discriminates against it because others are doing it yes exactly and that is not an adequate um reason to do so um these are inherently bad taxes and structure and scope um thank you I appreciate it I appreciate all of uh the feedback from

2:28:12

everyone on the panel thank you I yield back Mr chairman thank you Mr smucker you recogniz for 5 minutes thank you chairman Kelly for holding today's uh timely hearing before I move into questions I just want to emphasize a a

2:28:25

few key points for my constituents back home who likely aren't following the OC oecd negotiations as closely as some of the tax community in Washington but whose lives could be impacted by this and want to go back to the initial

2:28:41

reason for the pillar one discussions as you've all said we started with the intent of modernizing tax rules for the digital age and the US specifically entered into the discussions with the goal of reaching an agreement to remove

2:28:55

discrimin taxes the DST taxes on American companies specifically American innovation being enacted by several foreign allies but the Biden Administration chose to leave Congress out of the negotiations and what we're left with is a pillar one deal that has

2:29:11

failed to achieve its original and its fundamental purpose eliminating harmful digital service taxes we're referring to them as dsts that threaten American jobs and will likely send us tax revenue overseas because the Biden

2:29:27

Administration has chose not to consult with Congress throughout those negotiations at oecd I think today's hearing is an important opportunity to get the message out to the International Community that Congress has serious

2:29:39

concerns with pillar one so I hope they're paying attention uh for this steal to move forward and I'll just maybe ask Mr bun to confirm this this cannot move forward unless the Senate ratifies the treaty and unless my colleagues and I on the

2:29:56

Ways and Means Committee will need to advance change to the US tax code as well is that correct yes yeah so this this doesn't get done unless uh we and the Senate agree with it as well so it's important that folks are paying attention to that um we believe

2:30:13

endorsing a deal that penalizes American innovation that could cost American jobs and could end up sending tax revenue to foreign countries even as some of you suggested here in in answer to Mr Ferguson's question even Nations like

2:30:27

China that are simultaneously attempting to steal our Innovation we don't think that's in the best interest of our constituencies and let me ask the question maybe Mr uh Miner is there any scenario um in your estimation in which

2:30:44

this proposal does not reach reduce or undercut US federal revenue just keep in mind half of the taxable companies are uh us-based so this almost certainly will result in less Revenue in the US do you agree with that well thank you for

2:31:00

the question uh that that's a a tough one for me um I I I would have to defer to to my Economist colleague any anyone else want to answer that I think I think jct's analysis with the uncertainties even with the uncertainties the range all all of those

2:31:20

numbers are are negative um it seems likely in other words there would be a reduction reduction coming into the federal to the US right even after accounting for additional revenues that could come from foreign companies the

2:31:33

net would be negative do does that make sense to you I mean if we're even discussing reforming taxes surrounding us-based businesses shouldn't those taxes be used to benefit US citizens and not people of other countries I think

2:31:48

one of the things uh thank you for the question I think one of the things um inherent in this discussion is that tug and pull is this compromise that reduction in US tax revenue worth it to get the certainty or the elimination of

2:32:02

Digital Services taxes and if those are questionable then the sacrifice in my view is not necessarily worth it yeah Miss vower would you like to respond to that as well yes I would and I I and I Daniel touched on this at the end but

2:32:15

part of this compromise in pillar one is looking at bringing together a more predictable certain and stable tax environment and so the JCT report is part of the picture when it comes to look considering how Congress chooses to

2:32:27

engage with pillar one um but I would re highlight that companies are already paying Digital Services taxes and for they are impactful for all companies regardless of profit margin but particularly for those that are loss

2:32:39

making or low margin companies and there are some jurisdictions out there that don't even have um Revenue thresholds and so so startups and small businesses are also directly affected by these gross revenue taxes and so I would

2:32:50

encourage Congress to keep that in mind when considering the compromise of pillar one we've also heard some of you in answer to questions have said that this proposal will not eliminate all possible dsts and so we could

2:33:02

essentially have a situation where the Biden Administration has negotiated an additional foreign tax proposal on us multinational companies while failing to eliminate the Digital Services tax anybody want to respond to that i' I'd

2:33:17

like to respond to that is as Mr Miner noted the amount Aid uh document actually lists the digital service taxes that are within scope and would need to be withdrawn and it includes all of the should we call it first wve dsts UK

2:33:36

France Spain Italy India Turkey um I'd be very surprised if UK France Spain Italy did not sign on to amount a and so I would be extremely confident that those dsts would indeed be withdrawn Canada um I'd be surprised if Canada uh

2:33:56

didn't sign on in which case it would be precluded from asserting a DST do you think any country I'm sorry I'm out of time Mr chairman but uh would you foresee uh any situation where countries would not sign on where DST uh tax would stay in

2:34:14

effect maybe small small countries I mean there are some very small countries with dsts thank you I'm I'm I'm out of time but appreciate that thank you so much good line of questioning Miss Moore you're recognized for five minutes thank

2:34:30

you so much Mr chairman um let me start with you Mr sprag there's been a lot of discussion about the JCT U estimates of um revenues that would be lost to $1.4 billion um does that take into account um um am um the amount under B if it were

2:34:56

mandatory would that uh would that mitigate the loss of Revenue to the US because I think one of the problems that I've been hearing is that uh because amount B is not mandatory the transfer pricing um that that uh that that's part of the

2:35:22

uncertainty yeah thanks con mmore for the question that's a very good question um there were a couple different points that I'd like to respond to First on amount B um I do believe that the introduction of amount B assuming it's

2:35:37

adopted broadly would be a net revenue razor for the US and the reason is that I do think that amount B will Tamp down some of these aggressive foreign transfer pricing adjustments and that means fewer foreign taxes that us

2:35:54

companies claim as foreign tax credits and fewer correlative adjustments that us companies would then claim in the US so that's the those those are the two benefits of of addressing tamping down the aggressive foreign adjustments we

2:36:10

also need to think about the inbound side right be because amount B if the US adops it would also be applicable to inbound distribution from overseas exactly uh the IRS has just started you know a new project to look carefully at inbound

2:36:26

distribution my belief is that amount B would not limit the IRS in its review of inbound distribution and that project is likely to increase us tax revenue so I think both on the outbound side and the inbound side um the introduction of

2:36:43

amount B would be a net tax revenue Razer for the US um I can't say um how much it's not going to be in the same magnitude as mount a but it will be a counterbalancing um number the the other element that I'd like to emphasize is

2:37:00

that the the 1.4 billion is only one part of the whole you I think others Miss Funkhouser in particular has mentioned that that the deal is a deal that has lots of components I I mentioned that the international tax system today is in a very unstable State

2:37:18

and a lot of that instability whether it's digital service taxes or withholding taxes on Digital Services is directly impacting us companies um if if the amount a goals are achieved will restabilize the international tax

2:37:35

environment and that'll be good for us business us business is the most multinational of any business um any any country and restabilizing the international tax framework is going to allow us business to operate overseas with more predictability and more

2:37:52

stability um than is the case right now I got you let me ask Mr Miner a question we've heard a lot today about us companies the feedback we got uh in October was that they were concerned about the added complexity of complying

2:38:07

with amount a and then finding that they have very little tax liability uh how can these compliances uh challenges be mitigated and again um is it worth it to go through the complexity of complying with part a uh and would would would

2:38:30

that would it benefit the US companies to do it even if they have a limited amount of tax liability so that they can in fact get those receipts uh incoming and and and also mitigate problems that they would have with aggressive transfer

2:38:48

uh pricing yeah it's it's inherent in introducing a novel regime like amount a that there's going to be uh significant compliance costs upfront um but we're there's there's a lot of money at stake so I guess on a um proportionate basis

2:39:04

it's it's it's not an unusual ratio uh the compliance cost to the to the amount at stake and we have to remember as as as Mr sprag just said there there are multiple components to the to the pillar one project thank you Miss funen Houser

2:39:20

why should Ordinary People care about pillar one that's a great question um Ordinary People should care about pillar one from the perspective of how does it contribute to us competitiveness and engaging with the global economy um

2:39:35

again the US economy benefits and contributes to but benefits from clearly the global economy and that's why it's important for providing that stability predictability certainty that benefits us comp compan and US workers thank you

2:39:47

so much for your Indulgence Mr chairman and I you back yes sir Mr kustoff you're recogniz for 5 minutes we will go two to one now in the interest of time and thank you all so much for being patient with us Mr kustoff thank you Mr chairman

2:39:59

for convening today's hearing and thank you to the witnesses for for appearing as well pardon me Mr Miner if I can with you the uh pillar one multilateral convention will now require companies to file frankly a substantial amount of s sensitive financial

2:40:17

information and tax information in preparation for today's hearing I was reviewing a letter submitted by the business Round Table it was a comment letter to the Department of Treasury on the pillar one mlc and if I could if I I wanted to read you part

2:40:36

of it and then get your thoughts this is from the letter dated December the 11th 2023 from the business Round Table to the Department of Treasury regarding compliance more information is needed as to the mechanics of filing returns

2:40:53

paying tax and perhaps more importantly the confidentiality of taxpayer information the Lev level of detail in the data required for calculation under the mlc is greater than under typical tax compliance rules for that reason

2:41:13

there should be extra sensitivity to what is shared for pillar one purposes that that's from the letter so my question to you is given the type and amount of information that companies will have to report under the mlc are there any concerns or legitimate

2:41:32

concerns about confidentiality risks yeah um I guess the you know that and that's a very valid risk and that what you just read out loud was sound sounded very similar to the langu in our consultation letter on that topic um be

2:41:49

because of the again it's a it's a novel regime uh it's a multilateral regime and so um the dispute uh prevention and dispute resolution Provisions are are very detailed very important and one of our concerns was making sure that

2:42:06

confidential information was was only going to be shared with those jurisdictions who had a a stake in any of that type of uh resolution review so um we're going to continue to emphasize this issue but again I think it's a it's

2:42:22

a reasonable concern to have and and and we can't over highlight that concern if I could I appreciate that the the letter goes on to say that stronger rules need to be in place where there are breaches of confidentiality since there is such a

2:42:39

wide variation in the protections provided among parties in their domestic law given given the more sensitive nature of the data that would be incorporated into calculations under the mlc So What mechanisms if any if you will does the

2:42:57

mlc uh include or need to include to address breaches of confid confidentiality yeah well there need there need to be uh strong you know strong and and clear consequences for breaches breaches of any confidentiality um also also as a as a

2:43:16

deterrent but as a as an an enforcement mechanism thank you very much Mr bun if uh with you can you speak about why pillar one will likely result in Revenue loss to the United States thank you for the question uh as I've mentioned before the analysis from

2:43:37

The Joint Committee uh notes the uncertainties but uh I I I'll describe a a situation in which uh these these numbers hopefully make a little bit of sense um a lot of high value activity for us multinationals happens in the US and those profits are

2:43:55

booked in the US and taxed by the US Treasury uh the way the amount a rules work that if you have very high profit margins 25% of uh profits over a 10% threshold um could be subject to reallocation so the us as home to very

2:44:15

inovative and uh highly profitable businesses and where a lot of those profits uh are booked will have an outside share available for reallocation part of the reallocation is to where customers are um now the US is about 30%

2:44:32

of worldwide consumption so a lot of consumption happens outside the US a lot of customers for us businesses are outside the US so you could see just from that uh kind of simple example that a lot of the uh profits available for

2:44:48

reallocation could end up outside the US now the US would also get some inward reallocation uh and the inward reallocation could come from us businesses that have foreign operations and they sell back into the US market and it could also come from foreign

2:45:05

businesses that are selling into the US market but on net The Joint committee's analysis shows that it would be a net revenue loss particularly looking at 2021 data thank you Mr bun thank you Mr chairman Mr fer you reacor nice for 5

2:45:21

minutes thank you Mr chair thank you to each of your W the witnesses today uh it's great to hear from you I'm trying to understand whether there's any coherence between the steps this Administration is taking in this sector

2:45:34

we started negotiating pillar one for a large part in the response to the implementation of digital service taxes around the world but more broadly to adapt International taxation to the digital economy one of the advantages of doing pillar

2:45:47

one if at all is that it would enable a paper reallocation relocation of profits not a physical one that is transfer transferring economic activity investment and R&D to Market jurisdictions we want to keep all this here in the United States but the

2:46:06

abandonment of the of the moratorium of the digital trade by Biden Administration meaning by allowing local data storage requirements to proliferate expect essentially creates a physical presence requirement in the market

2:46:19

jurisdictions so on one hand at the oecd we are negotiating for a paper reallocation of profits on the other hand at the WTO we are negotiating a physical re reallocation of profits though that's not the intent It ultimately is the effect so what what

2:46:37

I'm asking uh Miss Funkhouser I'm trying to reconcile these two seemingly contrasting objectives can you explain how the abandonment of the digital trade moratorium at the WTO particularly the potential for the new local data storage

2:46:52

interferes with the goals of pillar one do you understand what I'm saying uh yes I do Mr F thank you for the question I appreciate it and um as you mentioned in October the Biden Administration withdrew support for some long-standing

2:47:05

priorities in the World Trade organization's plurilateral agreement on e-commerce and these were priorities to prohibit data localization measures and and what this means though is that if a go um if there are no commitments

2:47:20

against data localization a government can then require that if a company wants to serve that market then that company would have to actually set up physical presence in the market which would then lead to permanent establishment and lead

2:47:32

to a taxing presence and so that would mean though that if a company can no longer do that same activity in the US and has to then do it in the market to serve the market you then lose um the opportunity and so so yes I we're um

2:47:46

very disappointed in kind of the direction of digital trade policy right now and really encourage um a priority that puts forward us competitiveness so so can you just explain how does that create a disadvantage for American multinational American

2:48:00

companies it means that if a company wants to do business in a market then it actually has to physically go into that market and is not able to have those jobs and that activity in the United States thank you and that's could be

2:48:11

very significant yes yes and and so I'm going to switch subjects now so I I also look at at what the other countries are aggressively doing they're shifting their tax burden on us companies uh and they're trying to find places where they

2:48:25

can grab more dollars uh we saw this in Europe obviously Germany's uh extra extraoral uh tax on Section 49 and similarly similarly is targeting uh our our us firms for the sole purpose of raising revenue uh we're seeing this

2:48:41

also uh Australia has uh designed its own tax targeted at us software companies and India is of also frivolous in in forcing us companies in lots of litigation what I'm trying to get at is this would you agree Mr M Funkhouser

2:48:58

that that American companies are are typically targeted by Foreign tax collectors and do we see this proliferating obviously we're talking about pillar one but we're also talking about a lot of different aspects uh how

2:49:12

do we as Congress answer that and what can we do as a country now thank you very much and you've really listed through the the different ways there is uncertainty in the international tax environment now and and perhaps as a

2:49:23

first point just thank you so much for your leadership in leading letters and making clear your concerns about the imposition of section 49 in particular on us taxpayers and I think that is a a big part of is is making clear that the

2:49:36

US economy and US competitiveness though um should not be faced with extr territorial measures and so um thank you for the leadership you've shown in in that regard well well thank you I I mean to me this is very concerning and and I

2:49:49

worry about this Administration it just seems like they're allowing this to occur and and this is very very you know we all have to be aware what's happening I mean here we're losing our revenue and the revenue is going somewhere else so

2:50:02

with that I yield back thank you thank you Mr Schneider recck nice for five minutes thank you Mr chairman I want to thank the witnesses for uh sharing your perspectives on what is relatively a very clear and simple concept to understand and um so thank

2:50:17

you for laughing um one one thing that I know from uh my years in in business before coming to Congress is uh two things that drive costs up are uncertainty and complexity and we are certainly talking here about a situation

2:50:35

with great uncertainty and and great complexity and the goals to to try to reduce that um Mr spra you used the term earlier the international tax system is unstable or at an incredibly unstable moment very briefly because I want to

2:50:52

touch on some other things but what are the key implications of that instability for in our Focus American uh multinational corporations well Mr finster's reference to the section 49 tax is a perfect example I mean that was an

2:51:06

opportunistic um effort by Germany to tax the profits of us multinationals the cost to us business of the certainty is the cost just you know the tax cost of these special taxes like section 49 and dsts plus the um expense of trying to

2:51:24

plan a business when you don't have uh great visibility into what your tax liabilities are going to be that is another advantage of amount B trying to bring into a more narrow range what your range of tax exposures is going to be um

2:51:39

in distribution activity in foreign countries uh thank you and I'm going to quote uh Miss Funkhouser uh you said in in your open remarks absent robust us engagement including that of Congress and I'll emphasize my emphasis Congress

2:51:53

should be all caps and underline because we have to be involved there's little chance of resolving outstanding issues and crafting a final package that provides certainty and predictability for the global technology industry and I

2:52:04

think you can expand expand that to Industry uh as a whole um my my question for you because we're talking about certainty and unpredictable unpredictability um what's likely to happen if we walk away from the table for American uh technology companies

2:52:24

thank you very much for for the question because it is something we spend time thinking about and it really would be a further proliferation of these unilateral uncoordinated taxes that are imposed on a gross revenue basis and in

2:52:36

some ways are attempting to ring fence the digital economy um and are really presenting trade barriers to the ways that companies invested in the United States are able to engage with other markets around the world and so you this

2:52:48

is the gross revenue base in particular is especially impactful for loss making and low margin companies and so as you're thinking about companies that are in the United States and looking to expand elsewhere the proliferation of

2:52:59

dsts is especially harmful yeah and uh thank you and we we need to move forward on this uh you also talked uh misser about um uh the goal of pillar one with predictive dilon certainty um the Biden Administration is working to make uh

2:53:19

amount B is mandatory uh making sure all countries uh is for all countries is the way we achieve that certainty uh within pillar one does anyone disagree that it should be mandatory I believe it should be mandatory for governments to adopt a

2:53:35

mount B and that um companies should have an option when it comes to opting into a mount B um or there and and or it should operate as a safe harbor again if this is is about simplifying transfer pricing then that is how we would see it

2:53:48

uh Mr Miner anyone else want yes I agree um you in my mind mandatory is essential and you know it it should be seen as um you know part part of the overall deal uh for including amount a as a as a important component of of pillar one and

2:54:06

the elimination of dsts Mr sprank I I agree with both of those comments including that it should be a mandatory uh integral part of of of one goes along with a Mr bun I also agreed that it should be mandatory okay uh as my time is winding down let me ask

2:54:23

another question uh I'll just make it easier and raise your hand if you think the US should stay at the table uh trying to achieve Su uh agreement on pillar one so we got four out of four um thank you uh I appreciate that I I'll

2:54:38

finish with one just thing as we're coming to the end uh uh my friend um chairman Kelly mentioned atas there's often a misnomer of Atlas holding the world on his shoulders it was actually the skies that that uh Atlas held up and

2:54:51

uh Atlas was a Titan was a giant um I'd like to and this may be torturing the the metaphor uh view the United States as a Titan of innovation as a Titan of of uh uh of creativity the we've talked 50% of the multinationals that are affected are are

2:55:11

us companies I'm proud of the success and The Innovation and the progress that us companies make and uh I want to make sure that whatever we do here uh ensures that those companies continue to be in the United States and that the sky is

2:55:23

the limit for their potential with that I yield back well said I agree with you uh it's also nice that this committee is actually getting involved in it and we're continue down that road because this is so complex it's very difficult

2:55:36

but I thank you all for doing that Mr Smith thank you Mr chairman and to our ranking member for allowing me to wave on to the subcommittee here today appreciate the concern so many have already expressed about the implementation of pillar one and its

2:55:50

impact on American businesses and Innovations it's clear that both pillar one and pillar two are bad for American jobs American workers and revenue to our treasury however I'm also here today because I'm concerned that in addition

2:56:02

to the other problems discussed here pillar one will stop International efforts to it will will not stop International efforts to strip more revenue from American businesses operating abroad in the digital space has been has been discussed somewhat

2:56:16

here today already despite ongoing efforts with pillar 1 Canada continues moving toward implementation obviously of its own DST as was discussed as do Nations across Europe and around the world Nations like Australia and Denmark

2:56:31

to name just two also continue to to pursue domestic content requirements for streaming streaming services placing even more demands on American businesses when policies like these are imp implemented by partners with whom

2:56:45

the United States has trade agreements they don't just undermine efforts to find a global standard which pillar one's a proponent say they are attempting to achieve they also VI violate commitments made in trade agreements like usmca and also the

2:56:59

Australia Us free trade agreement we need an agreement which limits the ability of foreign governments to unfairly tax American companies and we need it to do more than merely stop a single method among the many that me

2:57:13

that foreign governments are using to Target them pursuing targeted trade remedies should should never be the first Resort but I fear that ongoing International efforts to implement dsts and other requirements intended to

2:57:26

directly Target American companies could lead us there Mr bun in your opening statement you reflected on International implementation of dsts and the potential effect of dsts and other requirements in the trade space will pillar one in its

2:57:41

current form put a stop to these efforts in its current form pillar one identifies some dsts that would likely go away once countries uh sign on to it uh but that's not the full scope or the full Universe of these discriminatory

2:57:57

policies and so I mean so some of them would likely remain or U there would be uh new mutations uh to get around the the definitions within pillar one and how would you propose moving forward to address some of these concerns that

2:58:13

that's that's the challenge um if we if we remove ourselves from this negotiation then there's less leverage to try to tighten the rules um in the context of the negotiation uh and you mentioned targeted uh trade remedies I'm

2:58:26

not certain that those would um be sufficient to change the policies of other countries without just an escalating trade War um this this is this is the real puzzle of of the problem um you can uh increase the types of tools or increase the leverage that

2:58:42

the US might have in the negotiations and kind of see how it goes but I I don't think there's a um there's a path outside of this multilateral negotiation that leads to more certainty on elimination of Digital Services taxes without some sort of trade

2:58:59

War well thank you I I think that these perspectives are important uh and that we have this we continue to have this conversation uh obviously we might have a separate trade subcommittee but let's face it to t you know trade policy from

2:59:14

the the Ways and Means Committee involve a lot of taxes in tax policies and so we might have separate subcommittees but we definitely need to work together as in and to think and strategize together on behalf of American jobs and Innovation

2:59:29

and uh apply ideas moving forward that will not short Change Us in in the in the big picture so thank you again Mr chairman I yield back thank you that's a great perspective coming from the chairman of the trade subcommittee um Jimmy Gomez 5 minutes

2:59:47

thank you Mr chairman um from the title of this hearing it at first glance and with some of my colleagues uh testimony or statements um it seemed like my colleagues on the other side of the aisle were dead set on criticizing the

3:00:02

Biden Administration on just about anything including uh pillar one where the administration actually continues to actively fight for American interests by insisting on changes that will level the playing field for the US um there is

3:00:18

actually a great deal of bipar an agreement on the goals of pillar one on amount a we agree that the US should not be discriminated against with digital service taxes designed to Target only American businesses and that the rules

3:00:31

to enforce this must be uniform throughout all jurisdictions on amount B we agree that American companies and their subsidiaries should be able to operate across borders at arm length and a stable International tax system with

3:00:47

wide scope mandatory rules to ensure High certainty and low compliance cost the Administration has stated that they are for uh making Mount B mandatory and not optional and a lot of us agree with that um when it comes to the cost of

3:01:06

pillar one or the effects on Revenue it is considered to be negligible some people would even say it's a rounding error but it's a small price to pay for international tax certainty for American businesses there seems to be consensus

3:01:21

on PR on the principles of pillar one so it is strange to me that rather than supporting the Biden Administration negot negotiating strategy of using our leverage to insist on Provisions that level the playing field Critics on the

3:01:35

other side of the aisle seem to prefer to tank a deal on pillar one altogether but what's the alternative um continued goodface negotiations are the only thing preventing the worst outcomes sticking our heads in the sand and refusing to

3:01:49

negotiate in good faith with the international framework will will not make these challenges go away as more Commerce moves onlines countries with suspended digital service tax taxes will reimplement them and if we pull out of these uh negotiations with no

3:02:04

alternative other Juris jurisdictions like Canada and the EU as a whole will join them the pre previous administration threatened to escalate Trump's trade War by imposing retaliatory tariffs on key industries from countries that institu instituted

3:02:21

digital service taxes um Miss uh Funk sorry Funkhouser um who pays the price for the higher tariffs of a trade war and will those consequences be worse than continue the Biden Administration strategy of insisting on reasonable good

3:02:38

faith improvements to pillar one thank you very much for the question representative Gomez I at the end of the day Global tax policy challenges require Global tax policy Solutions and that's why ITI has been so supportive of

3:02:50

administrations I mean going back several administrations now participating in good faith in those negotiations to secure a more predictable and and and certain International tax system and so that is what is going to be the best outcome for

3:03:03

us competitiveness is a is an international domestic and international tax environment in which companies have the certainty so that they can make investment so that they can pursue R&D um so that they can engage with other

3:03:14

markets thank you Mr sprog do you see any viable alternatives to avoiding dsts and trade Wars other than the administration continuing multilateral pillar one negotiations while insisting on Common Sense changes like a mandatory amount

3:03:30

b i I really think that continuing engagement on the amount a concept is the only realistic way the dsts will go away if there isn't a treaty like amount a um I would expect the existing DST taxing countries to retain them and

3:03:48

other countries like Australia to impose them um thank you one thing I want to make clear is that the Congress should be involved but the Administration has the correct position of negotiating and people shouldn't assume negotiating is a

3:04:06

sign of capitulation or weakness when it comes to American interests or putting America first um I think it is uh the appropriate course of action and if um things do not work out we always have other tools on the toolbox to address um violations or or

3:04:29

discriminatory treatment of American companies with that I yield back Miss Miller recognize for five minutes thank you chairman Kelly and ranking member Schneider and to thank you to all four of you Witnesses for being here today I've been acutely

3:04:45

concerned with the actions taken by the oecd and the Biden administration's failure to protect American interests over the course of the past several years I traveled to the oecd with chairman Smith and my colleagues last

3:05:00

summer to tell these unelected globalist bureaucrats that they are going down the wrong path and the US tax base is not a piggy bang for Europe's socialist policies these failed negotiations have left the United States in a much worse

3:05:17

place than when President Trump started the process to protect our interests from the rising threats of the Digital Services taxes Biden's treasury negotiators were either asleep at the wheel or actively undermining the US

3:05:32

companies which will result in our tax dollars and jobs being sent overseas either way this result is unacceptable in the coming months trade must do everything in its power to mitigate the damage that they've caused at the oecd

3:05:49

to the whole point of these nego negotiations was to protect us companies from the digital service taxes but France Canada and other countries have already moved forward and the oecd process is unlikely to solve this issue

3:06:07

as president Trump once wrote In The Art of the deal the worst thing you can possibly do in a deal is to seem desperate to make it this makes the other guy smell blood and then you're dead I urge President Biden to heed the

3:06:22

advice of his predecessor and hopefully successor Mr bun can you go into further detail on why the US is negotiating at the oecd on pillar one and pillar two in the first place thank you for the question uh I think a little bit of the history of

3:06:41

this is is is going to um I think shed light on where we've come uh relative to where we were a few years ago uh so after the passage of the tax cuts and jobs act uh other countries looked at our policies like guilty and said well

3:06:57

maybe there can be a global agreement based off of this newly designed us tax tool we could call that a global minimum tax uh and at the same time with the digital Services taxes that were being adopted it looked like a a decent p

3:07:13

forward would be multilateral negotiation to eliminate those back uh in 2019 and uh secretary manujan sent a letter to the oacd that outlined concerns with the direction uh for pillar one and suggested that maybe this should be an optional route for

3:07:31

companies and in my view this is my interpretation of the the letter is that if there was going to be a new multilateral agreement on allocating taxing rights uh that the design of that should be attractive enough with certainty and stability and things of

3:07:46

that that companies may want to opt into that uh and then separately uh the position of the Trump Administration was to look at what was being negotiated on the global minimum tax and say other countries you're welcome to do that but

3:08:02

as long as it doesn't implicate US law and require us law change where we are today is we're as we talk about amount B there are countries that are looking at a mountain B and saying well we might want that to be optional uh and on the

3:08:17

the global minimum tax side the agreement has already eroded part of the US tax base on guilty so that's that's where we've come from uh or or the journey we've been on over the last several years with these negotiations

3:08:31

and it's it's not clear that there's an opportunity to move back to that previous negotiating position it's a shame Mr Miner can you explain how the current definition of Digital Services taxes in pillar one fail to meet the

3:08:46

moment and how could these definitions be improved in further negotiations to protect us interests yeah so under under the current uh language there is some there there is some flexibility that a an aggressive jurisdiction can simply see how how the

3:09:08

DST is defined and then and then draft its version of what I would then call DST that does not fall within the The Forbidden uh elements of the of the DST prohibited under the current draft of the mlc there's also uh interesting

3:09:24

except exception for policy uh for imposing a a DST in the in the current mlc which um looks like more of a a political um provision than um you know a um a technical provision uh so uh that and and we've we've called for that

3:09:45

there must be a a more airtight uh version of the definition of DST to to to um keep jurisdictions uh prevent jurisdictions from being tempted to to plan around what definition is in the mlc now okay one more quick question

3:10:04

would pillar one be an easier way to comply within its current form or would it make matters worse well it's it it's still it's still being amended and so it's it's it's difficult to come to that conclusion until we've seen the fin the final text

3:10:22

of the mlc okay thank you Mr chairman I yield back thank you you know so Mr Schneider and I were just talking back and forth here you this is the first time I've ever been in a hearing like this where nobody said this is the

3:10:34

Republican witness this is the Democrat witness as opposed to these are all people who were concentrating on policy and not politics so I think if we start looking at our time here and what we're able to actually do first of all for the four of

3:10:47

you to leave what you do every day to come here God bless you uh the only thing that's worse is having to come here every day uh but but what we're talking about this is so incredibly hard to understand but for you to come and talk with us and I think

3:11:05

we'll continue down this road I think the one thing that Mr Schneider agree Congress has a role to play my big concern always was from the beginning when do we actually get involved and I think if you want to talk globally uh the rest of the world looks

3:11:19

at us and says when the United States get weak somehow we get stronger except except when something tragic happens in the world we're the first responder to every single thing that happens out there uh so it's really incredibly

3:11:33

important that we have a very strong economy um I'm going to fall off uh my my my stump here in a minute but I mean this sincerely thank you all for taking this time and thank you all for your expertise to come here we sure

3:11:46

appreciate it so with that meeting is Jed

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