Momentum builds for Chile tax treaty and Taiwan relief

The Senate Foreign Relations Committee last week voted 20-1 to send the Chile tax treaty to the Senate floor for potential ratification, while bipartisan interest grows in conferring treaty-like benefits to Taiwan.

The U.S.-Chile treaty was originally signed in 2010 but has languished for years unratified along with tax treaties for Hungary and Poland over objections from Sen. Rand Paul, R-Ky. Momentum has been steadily building to ratify the Chile treaty given its importance as a major producer of lithium and copper — key ingredients in electric vehicle batteries, solar cells and wind turbines. The treaty has broad support among key business lobby groups and leaders of both parties.

Passage by the Foreign Relations Committee marks an important step in the process, as there had been some disagreements surrounding the reservation language. The committee agreed on reservations to address the base erosion and anti-abuse tax, foreign tax credits and the dividends received deduction.

The primary hang-up remains overcoming objections from Paul, who provided the lone vote against the treaty in the committee. Senate leaders likely have support of the two-thirds majority needed to ratify the tax treaties, but Paul can significantly drag out the process with procedural hurdles. Leaders have been reluctant so far to dedicate the necessary floor time to overcome them but appear to be considering a renewed effort this year.

The chairs and ranking members of both the House and Senate tax writing committees also recently released a “four corners” statement expressing interest in pursuing U.S. tax law changes that would confer treaty-like benefits to Taiwan to avoid double taxation. The U.S. cannot enter a formal tax treaty due to Taiwan’s unique status. This effort could be complex, however, and also raises issue over whether the Senate Finance or Senate Foreign Relations Committee should have jurisdiction.