US-Chilean Tax Treaty Ensnarled Amid GOP, Treasury Tiff

A tax treaty with Chile that won bipartisan support last year is now entangled in a debate between Republicans on the Senate Finance Committee and the Treasury Department.

The US has sought to finalize a tax pact with Chile since 2010, and the Foreign Relations Committee voted as recently as last year to send it to the Senate floor, but it has yet to get a vote there. Democrats sought to bring the bill for a vote in the early days of this Congress, but Republicans brought concerns.

At issue is language relating to foreign tax credits. Republicans want what they call a clarification in the treaty’s tax language they say will help ensure companies don’t face double tax in certain circumstances. Some lawmakers, including top Democrats, want to get the long-stalled treaty on the floor and passed while Senate floor time is available.

“Some multinationals want to make this an ideological fight, but relitigating language in this case will likely stall out a tax treaty that has already sat in the Senate for years,” said Ryan Carey, a spokesperson for Senate Finance Committee chairman Ron Wyden (D-Ore.)

But Senate Finance Committee ranking member Mike Crapo (R-Idaho) said Republicans’ objections were an issue in the last Congress and remain now.

“This is not a case where, ‘OK we won’t do it on this treaty but we’ll do it on future treaties,’” he said. “It’s a case of the administration refusing to make the clarification.”

Crapo said he has been talking to Treasury officials recently about making the change.

“As of right now, I’m still trying to find out whether they will agree to fix it,” he said.

Treasury, for its part, is pushing for Senate ratification.

“The proposed treaty would reduce tax-related barriers to cross-border investment between the United States and Chile, and is strongly endorsed by the business community,” a Treasury official said. “The ratification of the treaty would also be a significant step in expanding the U.S. tax treaty network.”

The US has tax treaties with dozens of nations that foster cross-border investment by helping companies avoid being taxed twice on the same income. They also create a framework to resolve tax disputes between companies and governments and offer lower withholding rates.

Chile is one of the world’s top producers of lithium, a crucial part of the global clean-energy transition.

It would be just the second income tax treaty the US has in South America, Treasury said. After years of opposition from Sen. Rand Paul (R-Ky.), the Senate in 2019 approved protocols to amend treaties with Japan, Luxembourg, Spain, and Switzerland.

Last week on the Senate floor, majority leader Charles Schumer (D-N.Y.) called out lawmakers he said were holding up the Chile treaty, though he did not name them.

“This treaty has been delayed yet again because some want to add last-minute changes to the text that risks undermining it altogether,” he said.

The concerns revolve around how the treaty should be changed to account for a change to the US tax law in 2017, in a way that ensures companies are getting foreign tax credits in certain circumstances.

Even without the changes, the treaty will have to go back to Chile for its congress to approve reservations the US has added, a Treasury official said last year.

Either way, the Chilean Congress would have to accept reservations after the Senate approves it, regardless of whether the treaty language is changed again.

But for some Democrats, the time to move is now before Senate floor time gets scarce once again.

“In the last Congress, this passed,” Foreign Relations Committee Chairman Bob Menendez (D-N.J.) said. “There were no issues with Republican members, including Republican Finance Committee members.”

—With assistance from Isabel Gottlieb.