In July of 2019, the U.S. Senate gave advice and consent to protocols updating tax treaties with Spain, Switzerland, Japan, and Luxembourg, after a nearly decade-long period during which no tax treaties were approved by the Senate. This drought was primarily due to the privacy concerns of a single senator, Rand Paul of Kentucky, who deployed the Senate's procedural rules to increase the difficulty of the advice and consent process. Tax treaties with Hungary, Chile, and Poland, as well as a protocol to a multilateral tax convention, remained pending in the Senate Foreign Relations Committee as of mid-August of 2019.
Bilateral tax treaties typically focus on some combination of reducing double taxation and deterring tax avoidance. In the years leading up to 2011, the Senate generally gave its advice and consent to these treaties within a year or two of their signing.Footnote 1 Senator Paul's opposition, which began shortly after he joined the Senate in 2011, changed this pattern.Footnote 2
In a 2014 letter, Senator Paul explained that his concern with pending tax treaties stemmed from provisions that, in his view, increased the scope of authority of tax officials to share and ascertain taxpayer information and represented a departure from individual privacy rights:
Previous tax treaties were more focused on information specific to suspicions of tax fraud while requiring that serious allegations of tax wrongdoing were grounded in evidence. However, these new bulk collection treaties demand Americans’ records under a vague standard that allows the government to access personal financial information that “may be relevant” through information exchanges between the U.S. and foreign governments—a standard extended to other governments, as well. This new, much lower and ambiguous threshold allows the government to access bank records for hardly any reason at all.
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I certainly do not condone tax cheats, but I can't support a law that endangers regular foreign investment and punishes every American in pursuit of a few tax cheats. Most importantly, I cannot support a bulk collection tax treaty that has complete disregard for the important protections provided to every American by the Fourth Amendment.Footnote 3
Senator Paul also cited the potential for these tax treaties to lead to implementation of a recently passed domestic law which, in his view, was also problematic with respect to taxpayer privacy.Footnote 4
Of the four tax treaties that recently received advice and consent, the earliest treaty (Luxembourg) was submitted to the Senate in 2010.Footnote 5 The following year, the Senate Foreign Relations Committee voted to send the protocol to the full Senate, but Senator Paul invoked a procedural rule to make it challenging for entire Senate to vote on this protocol. The usual process for bringing a treaty to a vote on the Senate floor requires the unanimous consent of the Senate. In a break from common practice, Senator Paul began registering objections to tax treaties that prevented such unanimous consent.Footnote 6 While the Senate could have overridden Paul's request by voting in favor of cloture (a vote which would require sixty Senators in its favor), this could have led to delays in the other business of the Senate. If cloture occurs, Senate Rule XXII establishes that the issue in question “shall be the unfinished business to the exclusion of all other business until disposed of,” which may amount to up to thirty hours of debate.Footnote 7 Given the other considerations facing the Senate, its membership opted not to seek cloture on the tax treaties reported out favorably by the Senate Foreign Relations Committee between 2011 and 2018.Footnote 8
In June of 2019, the Senate Foreign Relations Committee once again reported the protocols with Spain, Switzerland, Japan, and Luxembourg favorably out of committee.Footnote 9 The U.S. Chamber of Commerce and multiple U.S. corporations strongly supported their approval.Footnote 10 On July 11, with the support of Senate Majority Leader Mitch McConnell, motions for cloture for all four treaties were brought to the Senate floor.Footnote 11 On July 16, the Senate voted for cloture on the protocol with Spain by a vote of 94 to 1, with Paul casting the sole “no” vote.Footnote 12 Following debate, the Senate then advised and consented to this protocol on the same day by a vote of 94 to 2, with the two “no” votes coming from Paul and Senator Mike Lee of Utah.Footnote 13 Presumably following an understanding reached with Paul, the cloture motions were withdrawn on the other three treaties and unanimous consent was given for votes to be held with respect to them.Footnote 14 On July 17, these three treaties were approved by overwhelming majorities.Footnote 15 As of mid-August 2019, none of the treaties have yet been ratified by the president.
During the debate over these treaties in the Senate, Paul was chided for his delaying tactics by McConnell who, like Paul, is a Republican Senator from Kentucky. McConnell remarked:
[T]he years of delays in getting these noncontroversial treaties ratified have cost American businesses that employ American workers millions and millions of dollars.
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I was curious to hear one colleague of ours come to the floor yesterday and passionately argue against what I have done as majority leader to support these agreements. …
At every step, executive branch officials and Senate colleagues have tried to engage his concerns in good faith. But for 6 years in the case of the Spain treaty, 8 years with respect to Switzerland, and 9 years with respect to Luxembourg, he was unable to persuade anyone—over 9 years. In all of that time, no one was persuaded, partly because the changes he demanded don't solve a real problem, partly because they would have forced reopening the treaties for even more negotiations, and partly because everybody else was actually listening to the job creators who have been pleading with us for years to get this millstone off their necks. There were 9 years—9 years of rejecting reasonable counteroffers and accommodations, 9 years of working to hold up these treaties and trying to sell the Obama administration, the Trump administration, and his Senate colleagues on an off-the-wall story that failed to persuade anyone.
Look, I am a patient man, but my patience is not inexhaustible. After unanimous consent was denied on multiple occasions, I determined, after consulting with the Treasury Secretary and the Chairman of the Foreign Relations Committee, that I would prepare to file cloture on these tax protocols. …
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Year after year, money that could have been immediately used to hire Americans or make new investments had to either be frozen up or handed over in duplicate taxes—all in large part because one of our colleagues could not accept that one single senator who hasn't persuaded his fellow Members is not entitled to singlehandedly rewrite international treaties.Footnote 16
Following the passage of these four tax protocols, the Senate continues to have before it bilateral tax treaties with Hungary, Chile, and Poland, as well as a protocol to a multilateral tax treaty.Footnote 17 All of these treaties had been reported favorably out by the Senate Foreign Relations Committee in prior years,Footnote 18 only to fail to receive floor votes and therefore be returned to the Committee at the end of the legislative session. The three bilateral treaties remain stalled in the Senate Foreign Relations Committee, apparently due in part to a Treasury Department request for the addition of a new reservation to each treaty.Footnote 19 It remains to be seen when these treaties will advance out of committee and, if so, whether they will receive floor votes.
