International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Saturday, January 23, 2016

Will the US Impose IRC Section 891 - Double US Tax Rates - on EU Companies for State Aid Retribution?

Robert Stack, US Treasury official responsible for International Tax Affairs, stated to the Senate Finance Committee on December 1, 2015 that the US Treasury is concerned that the Senate-Finance-CommitteeEU Commission appears to be disproportionately targeting U.S. companies.

Moreover, US Treasury is of the opinion that these actions potentially undermine U.S. rights under our tax treaties (given the US imposition of FATCA and other tax treaty overrides, you’ll snicker at that argument).

Regardless, and most importantly, U.S. Treasury is concerned that the EU Commission is reaching out to tax income that no member state had the right to tax under internationally accepted standards. Rather, from all appearances to the eyes of the US Treasury, the EU Commission is seeking to tax the income of U.S. multinational enterprises that, under current U.S. tax rules, is deferred until such time as the amounts are repatriated to the United States. Robert Stack stated “The mere fact that the U.S. system has left these amounts untaxed until repatriated does not provide under international tax standards a right for another jurisdiction to tax those amounts.”

Senator Orrin Hatch (Utah), Chairperson of the Senate Finance Commt, stated in December 2015 that the EU Commissions “state aid” remedies and recent activities in the Eurozone look like attempts to impose retroactive taxation on a number of U.S.-based multinational companies.

And about BEPS he stated: “At the same time, while international efforts to align tax systems are worth exploring, we shouldn’t be negotiating agreements that undermine our own interests for the sake of some supposedly higher or nobler cause. The interests of the United States – our own economy, our own workers, and our own job creators – should be our sole focus.”

On January 15, 2016, the Finance Committee Members (Republicans and Democrats jointly) sent a letter to US Treasury stating that if the EU Commission imposes retroactive state aid penalties that impact US MNEs, then the US should respond with IRC Section 891 that allows the USA to double the tax rates on governments that “re-capture” that state aid.

Netherlands, Belgium, Luxembourg, and Ireland will need to tread cautiously. IRC Section 891 allows up to an 80 percent corporate tax rate to be applied to members of MNE groups of countries. IRC Section 891 states that under the laws of any foreign country, U.S. corporations are subjected to discriminatory or extraterritorial taxes, US tax may be doubled, up to a maximum 80 percent, for corporations of such foreign country. When the lobby of the top US MNEs gets the Dems and the GOP on-board for a very rare common front, EU watch out.

Download Finance Commt statement

Download 12.1.15 RELEASE Hatch Statement at Finance Hearing on OECD BEPS Reports

Download JCT Report

William Byrnes is the author of the 3,000 page treatise: Practical Guide to U.S. Transfer Pricing.

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