At Senate Finance Committee Hearing, Portman Presses Treasury Secretary Yellen on Changes to Foreign Tax Credits, Negative Consequences for Our Economy

June 7, 2022 | Press Releases

WASHINGTON, D.C. – Today, U.S. Senator Rob Portman (R-OH) questioned Secretary of the Treasury Janet Yellen on the Department of the Treasury’s final regulations for the foreign tax credit put into effect earlier this year, which makes it harder for our companies and workers to compete around the world. Senator Portman was particularly concerned that the department did not allow for sufficient feedback on the final regulations, which were substantially different than the proposed regulations, before they were implemented. He also asked the Secretary if the department would be willing to take a look at modifications as they relate to withholding taxes for services, in particular, to help protect jobs based in the United States.

A transcript of Senator Portman’s opening statement and questioning can be found below and the video can be found here.

Senator Portman: “Thank you Mr. Chairman and thank you for your focus on the retirement policy front, as well as Ranking Member Crapo and to Senator Cardin, thank you for asking the question. I appreciate your willingness to continue to provide technical assistance to us and get through this. This is one of the great bipartisan opportunities we have that actually helps the people we represent at a time when people’s savings are under more and more stress. And during COVID, a lot of people took money out of their savings. This will help them save for their own retirement, through private retirement, and deals with the four or five concerns that on a bipartisan basis, all of us have raised in regard to the retirement system. So thank you for working with us on that and thank you to Senator Cardin for raising it.

“On the issue of foreign tax credits, I’m very concerned with the new regulations, in particular the lack of notice and comment that went into the final draft of that. It’s a pretty simple issue to me because countries all around the world provide foreign tax credits so that there’s not a double taxation. So if a U.S. company pays taxes overseas, you don’t want to double up and pay taxes here because you want more U.S. companies to do business overseas. I’ll give you an example, in my hometown of Cincinnati, Proctor & Gamble has over ten thousand employees, 40% of those workers support global sales – international sales – outside of the United States. So this is great for us, a lot of those are service jobs, back-office jobs, high-paying jobs by the way, white collar jobs that helps strengthen our Ohio economy, but this happens all over the country. And so my concern is that the interest in avoiding double taxation is compromised when you look at these new regulations. Post-TCJA, which was 2017, we saw that if businesses were able to compete and workers were about to compete they’d do pretty well. In fact, we had a lot more money come back into this country because of that and we stopped inversions altogether. Something all of us are wringing our hands about and being very concerned about, which is companies literally becoming foreign companies to avoid the tax laws here. We stopped them, shut them down.

“So what I think you are doing right now with these new regulations is pulling us in the wrong direction and back to where we were not competitive. So I appreciate you have indicated you want to make changes to the cost recovery and royalty withholding portion of the rules, but I also understand you have indicated you will not be amending the rules dealing with creditability – the ability to take credits – with regard to withholding taxes on services. And again, that’s a lot of what we do in this country. My question to you would be, one, do you agree with me that we want to have global companies here in America that are expanding jobs here and, therefore, taking advantage of what, again, the global community does, which is these tax credits, including for services or are we on a different philosophical plane here? That would be helpful to know. And second, would you be willing to take a look at these regulations as they relate to services, in particular, to help protect jobs here and look at particularly further modifications for withholding taxes on services?”

Secretary of the Treasury Janet Yellen: “So let me say first, of course we will look at any concrete suggestions that you have and work with you. We understand that there are concerns about these regulations and we certainly will revisit them and look at comments. But philosophically, let me say, we think that these regulations are very important to protect critical interests of the United States and the fundamental principle is that we should allow a credit for foreign taxes only where the foreign taxing jurisdiction has the primary right to tax the income. What we are seeing around the world are new kinds of taxes, like digital service taxes where foreign countries are essentially trying to expand their taxing jurisdiction through extraterritorial type taxes. And these are taxes that should not be entitled to take the foreign tax credit and if we grant it, we’re just encouraging countries to impose taxes that we think, in the case of digital service taxes, we found them to be unfair trade practices.”

Senator Portman: “Mrs. Secretary, let me interrupt because I have limited time. I don’t disagree with you on the digital services taxes, that’s not the issue here. And I understand your position on that and I tend to share your position. I think that companies have been unfairly targeted, with regard to digital services taxes. I’m talking about withholding taxes with regard to services and I think it’s important that we have final regulations that have received notice and comment from American workers through American companies because it is very different than the initial regulations in that regard. So that’s the issue I am focused on today.”

Secretary Yellen: “Well we certainly will work with you on that and we’re reaching out and understanding what the concerns are about these rules.”

Senator Portman: “One idea that has been floated is a one-year delay, to give us a chance to actually get the notice and comment and understand it better, if you’d consider that.”

Secretary Yellen: “If there are changes they can be applied on a retroactive basis.”

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