Organization for International Investment

BNA Daily Tax Report


August 16, 2007

Grassley Continues to Rail Against
Tax Provisions in House Farm Bill

By Heather M. Rothman

Senate Finance Committee ranking member Charles Grassley (R-Iowa) reiterated Aug. 15 that the Senate farm bill will not include the same tax treaty "loophole closers" used in the House bill, saying the language violates existing tax treaties.

House tax writers included language in a farm reauthorization bill (H.R. 2419) that would amend tax code Section 894 to require U.S. subsidiaries of foreign companies to pay the higher of the withholding rates between a payment made directly to the parent foreign corporation or a payment made to the subsidiary in a country with a tax treaty with the United States.

The change would net $7.5 billion over 10 years and that would be used to offset new spending on nutritional programs (144 DTR G-8, 7/27/07 Link ).

Grassley said some of the House's language would be considered acceptable loophole closers but the rest "violates our tax treaties" and threatens the access other countries give the Internal Revenue Service to their bank records to allow the agency to see where money overseas is deposited.

"Is it being deposited for economic substance [purposes] or is it being deposited for tax-avoidance purposes? We need that transparency," Grassley told reporters during a telephone news conference.
Need for International Cooperation Cited Changing the nation's tax laws in a way that would violate tax treaties, Grassley said, could put that international cooperation in jeopardy and the United States "could end up losing more money than we might collect by closing a so-called loophole that is entirely legal."

Grassley said tax treaties and economic substance must be considered and "respected" when Congress changes laws.

"And if we're going to change our tax treaties we ought to renegotiate them, we shouldn't just unilaterally disobey them," Grassley concluded. Speaking to reporters Aug. 7, Grassley said he would support a presidential veto of any farm bill containing the House tax language (153 DTR G-2, 8/9/07 Link ).

Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) is floating a draft of the Senate's farm reauthorization legislation during the recess and Grassley said a markup in Harkin's panel could occur during the week of Sept. 3.

Any tax language would need to be added by the Senate Finance Committee and committee Chairman Max Baucus (D-Mont.) has already said the Senate bill would not include the House provisions (148 DTR G-5, 8/2/07 Link ).