Wednesday, November 14, 2018
David Rosenbloom (NYU) presents The BEAT and the Treaties, 92 Tax Notes Int'l 53 (Oct. 1, 2018) with Fadi Shaheen (Rutgers)), at Pennsylvania today as part of its Tax Law and Policy Workshop Series hosted by Michael Knoll, Chris Sanchirico, and Reed Shuldiner:
In this article, the authors discuss the base erosion and antiabuse tax [BEAT] implemented under the U.S. Tax Cuts and Jobs Act, focusing on its relationship with U.S. tax treaties currently in force. The first relevant provision in the U.S. Model Income Tax Convention is the commitment in article 23 (relief from double taxation), paragraph 2, of an FTC for income tax of the treaty partner “in accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof).” It is possible to ponder the precise meaning of the quoted words, but there is no need to do that for the BEAT.
It envisions no statutory FTC at all, and that is surely inconsistent with the general principle of article 23, whatever the contours of that principle may be. The second relevant provision in the model is article 24 (nondiscrimination), paragraph 4, which provides (with some exceptions not relevant here) that for determining the taxable profits of an enterprise of a contracting state, interest, royalties, and other disbursements paid by that enterprise to a resident of the other contracting state will “be deductible under the same conditions as if they had been paid to a resident of the first-mentioned Contracting State.” The BEAT is computed without deductions for payments to foreign related persons but envisions no disallowance for identical payments to domestic related persons. It would thus appear that section 59A falls squarely within the ambit of article 24(4). That the BEAT fails to conform to U.S. tax treaty obligations in two independent respects is not the end of the story. Nonconformity is of significance only if treaty provisions can be invoked against the United States. That might not be the case if the BEAT is not a tax covered by U.S. treaties or if the BEAT overrides the treaties, in whole or in part.