This week (February 22-26)

Congress back: The House and Senate are in session.

Ways and Means international tax reform hearing: The House Ways and Means Committee will hold a hearing on Wednesday, February 24 (at 10:00 a.m.) on "the global tax environment in 2016 and how recent developments are further escalating the immediate need to reform and modernize the U.S. international tax system." The Committee said the hearing will include discussion of "ideas for reforming the U.S. international tax system to make it easier for American companies to compete overseas and thus create more jobs at home." Witnesses:

— Michelle Hanlon, Howard W. Johnson Professor and a Professor of Accounting at the MIT Sloan School of Management
— Raymond Wiacek, Partner in the Jones Day Law Firm
— Itai Grinberg, Associate Professor of Law at the Georgetown University Law Center
— Edward Kleinbard, Ivadelle and Theodore Johnson Professor of Law and Business at the University of Southern California's Gould School of Law and a Fellow at The Century Foundation

Last week (February 15-19)

Republican presidential debate: Tax reform was the focus of a segment on the economy during a CBS News debate among Republican presidential candidates on February 13, just as news of the death of Supreme Court Justice Antonin Scalia began adding a new dimension to the race. Congress was out for a week-long Presidents' Day recess, but the debate over when and how to replace Justice Scalia is seen as likely to influence the dynamics and agenda of the Senate. During the debate, Donald Trump raised the issue of foreign earnings of US multinational companies that have not been repatriated, in the context of asserting that he will lower taxes to respond to other nations taking jobs and wealth from the United States. He said the estimate of $2.5 trillion held offshore is probably low, and more like $5 trillion. "We're going to bring that money back," said Trump, who has proposed a "one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad." Senator Ted Cruz (R-TX) was asked whether his 16% Business Flat Tax is akin to a value-added tax (VAT), a concept traditionally the subject of concerns by conservatives that it can easily be increased to pay for additional government spending. Cruz said the business tax he is proposing is applied evenly to all businesses and is not a VAT, which he said is used as a sales tax in Europe. Senator Marco Rubio (R-FL) was asked whether, in light of his proposed top individual rate of 35% and tripling of the Child Tax Credit, his plan is more in the mold of liberals who traditionally like to use the tax code for social policy. Rubio said he does not understand why business investments can be written off but not investments in children. "I'm going to have a tax plan that is pro-family because the family is the most important institution in society," he said. Finally, Jeb Bush was asked about his call for increasing taxation of carried interest, in light of conservative groups asserting that no Republican should be for higher taxes on capital gains. "It's not the end of the world that private equity people and hedge fund folks that are, right now, getting capital gains treatment for the income they earn, pay ordinary income like everybody else in this room," Bush said.

Model income tax treaty: On February 17, the Treasury Department issued a new U.S. Model Income Tax Convention, the baseline text used in negotiating tax treaties and the first update since 2006. The 2016 Model includes both technical improvements and a number of new provisions. In a press release, Treasury highlighted measures to reduce the tax benefits of corporate inversions, specifically denying reduced withholding taxes on source payments made by companies that engage in inversions to related foreign persons. The Model also includes rules requiring that disputes between tax authorities regarding the application of tax treaties be resolved through mandatory binding arbitration. The "last best offer" approach to arbitration in the 2016 Model is substantively the same as the arbitration provision in four tax treaties in force and three tax treaties that are pending in the Senate, Treasury said.

Quote of the Week

"In the first two months of this year, even more American job creators have been forced to move their headquarters overseas because they simply can't compete under our broken tax code. Our outdated international tax rules and sky-high corporate tax rate continue to create an unfriendly environment that ultimately hurts our economy and American workers. Other countries around the world are also targeting American employers and making it even harder for them to create good jobs here at home. Our upcoming hearing will be an important step in our plan to address this serious problem. We will continue to take action to make it easier for American companies to invest at home and hire more American workers." — House Ways and Means Committee Chairman Kevin Brady (R-TX), February 17

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