Thompson Opening Statement at Tax Subcommittee Hearing
(As prepared for delivery)
Chairman Kelly, thank you for holding this hearing, and thank you to all of the witnesses for being here today.
Today’s hearing is about a topic of great importance. It’s a highly technical and weedy topic- but that’s exactly what this subcommittee is for: doing a deep dive on some of the thorniest tax topics facing our nation.
The proliferation of Digital Services Taxes over the past five years is concerning to members on both sides of the aisle. These taxes, as imposed, discriminate against some of the most innovative American businesses, and act as a quick and politically convenient revenue grab for the governments who impose them.
Pillar One of the OECD’s Inclusive Framework is the world’s attempt to agree to roll back these discriminatory taxes, by creating a novel framework to re-allocate a share of the most profitable companies’ profits to the jurisdictions where their customers live.
The human resources that have been put into devising this brand-new international tax framework are astounding. The Biden Administration and the other delegates at the OECD should be commended for their tireless dedication to this task.
Their goal is an admirable one: providing stability to the international tax system. With a stable tax system, everyone wins. Business wins when it knows what its tax bill will be, when it seeks to invest in foreign markets. Governments win when they know it can rely on a stable revenue stream to fund its operations. And everyone wins when we avoid costly and protracted transfer pricing disputes, which waste both government and private resources.
Any multilateral negotiation such as the one being discussed here is bound to be a difficult one. No doubt, Members here will be discussing the JCT report that was released to accompany this hearing, showing that the flow of funds between the United States and other jurisdictions will generally be negative for the U.S. We are, in JCT’s estimation, going to be losing $1.4 billion each year under the Pillar One agreement.
For some, that might be the end of the discussion. “Why give up revenue to other countries?”, they’ll ask. My view is that we need to understand the benefits of the agreement, and not just look at the costs. What are the benefits of the international stability the agreement could potentially provide? For instance, Amount B, if other countries will accede to the Biden Administration’s important “red line” to make Amount B mandatory, could present a real benefit for U.S. businesses, by significantly reducing transfer pricing disputes.
And perhaps more important, those who would look at the JCT report and say that we should pack our bags and go home, should ask themselves what’s the alternative. Are advocates for abandoning Pillar One then suggesting that the patchwork of Digital Services Taxes that will doubtlessly spring into place are preferable to the Pillar One proposal? And if not, how do you believe that the United States can stave off those taxes?
To be clear, I am not arguing that the Administration should sign just any agreement. A final Pillar One deal must provide protection against unilateral DSTs and promote a high level of tax certainty and stability, without conceding on key U.S. interests. That being said, the questions I've raised are serious ones that must be addressed if one advocates abandoning the OECD process. And the very nature of those questions is why I remain supportive of the Administration staying at the table and devoting themselves to this crucially important endeavor.
Mr. Chairman, before I yield back, one additional observation: given that the Treasury Department is representing us at the OECD on this matter, I do think it would have made sense to have a witness from the Treasury here today. We did that in our discussion of Pillar Two, and I found it quite useful.
And with that, Mr. Chairman, I yield back.