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Hatch and Ryan press Treasury to back off on international tax plan

House Ways and Means Committee Chairman Paul Ryan (R-Wis.) (AP Photo/Manuel Balce Ceneta)

The two top Republican tax writers in Congress are warning the Treasury Department not to get ahead of Congress as it negotiates new international tax rules, questioning whether the administration is seeking to wield power it does not have.

Senate Finance Committee Chairman Orrin Hatch (R-Utah) and House Ways and Means Committee Chairman Paul Ryan (R-Wisc.) wrote to Treasury Secretary Jack Lew on Thursday to ask that he prove that the department has the legal right to develop tax reporting regulations for multinational companies. Hatch and Ryan have been stepping up pressure on Treasury to work with Congress on any tax issues rather than attempting to circumvent their authority through the regulatory process.

It is the second time the two tax writers have asked Treasury to prove that they have the authority to collect tax data from companies, share that information with other countries and potentially make some data public through a proposal known as county-by-country reporting. The niche tax issue could create a headache for big companies that do business overseas and Ryan and Hatch are fighting to keep Treasury from getting ahead of Congress on business tax changes as they push for a rewrite of the nation’s tax code in the next few years after President Obama leaves the White House.

“We are not convinced that Treasury has the authority to require [country-by-country reporting] by certain U.S companies (including sharing the information with foreign governments),” the two wrote. “In addition, the benefits to the U.S. government, businesses, and workers from providing sensitive information in the [country-by-country] reports… is unclear at best.”

The focus on this niche tax issue represents another effort by Republicans to fight back against what they perceive as President Obama’s excessive use of executive authority to enact policy priorities rather than waiting for Congress to take action.

The negotiations over the country-by-country tax reporting requirements are part of an ongoing project led by the Paris-based Organisation for Economic Cooperation and Development (OECD) that aims to craft a series of international tax standards for all countries. The project, known as Base Erosion and Profit Shifting (BEPS), is intended to combat a world-wide trend of large corporations shifting profits between global subsidiaries and gaming each country’s laws to avoid paying taxes.

In June the pair called on Treasury to provide “a legal memorandum detailing its authority” to collect information for country-by-country reporting and a separate document with details of how the information would be used. The latest letter goes on to remind Lew that Hatch requested that the Government Accountability Office conduct an independent analysis of the costs and benefits of the plan.

A Treasury spokesperson said that they have received the letter and will respond in due course.

Ryan and Hatch have both argued that the best way to combat tax evasion is to lower the top 35 percent corporate tax rate to match global competitors and make the United States more attractive to businesses. Ryan is in the process of drafting an international tax reform proposal that could address some issues for multinational corporations. Tax reform efforts have largely been stalled in Congress in recent years and Ryan’s latest effort is not expected to fully combat global tax evasion concerns.

The timing of the regulations is also not set in stone. Treasury has not released details of the proposed requirements, a process that could take months to complete. So far the department has only said it plans to work actively on the issue in the coming year and even if  they do complete the work, the regulations would not prevent Congress from writing new tax policy.

Hatch and Ryan aren’t alone in their opposition to the process, multinational companies have been working to head off elements of the global tax information sharing program.

The International Chamber of Commerce said earlier this year that while some of the information shared through country-by-country reporting may be helpful for risk assessment the confidentiality of the information is key.

“Making data publically available may seem superficially attractive, but will inevitably provide an incomplete picture of the tax footprint and economic contribution of cross-border businesses,” Donia Hammami, policy manager at the ICC Commission on Taxation, said in a statement in March. “There is also a risk that it would lead to the disclosure of commercially sensitive information-and in some circumstances may place companies in breach of local laws.”