View from the NFTC Chair The Case for TPP By Alan Wm. Wolff, NFTC Chairman

A Word From the President America Needs Trade Promotion Authority By Bill Reinsch, NFTC President The first major recess of Congress has come and gone – a reminder of how fast time flies and how much there is to get done over the next several months. One of the key policy priorities on which Congress should act as soon as possible is the introduction, consideration and approval of bipartisan Trade Promotion Authority (TPA) legislation. TPA is a critical tool to most effectively negotiate and enact market-opening trade and investment agreements with U.S. trading partners across the globe. With the expected conclusion of the TPP in the near future and other major agreements – like the Transatlantic Trade and Investment Partnership (TTIP), the Trade in Services Agreement (TISA) and an Environmental Goods Agreement – under negotiation, Congress has an incentive to pass a bipartisan TPA bill early this year. Bipartisan is a key word and reflects the support that TPA has both on the Hill and within the Administration. From President Obama to House and Senate leadership on the other side of the aisle, there is widespread support for TPA. So why not get it done as soon as possible? Some members are skeptical and do not want to give this president, or any future president, TPA. They worry in doing so Congress would give up its role and authority on trade to the president. This could not be farther from the truth. In a letter on January 27 to all members of Congress, the NFTC set the record straight. Here are our key points: (Continued on page 2)

Trade agreements often stimulate contentious domestic debate. This just in from Japan: A group is reportedly planning to sue the Japanese government on the grounds that the Trans-Pacific Partnership (TPP) violates the Japanese constitution. Specifically, the group is said to be arguing that TPP will infringe on people’s right to their “pursuit of happiness,” will impair the people’s right to maintain the minimum standard of a wholesome and cultured living, and that the mode of negotiation violates the people’s right to information and freedom of expression. These claims seem pretty extreme – and to this observer, off base. Opposition to trade agreements is framed, even here in the United States, as a problem of process, but the opposition stems, I strongly suspect, from substantive objections. The key question is: What are the net benefits of entering into any particular trade agreement, and what are the risks of abstaining? Regardless of form of government, in examining whether to join a trade agreement, the same question is posed. China had to make this judgment with respect to the expansion of the Information Technology Agreement and decided to opt in more fully. Likewise, India chose (with some inducements) not to block the World Trade Organization’s (WTO) Trade Facilitation Agreement. The decision for the parties to TPP about whether to enter into this trade agreement rests on the supposition that it can result in substantial net benefits. The Japanese people and their government will no doubt look at whether being in TPP offers the prospect of fulfillment of Prime Minister Abe’s pledge to use international trade agreements to awaken the Japanese economy from its long period of economic stagnation. Vietnam will be looking for additional external impetus for domestic reforms to support its economic development. (Continued on page 3)

 

Council Highlights is a bi-monthly summary of news and events of the National Foreign Trade Council exclusively for its members.

March 2015 Vol 15, Issue 2

  

C  H  

N  F  T  C  “S A ’ G B S 1914“

2015© National Foreign Trade Council, Inc. 1625 K Street, NW, Suite 200 Washington DC, 20006-1604

Phone: (202) 887-0278 | Fax: (202) 452-8160

News for Our Members

(Continued from page 1)

TPA Gives Congress Power to Set Negotiating Objectives: With TPA, Congress has the oppor tunity to shape the U.S. trade agenda by setting the goals and priorities U.S. negotiators should pursue in trade talks. The last TPA legislation was passed in 2002, so this point is especially important, as the world economy has changed significantly since then. This change brings new issues to consider – including global value chains and cross-border data flows – and Congress should provide feedback on such issues as we pursue 21st century trade agreements.

TPA Strengthens U.S. Position in Negotiations: Providing congressional input to U.S. negotiators ahead of trade talks gives our negotiating counterparts more confidence that what is agreed to in negotiations will not be picked apart during the congressional approval process. This will inevitably encourage our trading partners to put forth their best at the negotiating table, helping us to achieve high-standard, comprehensive agreements.

Congress should act now to pass modernized TPA legislation, so that we can fully maximize the benefits of TPP, TTIP, TISA and other trade deals currently under negotiation – not to mention future agreements. Trade is critically important to our economy, and deals like these set the rules for a fairer trading system and level the playing field for U.S. companies to benefit our economy and the American people. With more than one in five jobs tied to trade and the majority of the world’s consumers outside of our borders, trade is critical to expanding the U.S. economy and supporting American jobs – on our farms and ranches to our assembly lines and plants.

We need TPA, and we need it sooner rather than later.

“A Word From the President” is written by NFTC President Bill Reinsch. If you have questions or comments, please forward them to breinsch@nftc.org.

A Word From the President

International Benefits & Compensation Meeting Highlights By Bill Sheridan, Vice President-International Human Resource Services, wsheridan@nftc.org

The NFTC’s International Benefits & Compensation Committee held its first meeting of 2015 on February 24 at The Yale Club of New York. The committee is comprised of corporate international benefits and compensation management professionals, as well as subject matter experts from the major international accounting, actuarial, insurance and law firms. The committee convenes three times a year to discuss issues and to share best practices in the design, implementation and management of cost-effective and compliant employer-provided programs throughout the world. At the recent meeting participants included corporate colleagues from: American Express, Bain, Black Rock, Bristol-Myers Squibb, Chubb, Coach, Enersys, IFF, LVMH, Merck, Met Life, Minerals Technology, NYU, PepsiCo, Prudential, Russell Reynolds, Sumitomo Mitsui Bank and Walmart. Additionally colleagues from: Aon Hewitt, Generali, Insurope, International SOS, Lockton, Mercer, MetLife, and Towers Watson were in attendance. The agenda included presentations by:

Cathy Loose of Aon Hewitt on Compensation Trends in ASEAN

Brian Makuck of Towers Watson on Labor Cost Trends and Insights

Haig Nalbantian of Mercer on Knowing What Matters: Using Analytics to Inform Compensation and Benefit Decisions

Wil Trohanis of MetLife on Employee Benefit Trends in Poland, Russia, the UAE and the UK

The next meeting of the committee will be May 19, 2015 in New York City.

Page 2 March 2015 Issue

News for Our Members View from the NFTC Chair— The Case for TPP (Continued from page 1) They are betting that liberalization and rules-based trade hold more promise than the alternative – maintaining a defensive crouch. Global economic integration has accelerated with gains in logistics and communications through IT and the Internet. Supply chains are increasingly international, as are markets. The architecture of the world trading system requires updating to address these new realities. TPP is a first step. It is the platform on which future trade agreements, and eventually global agreements, should be based. In concluding and implementing TPP, the participants, very much including the United States, will be seeking a trade regime based on the proposition that freedom of cross-border data flow is better than permitting forced localization of servers; that a further opening for agriculture will benefit exports and recipients alike; that conflicts among regulations within any party ought not to stifle trade; that services as well as goods ought to cross borders freely without formal restrictions or unnecessary obstacles at customs; that protection of intellectual property gives rise to innovation; that state-owned enterprises that compete in the market ought to act in accordance with commercial considerations, not government mandates that distort trade; that sanitary and phyto-sanitary rules should not be arbitrary and not serve primarily as protectionism; that investors ought to have a right to an international tribunal when an uncompensated expropriation occurs. In sum, international trade and investment must be allowed to create expanded economic opportunities for enterprises – large, medium-sized and small. Over the last few years, negative voices have been louder than the voices of the supporters of international trade agreements. That is changing. A serious evaluation of the TPP – assuming it advances the goals outlined above –will result in strong support here, and I suspect abroad, reflected in ratification by its participants, including by a solid majority in the U.S. Congress. Another step will be taken toward creating an open, rules-based international trading system. Ambassador Alan Wm. Wolff is a Senior Counsel of the International Trade Practice at McKenna Long & Aldridge LLP and is the Chairman of the NFTC Board of Directors.

Calendar of Events — Save the Dates! March 11, 2015 - NFTC Tax Lunch Forum - Speaker: Ray Beeman – Washington DC

March 19, 2015 - NFTC Board of Directors Meeting – Washington DC

March 25-26, 2015 - Annual International Human Resources Conference – Houston, TX

April 15-16, 2015 - Expatriate Management Committee Meeting – New York City (By Invitation)

April 29-May 1, 2015 - International Assignment Management Committee- Houston, TX (By Invitation)

May 1, 2015 - International Compensation & Benefits Committee Meeting - Houston, TX (By Invitation)

July 8, 2015 - NFTC Tax Lunch Forum - Speaker: TBA – Washington DC

May 6, 2015 - NFTC Tax Lunch Forum - Speaker: TBA – Washington DC

June 16, 2015 - NFTC Tax Lunch Forum - Speaker: TBA – Washington DC

June 17-18, 2015 - Annual Strategic Global Workforce Management Forum – New York City

September 21-23, 2015 - Expatriate Management Committee Meeting – Phoenix, AZ (By Invitation)

October 20, 2015 - International Benefits Committee Meeting -– New York City (By Invitation)

October 22-23, 2015 - NFTC Fall Tax Meeting – Washington DC

November 4, 2015 - NFTC Tax Lunch Forum - Speaker: TBA – Washington DC

December 9, 2015 - NFTC Tax Lunch Forum - Speaker: TBA – Washington DC

Page 3 March 2015 Issue

International Trade & Export Finance NFTC Submits Special 301 Comments on IP By Jake Colvin, Executive Director, Global Innovation Forum, jcolvin@nftc.org On February 6, NFTC submitted comments to USTR outlining concerns with issues surrounding the effective protection of intellectual property rights to inform the agency's annual Special 301 review process. NFTC's comments focused specifically on global IP issues involving patents, trade secrets and trademarks that impact U.S. advanced manufacturing, innovation and brand protection. The Council highlighted specific country concerns, with a focus on priority issues involving BRICS countries – particularly India and China – and noted concerns with specific policies in Canada, as well as a growing number of countries – Australia, European Union, Thailand, UK, Ireland, Scotland, France, Finland and New Zealand – who have adopted or who are considering “plain packaging” regulations. Comments also focused on several cross-cutting IPR issues such as Trade Secrets Protection and State-Sponsored IP Theft and concerns about the trajectory of multilateral forums with respect to IPR issues surrounding clean technology, energy and advanced manufacturing. The Council also highlighted opportunities to strengthen the global framework for advanced manufacturing and industrial IPR – via ending the WTO/TRIPS NVNI Moratorium, finalizing high quality TPP and TTIP agreements, and the critical importance of U.S. diplomatic efforts, education, training, and global capacity building, alongside domestic and foreign legislation, trade negotiations and other forms of policymaking and enforcement.

March 2015 Issue Page 4

The U.S.-China BIT Debate By J. Dan O’Flaherty, Vice President, doflaherty@nftc.org

Given the growing skepticism among U.S. firms about FDI in China could a Bilateral Investment Treaty (BIT) with China possibly make things worse? So believe a number of prominent China-watchers, among them the American Enterprise Institute’s Derek Scissors. Mind you, a U.S.-China BIT remains a distant prospect. The negotiations began in 2008 but serious negotiations about China’s “negative list” of exemptions to nondiscriminatory treatment are beginning this year. The talks promise to take many months, by some estimates two years. The resulting treaty must be ratified by the Senate so the likelihood of Senate action on a U.S.-China BIT before the 2016 elections is slim. Why then a debate about a treaty with such a distant prospect? Well, one obvious reason is the simple fact of on-going negotiations with the chance of influencing positions taken by U.S. negotiators. Another is unease about China’s economic ascent and China’s mercantilist economic policies. A U.S.-China BIT would seem to be a no-brainer. The national treatment provisions of a BIT hold out the possibil-ity of eliminating, or at least ameliorating, a number of significant obstacles to U.S. FDI in China:

Opening more sectors of China’s economy to FDI as a result of agreement on a negative list of excluded sectors;

Eliminating or easing China’s investment approval process, opening sectors such as financial services and information technology;

Securing pre-establishment national treatment for U.S. investors;

Reducing caps on foreign ownership in key sectors;

(Continued on page 5)

International Trade & Export Finance

Page 5 March 2015 Issue

The U.S.-China BIT Debate

(Continued from page 4)

Significantly reducing China’s preferential treatment of state-owned-enterprises and privately-owned Chinese companies, including subsidies to national champions;

Increasing regulatory transparency;

Relaxing controls on repatriated profits;

Eliminating performance requirements, such as technology transfer and forced localization of supply, especially IT facilities;

Facilitating cross-border data flows; and

Providing U.S. companies with an additional tool for redress of grievances through investor-state dispute settlement proceedings.

Obviously a high-standard and comprehensive BIT would also provide Chinese investors, so far concentrated in financial services, real estate and energy, with assurances that national security will remain the only test for CFIUS approval and an economic benefit test will not be applied. The U.S. negative list is expected to be limited, extending only to telecommunications and the defense industry, leaving the vast majority of sectors open to Chinese investment. Opponents of a BIT argue that it is unnecessary since U.S. firms have invested many billions of dollars in China without a BIT and Chinese investment in the United States continues to grow. In articles with titles such as “Stop the U.S.-China BIT Talks” and “Oppose the U.S.-China BIT,” skeptics of the BIT negotiations argue that the treaty is too weak an instrument to achieve its desirable objectives. In particular they argue that the increasingly mercantilist policies of the Chinese government under Xi Jinping signal that China would violate commitments made in a BIT. Nicholas Lardy of the Peterson Institute for International Economics has written that “it’s a noble goal but one which will be very difficult to conclude in any reasonable time period and it might well fail.” The American Enterprise Institute’s Derek Scissors’ skepticism is based on the limitations of BITs in general: “they are not transformative instruments which change the nature of economies, especially large economies.” Scissors also suspects that Congress will not believe China will implement its commitments. Some even argue that according SOE’s national treatment in the United States would give Communist party elites unprecedented ability to purchase U.S. businesses and properties. These arguments are unpersuasive. Opposition to U.S.-China BIT posits ambitions that go beyond the likely actual content of a BIT. By creating a straw man, such as Scissors’ “transformative instrument,” they dismiss the tangible benefits in prospect from Chinese commitments that can be litigated and tested in dispute resolution fora. Mistrust of Chinese commitments underlies the skepticism and opposition. But mistrust is not a cost. Better to trust but verify.

Global Innovation Forum

On January 28, the Global Innovation Forum hosted a discussion and breakfast in partnership with the Berkman Center for Internet & Society at Harvard University, Engine, Intuit and 1776 about the role of emerging technology-enabled financial services in empowering global entrepreneurship and development, and ways in which public policy can impact access to these services. The event featured a keynote conversation with Representative Jared Polis (D-CO) and discussion with Jeff Kaufman, Group Lead, QuickBooks Finance; Jonny Price, Senior Director, Kiva ZIP, Kiva.org; Kay McGowan, Digital Finance Lead, U.S. Global Development Lab, U.S. Agency for International Development; Brandon Pollak, Director of Global Affairs, 1776; Mark Wu, Director, Berkman Center for Internet & Society, Harvard University; Brian R. Knight, Associate Director, Milken Institute’s Center for Financial Markets; and Jake Colvin, GIF's Executive Director. Congressman Polis highlighted the benefits of trade agreements for startups, suggesting that, “The main advantage [of trade agreements like TPP and TTIP] for businesses of all sizes, but even more so startups, is access to new markets by removing barriers that large companies can figure out how to get around. Whatever large businesses had to do under the old rules, startups were less able to do. By providing access to these markets, such as Japan, Australia, and European markets, startups can do what large businesses would have required lots of lawyers to accomplish.” Discussants spoke about how technology and the Internet are revolutionizing access to financing, how access to financial services is expanding within the developing world, highlighted how new forms of lending have made finance more accessible for entrepreneurs, and suggested that governments have an opportunity to facilitate access to finance while regulating appropriately for the public good. Takeaways from the discussion are available at www.globalinnovationforum.com/takeaways/fintech-dc-2015/

Global Innovation Forum Hosts Financial Services forum at 1776 By Jake Colvin, Executive Director, Global Innovation Forum, jcolvin@nftc.org

March 2015 Issue Page 6

USA*Engage

The use of trade sanctions as an alternative to war or inaction – the U.S. economic embargo on Cuba is the textbook case – has been transformed since 9/11. The passage of the Patriot Act and the evolution of the Treasury Department’s financial intelligence capacity has made the financial interdiction the tool of choice, described by former Treasury official Juan Zarate in his book, “Treasury's War: The Unleashing Of A New Era Of Financial Warfare.” Currently, Congress is mulling sanctions policy across the board: whether to repeal the unilateral trade sanctions on Cuba; whether to enact further sanctions on Iran; and whether to do the same on Russia for its activities in Ukraine. Iran presently is center stage, given Israeli Pr ime Minister Netanyahu’s March 3 address to Congress (coinciding with AIPAC’s annual DC conference) and his open opposition to publicly described outlines of a possible successful negotiation between Iran and the P5plus 1. The Nuclear Weapon Free Iran Act of 2015 would use the global financial system to implement an all but economic embargo of Iran, as well as set a bar for what a “comprehensive agreement” would have to constitute, without any language that would stipulate in the event of a successful agreement, the existing statutory sanctions could be lifted. The President has repeatedly stated he would veto the bill if it were passed before the end of March deadline set for an announcement, if forthcoming, of a framework agreement. As those familiar with Iran’s nuclear activities have noted, Iran’s “human capital” has mastered the nuclear cycle. Were Iran’s government to make the decision to build a nuclear weapon, regardless of any agreement, they could do so short of being obliterated. A credible and constructive agreement, therefore, would constitute an understanding between Iran and her other nation-state interlocutors that Iran will continue to elect not to do so. The lifting of sanctions would admit that Iran is therefore regarded as a legitimate nation-state. That such a scenario would have strategic consequences for the region and elsewhere is indisputable. As to their nature of those consequences, that’s the kind of calculation that heads of state have to make, as history demonstrates. It verges on the tiresome to admit that of course in any government short of one completely totalitarian, domestic political considerations have to be included in the decision-making process. Others in Congress are mulling a more direct approach to Congressional involvement: to enact legislation that would require congressional approval if an agreement is reached. Again, this would not include repeal of statutorily-enacted sanctions in the event of a vote to approve. Were such a measure to reach the President’s desk, presumably he would veto it as well, citing the Constitution. At this point, Senate Foreign Relations and Banking Committee senior staff on both sides of the aisle have no idea what will take place. USA*Engage continues to argue for the Administration’s position. Russia is also much on congressional minds. Despite the fact that Administration has successfully negotiated three rounds of “targeted, scalable, and reversible” financial and sector sanctions (targeting energy and defense) on Russia with the European Union, the 113th Congress saw fit on the last lame duck to pass the Ukraine Freedom Support Act of 2014. The Administration and the business community were successful in securing that most of the sanctions enumerated in the bill are permissive, not mandatory, thereby both doing no violence to U.S.-EU coordination and not locking sanctions in statutory stone. The bill also “authorizes” (that is, recommends) provision of defensive arms by the United States to Ukraine. (Continued on page 8)

114th Congress: The State of Economic Warfare By Richard Sawaya, Vice President, USA*Engage, rsawaya@nftc.org

Page 7 March 2015 Issue

USA*Engage

(Continued from page 7) At this point, there is no indication that members of the Senate Banking Committee, the Senate Foreign Relations Committee or the House Foreign Affairs Committee intend to move forward on more mandatory sanctions directed at Russia. Provision of weapons appears to be the debated policy option. As allied Supreme Commander Air Force General Philip M. Breedlove tartly observed in recent testimony before the House Armed Services Committee, “We have to be cognizant that if we arm the Ukrainians, it could cause positive results. It could cause negative results. But what we’re doing right now is not changing the results on the ground.” He did not have to say that geography might have something to do with that fact. As during the lame duck argument last year, USA*Engage continues to argue that Congress should not enact statutory sanctions. And then there is, shades of the Monroe Doctrine, Cuba. Following the Administration’s announcement to change U.S. policy and seek normalization of bilateral relations with the island nation, which USA*Engage has sought since 1998, USA*Engage has joined with the agricultural sector coalition, to coordinate the other sectors of the business community to support the Cuba Relations Modernization Act of 2015, bipartisan Senate legislation that has been introduced to repeal all of the statutory unilateral trade embargo on Cuba. USA*Engage has also hosted two sessions, addressed respectively by State Department Acting DAS, Counter Threat Finance and Sanctions, Andrew Keller and Commerce DAS Matthew Borman (BIS) joined by Acting OFAC Director John Smith to explicate the published Cuba regulations that collectively facilitate travel and trade, permissible under executive authority, to support the liberty of Cuban people and the fledgling Cuban private sector. It was clearly communicated that given the change in policy, the bureaucracies would welcome the abolition of the embargo. The next Administration step is to remove Cuba from the State Department state sponsor of terror list. Removal would allow Cuba’s diplomats access to U.S. banks to transact normal activities, as well as facilitate direct U.S. banking support of allowable commerce with individual Cubans. Alas, the measure would have to be sent to Congress for a 45-day waiting period before removal takes effect. While it is unlikely that there are votes in Congress to reverse such an Administration decision, it is also true that legislative repeal of the embargo is a “stretch goal,” given the position of such as Senators Menendez (D-NJ), Rubio (R-FL) and Cruz (R-TX). That said, the change in U.S. policy may have the salutary effect of focusing the region’s attention on the human rights realities on the island, with the removal of any external excuse therefor. It has also notably improved the reputation of the United States in advance of the April Summit of the Americas. Constructive engagement indeed.

114th Congress: The State of Economic Warfare

Page 8 March 2015 Issue

Tax Policy

March 2015 Issue Page 9

U.K. Diverted Profits Tax By Catherine Schultz, Vice President for Tax Policy, cschultz@nftc.org

In his December 3, 2014, Autumn Statement, the U.K. Chancellor of the Exchequer, George Osborne, announced that the U.K. would introduce a 25 percent “diverted profits tax” (DPT) which will become effective on April 1, 2015. The tax is targeted at large multinational enterprises that “artificially move profits from the U.K. to lower-taxed jurisdictions.” On December 10, 2014, the government published for public consultation draft legislation to implement the DPT. The draft legislation is very complex and is designed to tax multinationals that implement conduit arrangements (such as the “double Irish” structure) or supply chain management structures that shift profits out of the U.K. Certain sectors are most likely to be impacted, including multinational groups operating in the technology, distribution, media and entertainment, advertising, gaming, retail and hospitality sectors. Most of the targeted taxpayers are U.S. based multinationals. The proposed legislation is very wide reaching and complex, and its introduction in its current form would cause great uncertainty both for existing and potential inbound investors. We are concerned that these factors will have a negative impact on the UK's attractiveness as a location for inward investors and could make the UK less competitive in the international arena. Given the recent tax reforms in the U.K. and the adoption of the patent box, the new tax seems to go against the declaration of Prime Minister Cameron that “the U.K. is open for business.” The DPT proposals are a radical departure from the previously well-settled territorial basis on which the U.K. taxes corporate profits. It is also a departure from the principle that the U.K. will not tax the profits of foreign companies doing business with U.K. clients/customers, unless those companies have a U.K. “permanent establishment.” The U.K. and other OECD countries have kept to that principle for over a century. International tax rules ensure that companies don’t pay taxes twice on the same revenues. Efforts to target “diverted profits” are targeting profits that are already subject to tax in another jurisdiction – effectively levying a second tax on the same dollar of profit. Although, the OECD BEPS project could result in a move away from the current “permanent establishment” standard, we believe that countries should not make unilateral changes until an international standard is agreed upon. Lack of coordination could make investment decisions harder, compliance more difficult and create the potential for an increased number of tax disputes. Most U.K. taxes are self-assessed. The DPT is quite different in its application. A company must notify HMRC if it is potentially within the scope of the DPT. Notification is within three months of the end of the relevant accounting period. The notification requirements are much harsher that the actual conditions for the tax to apply. A company is required to notify HMRC there is a potential “avoidance of a U.K. taxable presence” DPT charge if: 1) the company is non-U.K., 2) it is carrying on activity if connection with supplies of goods or services made by the non-resident to customers in the U.K., and 3) that activity does not give rise to a permanent establishment (other than because an exemption applies). The NFTC is concerned that almost every foreign company doing business with the U.K. will satisfy this condition, as there will almost always be someone carrying on activity in the U.K. in connection with the supplies of goods or services made by the foreign company. All such companies now have to determine if it is “reasonable to assume” that they “might” have DPT liability. We would query if that is realistic or workable. We are also concerned that the provisions governing the computation of the DPT give remarkably broad discretion to HMRC to recharacterize the transactions in order to arrive at a “just and reasonable” assessment of diverted U.K. profits. Not only does this involve HMRC treating the non-U.K. resident company as if it actually had a U.K. PE, but HMRC may then also attribute profits to that PE on the basis of the (entirely hypothetical) alternative arrangements which would reasonably be expected to have taken place absent tax planning. The uncertainty here could easily lead to protracted disputes between HMRC and taxpayers. (Continued on page 10)

Tax Policy

March 2015 Issue Page 10

U.K. Diverted Profits Tax

(Continued from page 9) The NFTC is also concerned that the newly introduced tax proposal runs counter to the U.S.-U.K. tax treaty. In taxing foreign companies that do not have a U.K. permanent establishment, the DPT will apply in cases where the U.K.’s double tax treaties with other jurisdictions prohibit the U.K. from taxing their residents. We are concerned that the U.K. does not view the DPT as “corporate taxation” and so is not covered by the U.K.’s double tax treaties. We disagree. It seems to us that in taxing corporate profits, the DPT is similar to corporate tax and so falls with the U.S.-U.K. tax treaty. Does HMRC expect that this new tax will override the existing tax treaties? If this is the case, this would be a breach of international law, but only the treaty partners could litigate, not the corporate taxpayers. Taxpayers would have no recourse. The U.K. has been actively involved in the OECD base erosion and profit shifting (BEPS) project. If the U.K. acts unilaterally before the BEPS project is completed, other governments are likely to as well The existing consensus around the taxation of non-residents has been supported by successive U.K. governments in the belief that it benefitted inward investment. We would hope that HMRC has considered the impact on U.K. exporters of similar taxes being imposed on them by the jurisdictions in which they operate. We believe the DPT will not lead to the revenue increases envisioned by HMRC when this tax proposal was drafted. The NFTC has written to the U.K. Chancellor of the Exchequer about the DPT and expressed our concerns about this new tax.

Tax reform remains a top priority for the business community, but tax executives are not optimistic they’ll see a bill reach President Obama's desk this year, according to the 2015 Tax Policy Forecast Survey, released today by Miller & Chevalier Chartered and the NFTC. In last year’s survey, a majority (71 percent) of respondents said that Republican control of both the House of Representatives and the Senate would tip the scales in favor of tax reform in 2015. But while the November elections brought that political change, our respondents now expect the stalemate between Congress and the White House to sink the chances for meaningful tax reform this year and next. While newly minted tax-writing-committee chairmen Rep. Paul Ryan (R-WI) and Sen. Orrin Hatch (R-UT) have both said they consider tax reform a top priority, our respondents believe the administration will halt any and all congressional action. However, for the first time in years, respondents do see a glimmer of hope on the horizon. Almost half (49 percent) say that tax reform will be enacted in 2017 — after the next presidential election. If and when tax reform does happen, 53 percent of respondents believe the most important issue to address will be the high statutory tax rates. (Continued on page 11)

Miller & Chevalier Chartered and the NFTC Announce Results of the Ninth Annual Tax Policy Forecast Survey Little hope for reform before 2017; respondents increasingly concerned with U.S. global competitiveness

Tax Policy

March 2015 Issue Page 11

Miller & Chevalier Chartered and the NFTC Announce Results of the Ninth Annual Tax Policy Forecast Survey

(Continued from page 10) “The business community tells us that the high U.S. statutory tax rates are a major drag on international competitiveness relative to foreign-based businesses, and serve as a signature barrier to the U.S. as an investment location,” said Miller & Chevalier member Marc Gerson, former majority tax counsel to the House of Representatives Committee on Ways and Means. “Further, their concern surrounding revenue offsets appears well-founded in light of the large number of revenue offsets that have been proposed in the context of tax reform proposals, as well as the number of new revenue offset proposals in President Obama’s fiscal year 2016 budget plan. Additionally, in an increase of almost 10 percent from last year, nearly a quarter of respondents have told us that taxation of international operations is their highest U.S. concern in 2015.” “Given the survey results, it is clear that tax reform will continue to be a top priority for the business community," said Catherine Schultz, vice president for tax policy at the NFTC. "It is also clear that unless the administration is willing to become fully engaged, and shows a willingness to compromise with the GOP-led tax-writing committees, the chances for tax reform before the next presidential election look increasingly dim. International tax pressures are making it more difficult for multinational businesses to compete globally. Without a more competitive tax system, it will be harder for the U.S. to attract foreign direct investment, and for American companies to compete on a level playing field.” Survey Highlights

Businesses are concerned that policymakers may seek to enact revenue offsets without adoption of a competitive tax system and/or competitive tax rates. More than one-quarter (28 percent) of respondents cited the enactment of such revenue offsets in that context as their top tax concern.

High statutory tax rates in the U.S. still weigh heavily on businesses. A majority (53 percent) of

respondents cited it as the most pressing issue that should be addressed through tax reform. Even with a Republican majority, this Congress appears headed to a stalemate on tax reform, according to

respondents. When asked how far they expect tax reform to go in the Senate and the House, respondents said they expected to see only “discussion drafts” in the next year.

In lieu of tax reform, businesses are relying, yet again, on tax extenders to be kept in place for 2015, as 69

percent of respondents confirmed that extenders are the only “sure thing” in tax legislation they expect will pass this year.

CONTACTS: Marc Gerson, Vice Chair, Tax Department, Miller & Chevalier, 202-626-1475 Catherine Schultz, Vice President, Tax Policy, National Foreign Trade Council, 202-887-0278, ext. 2023 Lisa Seidenberg, Media Relations, Greentarget, 312-252-4108

Following the spectacular success of the 100th World Trade Dinner, in January the Council decided to “up its game” on another longstanding event, the Annual Trade and Tax Forecast. Each year at this press luncheon, NFTC staff experts offer their prescient analysis and predictions for the coming year on the entire slate of trade, tax and investment issues that the NFTC engages on. For the first time, the Trade and Tax Forecast was opened up to members, about 40 of whom crowded the spacious conference room of Sidley Austin LLP to hear the NFTC staff show their command of complex issues and engage with the press on issues of vital importance to the national and world economies. Members loved seeing the staff shine, hearing their in-depth analysis and back-and-forth with the media, and learning more about the important work being done across the entire NFTC.

Another major change at the NFTC involves the office décor. One of the great historical assets of the NFTC is its trove of correspondence from United States presidents spanning the century since Woodrow Wilson’s address to the first National Foreign Trade Convention in 1914. A selection of the NFTC presidential letters were copied onto fine linen paper and hung prominently in our entranceway, leading guests to the NFTC conference room through a chronological presidential journey beginning with President Wilson and ending with the text of President Obama’s video address to the 100th World Trade Dinner late last year. The letters trace the Council’s impact on 100 years of U.S. trade policy on critical issues like the Jones Act, the Marshall Plan, the Kennedy and Tokyo GATT Rounds, NAFTA, China PNTR and more, and ending with references to the ongoing TPP and TTIP negotiations. The originals of the Presidential letters are safely stored with the NFTC corporate archive at the Hagley Museum and Library in Wilmington, Delaware. The letters are extremely impressive to members and guests alike, as they describe the impact and critical work of the National Foreign Trade Council, as judged by holders of the highest elective office in the land.

Marketing and Business Development By James Wilkinson , Vice President for Strategy and Growth , jwilkinson@nftc.org

Page 12 March 2015 Issue

News for Our Members

  

N  F  T  C   “S A ’ I B S 1914“

The National Foreign Trade Council is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now

serves hundreds of member companies through its offices in Washington and New York.

For membership opportunities, please contact us at nftcinformation@nftc.org or 202-887-0278.

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