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tv   Key Capitol Hill Hearings  CSPAN  May 5, 2016 5:35pm-7:36pm EDT

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approach if there is a bilateral investment treaty with china? i guess the bigger question is with the really significant amounts of capital that chinese are looking to invest in the united states, does the process, the cfius process still work? should -- is it sufficient given, given what might be coming to safeguard our national economic/security interests, the cyber interests, all of the sorts of things we've been discussing already here today? does it -- is this creation that's been around since the mid '70s still work, or should we be looking at this in a new light? >> it's, i think it's an excellent question and one that deserves a lot of thought. i think the first point that you made is important. the cfius only winds up applying to a very, very small percentage of the investments that are made or sought to be made.
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so we're talking about a pretty narrow universe to begin with. second, as a matter of principle, we welcome investment. this is good for our companies, it's good for all sorts of industries, and it's something that as a general proposition we want to encourage. but it's vitally important that when it comes to national security, we remain vigilant. and that's what cfius is designed to do. now, i think you're right to raise the question about whether in the event of a bilateral investment treaty the investment flow goes up significantly, is that going to put strain, further strain on the process, and do we need to look at that? that's something i'd like to come back to you on on if i can because it's a great question that i need to think through a little more. >> great. i would welcome that and happy to discuss with you too. thank you, madam chairman. >> thank you, mr. deutsche. mr. poe of texas. >> thank you, madam chair.
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thank you, sir, for being here. i have one -- a couple observations, and i want to spend most of my time talking about china. when i visited with admiral harris at pacific command, i asked him this question: of these five entities -- russia, china, north korea, isis and iran, i think those are threats to the united states -- which of those five do you think is the most troubling at this point? and he responded, north korea. would you agree with that assessment or not? i just need a yes or no. >> yes. >> okay. i want to talk about china. china, they have a billion more people than we do in the united states. i think some americans don't realize how populated china is. and some facts about china, they are the number one recipient of
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poached ivory from africa. the elephants are dying off, they're being killed in africa, and the number one recipient is china. they are thieves. they steal our intellectual property. cyber attacks, i believe, they're responsible for those. they're bullying asia, trying to make new, sovereign territory in the south china sea and then claim the area around it. they're helping pakistan with intercontinental ballistic missiles, and then you get to human rights, they're the worst offender, i think, in the world. they persecute christians and other religious minorities, and then they have this practice of putting people they don't like in prison and charging them with trumped-up political crimes and then harvesting their body organs and sell those on the marketplace. that's probably the worst type of crime in the world, in my opinion. and, of course, we don't say this anymore because it's not
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the right thing to say, but they are still a communist nation. and i think that's who we're dealing with. and we talk about pivoting to china and whether they're a threat and what we're doing about it. and you had talked about how we're increasing and focused militarily. let me just show you a few posters here. here -- i don't know if you can see this or not, i know you can't probably see behind all this is china and the south china south china sea and the philippines. in 1999, this is about the -- this is the relative strength of china in the red and united states in the blue. it's about equal. let's go to the year 2015. this is the chinese build-up with ships, ships, submarines and planes, and the united states' military strength in the area in 2015 -- i got this from
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pacific command -- is about the same. and pacific command expects that in 2020, if i can get the poster, it's going to look like this. that china will have in all of these planes, intercontinental ballistic missiles, ships, submarines, and the united states' strength in the area still is going to be just about the same. without going into the details of how much of everything, do you agree that that is what is occurring in south china? >> thank you, congressman. we've certainly seen a significant buildup in china's military capacity over the last couple of decades and in recent years. some of that, i guess on one level, is not surprising as china grows and is more engaged in the region. it wants to protect its, those expanding interests. and what we've seen though are two things. we've seen an investment in
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these new capabilities which i think you're -- the chart shows very well. everything from cruise missiles, short, medium-range ballistic missiles, high performance planes, integrated air defense and, of course, the navy. they're informing in those -- investing in this those capabilities. they're also trying to transform a higher tech force as well. >> that's right. i don't even include the number of military soldiers and sailors and airmen in these posters. >> yeah. >> let me -- so, but to get to your, i think -- >> so what is our response? that's my question. >> two things. first, of course their budget is opaque. it's hard to know -- >> what is our response? i'm limited on time. what's our response? this is taking place. what is the u.s. response to this, if anything? that's all i'm asking you. >> sure. two things. first, our military budget
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remains roughly three times what theirs is. and they're, of course, starting from a much lower base. so that buildup is significant, but they're trying to match something that started at a much higher level and continues to invest at a significantly higher level. second -- >> but this is our presence in the area is over here. >> it'll be out 60% of our navy by 2020. our technological capabilities, our experience, our capacity remains greater by far than any nation on earth including china and, again, i would defer to my military colleagues. i don't believe that's going to be challenged anytime soon. >> so you're saying that even though this is our presence in the area, the theater, i think, is the word, term, that it really doesn't alarm you, because we're building up our capacity in the future? >> no, i would say that we're being very vigilant about the growth in china's military capacity. we're making sure across the board when it comes to any country that our own country remains unmatched.
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>> okay. let me -- if i may have one question. and go back to north korea, the biggest threat supposedly in the area. north korea intercontinental ballistic missile capable, they're developing the concept not land-to-land, not sending something from north korea over to texas, their idea is build submarines and put intercontinental ballistic missiles on the subs and then float them around the pacific and be the threat that we are. is that a fair statement of what the north koreans are trying to do? >> yes, that's part of their strategy. >> thank you, madam chair, i appreciate the time. >> thank you, mr. poe. mr. cicilline of rhode island. >> thank you, madam chair. thank you, mr. secretary, for being here today. i want to turn again to the issue of china. and after president obama and president xi met in washington on the 31st of march, the two leaders affirmed cyber commitments that were announced since september of 2005 and agreed to insure their full implementation.
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five days after that, admiral rogers, the commander of u.s. cyber command, testified to congress that, and i quote, cyber operations from china are still targeting and exploiting the u.s. government defense industry, academic and private computer networks. so my first question is are you aware of cases where the chinese government may have -- [inaudible] cyber-enabled theft from the u.s. since the announcement of september 2510, and how is the state department in con with the rest of the u.s -- conjunction with the rest of it's government in these challenges? >> thank you very much. i think there are two things going on here. it's no surprise that countries try to get information about other countries. and that goes on every day, and it continues to go on, of course, from china in the direction of the united states. where we've drawn a very bright line is on the question of using cyber technology to tale trade secrets -- steal trade secrets
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for commercial advantage. and a critical component of the agreement reached between president obama and president xi actually last fall and then reaffirmed is that china will no longer do that. now, it said that, it made a commitment, it's reasserted that, reaffirmed that in the g20 as well as directly with us. we now have to make sure that that, in fact, is the case and it's being implemented. so we're watching very vigilantly to see -- >> that doesn't answer my question. >> so i'm not personally ware of cases of current -- aware of current cases of that. but i'm happy to go back and confer with admiral harris. >> great, thank you. next i'd like to turn to the issue of north korea. in the wake of north korea's recent are nuclear weapons test and satellite launch, south korean society has begun to re-engage in the debate about developing its own nuclear weapons capability. even though, of course, seoul relies on the u.s. nuclear umbrella. and i'd like to know whether you think there's support within the korean government for developing a nuclear capability and over
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the long term what should the united states' response be to this development? >> you're right that that debate has re-emerged in south korea as a result of north korea's provocations. president park was very clear in statements that she's made that that is not the path that south korea should or will take at least under her administration. and we've tried to make clear to our allies and partners that it is not necessary because, to put it colloquially, we have their back with the nuclear umbrella and with every other means that we have to come to their defense. so we have not only reaffirmed that very solemn commitment to the defense of korea, we have strengthened our own relationship. and one of the things that we've done is now engaged in formal consultations with them on deploying the fad missile defense system to south korea. and they're developing their own missile defense system in cooperation with us. so we've been building up the defenses including for our partners and allies and, of
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course, we've also been going very hard at the north koreans on the nuclear missile program. >> thank you. and finally, mr. blinken, i'd like to turn to malaysia. as you know well, there was a significant concern about the upgrade of malaysia to the tier ii watch list. and i wondered if you could just speak a little bit to what progress malaysia has made particularly in the area of combating human trafficking and human rights as well as human trafficking since that time. whether or not we should -- who progress has it -- what progress has it made? i think you're aware of the change in their classification and the controversy surrounding it. >> as you know, congressman, we're actually working very actively right now on the new report for this, for the past year. and so i can't speak to its conclusions because they haven't been reached. i can say generally with regard to malaysia just over the past year some of the things we've seen, we have seen very
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significant and, in fact, unprecedented consultations between the government and civil society and international experts to draft regulations to implement the legal amendments that were passed by their parliament at the very end of the last reporting period. and that would really empower the agencies to enforce the amendments that were reached. so that's positive. that doesn't mean it's dispositive of anything we'll conclude, but it is something we've seen over the last year. this would allow victims of traffic to live and work outside -- trafficking to live and work outside shelters which is a strong consideration. i know that we have remaining concerns about the conviction rate in malaysia. that's something that we're looking at and that we'll factor into the assessment. and we need to continue to work with them to build their own capacity to investigate, to prosecute, to convict. and we're doing that through, for example, through iom. we're funding some of those activities. so i would say, i can't speak to
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you, obviously, about the conclusions of the report, we haven't reached them yet. i would say based on this we've seen some progress, but that's not dispositive of the conclusion. >> can i just ask with respect to the implementation, one of the biggest issues then virtually no prosecutions. >> yeah. >> have you seen any progress on -- it's one thing to enact and begin to implement, but if it's not enforced, it's sort of meaningless. have you seen progress on prosecutions? >> i agree with you on that. enforcement is a critical piece of this. i'm not aware of significant progress on the, on prosecutions, but i can come back to you on that. >> great, i'd appreciate it. thank you, and i yield back, madam chair. >> mr. salmon of arizona. >> thank you. mr. blinken, first, let me go on record on commending the administration in pursuing fad in south korea, i think it's incredibly important. one of my frustrations is many of these sanctions that we've done haven't really moved the needle with north korea, and i'm
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not sure any other sanctions really will. i think that the one thing that'll move north korea is some flexing of the muscles, economic muscles by china, and we've got to figure out a way to get them motivated because they haven't been. they helped us a little bit at the u.n., and i appreciate that with, you know, the multilateral sanctions. but they hold a disproportionate influence with north korea than any of the rest of us or any of the other in the six-party talks, and we've got to influence them to do the right thing and get north korea under control. last weekend china announced that it formed a consensus with brunei, cambodia and laos that the territorial disputes over some islands, rocks and shoals in the south china sea are not an issue between china and the association of southeast asian nations, asean, as a whole. at the same time, china consistently relies on asean's deck
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declaration of parties in the south china sea, citing its endorsement of consul talkingses and negotiations to argue that it's not subject to the binding arbitration brought urn the law of the sea treaty by the philippines. can china have it both ways? is china trying to sideline asean in relation to the south china sea maritime disputes, and what's the administration's response to quad rah lateral consensus between china, brunei, cambodia and laos, and what's the administration's position in resolving the maritime disputes? >> thank you very much. first of all, i appreciate your comments on north korea and agree very much with you that china has a crew anemic role to play -- unique role to play with north korea. we're seeing some positive steps forward in terms of implementation of the security council resolution, but it's not yet dispositive, so we're looking very carefully at that. could not agree more with you as well that china can't have it both ways. it can't have it both ways in a number of areas.
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it can't be a party to the law of the sea convention and then ignore or reject the provisions of that treaty including arbitration as an appropriate mechanism and the binding nature of any arbitration decision on the parties to that decision. so we would expect that china as a party to the law of the sea convention once the decision is issued by the tribunal will respect it. so it can't have it both ways there. it can't assert the law of the sea and not respect its decisions. with respect to asean, i think you're exactly right. we've worked very, very hard to built up asean as an organization, to make sure that it created a space in which countries that individually might not have the confidence to take on difficult issues like the south china sea might feel some greater strength in numbers and collectively. the president, as you know, had this historic summit with the asean countries just a few months ago.
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we're looking to iowa -- asean to express its support for these basic principles, and we'd like to see that happen when the arbitration decision is issued as well. and by the way, on the agreement that you referenced with brunei and laos, i think there's a lot less there than meets the eye. >> i hope so. and i hope that asean really does step up to the plate when it comes to dealing with these maritime disputes and resolving them. i think the more they speak with one solid voice, the better chance we have of resolving this without the conflicts we hope we don't have. my last point is that i'm very optimistic about our economic opportunities in the region, and i'm a strong supporter of tpp. but i would also like to see us further enhance our trade ties with india. and as such, i have introduced legislation in concert with senator cornyn pushing for
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india's entrance into apec. what do you see as the obstacles to that getting done? >> first, we welcome india's interest in joining apec, and we also welcome -- and i've said this directly to my indian counterparts, talking to them about how they see membership in apec fitting into their own thinking about their economy, about trade and the evolution that they would make. so i suspect we will have those conversations going forward. i also very much agree with the larger proposition that you cite about the importance of india and in particular the importance of trying to deepen and expand our own trade relationship with india and its own relations in the area. i think a few things just in terms of obstacles. first of all, the other members, of course, would have to agree. it's a consensus-based organization. the other thing i'll tell you and i think, you know, this is a consideration as well.
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we want to make sure that as countries join organizations like apec that they are going to work to productively, cooperatively to uphold its rules and standards and to be productive partners in that enterprise. so that's one of the things we'll be talking to the indians about. but the bottom line is we welcome their interest, and we'll be talking to them about it. >> thank you. >> mr. daniel donovan from new york. >> thank you, mr. chairman. and, secretary, thank you for your attendance and your testimony today. in february of this year, the u.n. came out with a report about vietnam making prohibited purchases of weapons from north korea. as the president and this administration is about to enter into a trade agreement, should their voiding and actually
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unlawfully purchasing weapons from north korea be a consideration as we enter into an agreement with vietnam? >> we would be concerned with any country violating its obligations under the u.n. security council resolutions in terms of purchasing or making available to north korea weapons. and if that's the case with vietnam, that's going to be a concern. we're being very vigilant about making sure that countries are not doing that. >> and are you also -- you also indicated about supplying north korea with weapons. that same u.n. council has indicated to us that cuba is providing north korea with illegal weapons. as the administration tries to renew relations with cuba, should that be a consideration as we go forward? >> yes. as you know, there was an incident in which a ship that was transporting weapons apparently originated in cuba and appeared to be heading to north korea was stale stopped --
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actually stopped by the panamanians. the weapons were confiscated, there was a, i think, $700,000 fine that was paid. some of -- i think the captain was detained. we've come down very hard at the united nations on this shipment including puts a spotlight on it, putting a spotlight on cuba's apparent role in helping to facilitate this trade in weapons. this is a real concern, and we've been very vigilant about making clear that that's unacceptable. >> and finally, mr. secretary, yesterday i met with steel workers from my district, and they're very concerned about china manipulating the steel market in the world. we've had, i think, zero growth in steel production in our country over the last 25 years. i think europe's steel production is down about 12%. and there's a fear that china is manipulating by selling steel below market price in order to box everyone out. everyone else out.
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is the state department looking into that, and what is the position of the administration? >> congressman, i can say generally two things. first, my colleagues in the treasury/commerce/ustr are across the board very vigilant about trade enforcement. with regard -- generally and with regards to china specifically. we have, i think as you know, overall filed, i think, 20 wto enforcement complaints since 2009, the most of any country. and by the way, we've won all of the cases that have been decided. with regard to china specifically, and this is not in steel, but this is more generally, just this past month they signed an agreement ending export subsidies as a result of a challenge we made to those subsidies at the wto. a year ago we won a challenge to compliance on high-tech steel, duties that we had challenged them on. and that had contributed to $250
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million annual loss to our exporters. that ended as a result of the enforcement actions that we took. in 2014 there was a finding against china on duties and quotas on rare earths and tong stun. and finally, this, again, was a result of an action we took. and also in 2014 there was a finding of breach regarding duties on cars and suvs, $5.1 billion worth of cars and suvs sold. there, too, we got a decision. so i can't speak to the specific case that you reference, but i can promise you that i'm sure my colleagues are looking at this very carefully. and based on the record to date, if there is something that's actionable, we'll take action. >> appreciate that, mr. secretary, because i know the american steel workers appreciate it as well if you and the administration could look into that. mr. chairman, i yield back the rest of my time. >> thank you very much, mr. donovan. we, we are at adjournment here.
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i do want to express our appreciation with the deputy secretary's time this morning, and thanks for meeting with us after your recent trip back from asia. as we've discussed, the united d states as a pacific power has tremendous interests in asia, we have allies in asia, so we look forward to working with you on issues like the north korean sanctions that i suggested. we need full implementation on that. and on the transition in burma, on the new government in taiwan, in taipei. so many issues for us to continue to collaborate on, and deputy secretary, thank you again. >> mr. chairman, thank you very much. >> we stand adjourned.
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[inaudible conversations] >> in about an hour donald trump holds a campaign rally in charleston, west virginia. he'll speak to supporters starting at 7 p.m. eastern on c-span. and earlier today senate majority leader harry reid held a conference call with reporters and shared his thoughts on donald trump being the presumptive republican nominee. here's part of that now. . so today for sure, donald chump is the republican nominee.
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it hasn't sunk in for me yet but it is the reality. the republicans obviously -- inherited as well as we know from the university what's worse is the vision every place he steps. by nominating donald trump is in evolution that defined itself entirely and i repeat i've seen
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it up real close for seven and a half years. cutting taxes and not spending in the middle class we don't do anything to help low-wage people with minimum-wage to get an education because it doesn't exist in their mind, climate change. we see miami beach swelled up with water and i was there to the policy but they stopped engaging in any policy by democrats. it's not [inaudible] following the orders to the
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major policy changes america has become a hollowed out shell of its former self in light of the takeover. i did the speech as some of you know about a month ago on this very subject. so now, so now donald trump is the nominee that the leaders of the republican party deserve. the republican party is tump's party. >> they spoke of the brookings institution this week about how other countries tax codes affect the u.s.. after his remarks come a discussion on how to reform the u.s. tax code. >> good afternoon. we are a few minutes past the half-hour so we thought we would get started. i would like to welcome you to the brookings institution on
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this policy center events. we begin by asking the question how is this different from all other events. and all others, we talk about u.s. tax policy and what it means for the country and this event will be talking about the policies and other countries and of course what it means for the united states. also this is the first symposium of the tax policy center and i want to say a few words about that. we are honored to have him here in attendance this afternoon. my glasses are for reading so forgive me for that. he's here with his daughter suzanne, lisa, david and john also has a son, jonathan, and many grandchildren. so among his many attributes as he hustle has hoped to solve thl
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security problem we organized a symposium in honor of the many contributions to the policy in the legislative council in the treasury and the kennedy and johnson administrations he was assistant secretary for tax policy in the carter administration and then again in the 1990s in the clinton administration. she headed to the tax advisory program for central and eastern europe and the former soviet union from 1994 to 1996 which couldn't have been an easy job. he served on the transition team in the obama administration in 2008. while in recognition of all the successes, he received the treasury's exceptional service award in 1964, the alexander hamilton award in 1980, and the
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treasury metal in 1999. you kind of get the sense they started up titles for his unselfish dedication to public service spanning four decades. these are big words for those of you that are not tax code doesn't they speak very highly of his abilities and savvy determination. when he wasn't in the federal government he was a partner with the buffalo-based law firm. let me inhale here. he was a senior fellow at harvard law school international tax program and he co-authored a volume which i think is the greatest title and all of public finance basic world tax code and commentary a template for tax reform around the world he advised the city of buffalo and new york among others on tax policy matters. he has chaired the american bar
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association committee on domestic relation tax issues. that sounds like fun. he's taught at the university of buffalo and american university and is a graduate of the university and harvard law school and a member of the phi beta kappa he served in the u.s. air force and on top of that, let me add that he is one of the nicest people you'll ever meet. so we congratulate you on your extraordinary record. speaking on behalf of the entire tax policy center, let me say that we are honored to establish the symposium in your honor. [applause] thank you. today is the first symposium before i turn to the substance, i want to note these events don't just happen. they require the dedication and patience of many people to set them up and i want to thank two people in particular, blake
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[inaudible] at the urban institute, who basically does everything for the tax policy center, and rebecca here at the brookings institution who put together all of the logistics for this afternoon. i can guarantee you without their tireless work and patience, none of this would have happened. so, thanks to both of you. all rights. in terms of the substance, changes in the business taxes by other major economies are having important effects on the united states. everyone knows that our statutory tax rates are higher than other countries and everyone knows most others accent the most foreign source income for the multinationals wildly u.s. continues to tax the repatriated earnings. in the new developments come in many countries are offering new benefits for the new tax rates for income for the research and innovation and at the same time, the initiative intended to limit
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the ways the country can shift their funds out of high tax countries into low tax countries anthat american multinationals many american multinationals feel it is aimed at them and in the wake of that, some countries are now enacting new profits taxes to target the multinationals. we will talk about all these issues this afternoon. basically we are focusing on what happens in other countries and how that affects american workers, american consumers, american businesses. our keynote speaker is bob and we are delighted to have him here. you have a bio in the packet. he's the deputy assistant secretary -- this is another inhale him and -- deputy secretary for international tax affairs in the office of tax policy at the u.s. department of the treasury. in that capacity can he's responsible, among other things, for the conduct of legal and economic aspects of tax policy,
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including having the honor and the burden of representing the united states into bilateral, multilateral interactions with other countries. before joining the government, mr. stacks served as the head of the international tax, the law firm of ivan and berger and he graduated from georgetown law in 1984 where he was editor-in-chief of the georgetown law journal and he also clerked at the supreme court. so, let me turn it over to bob. we are delighted to have you here and look forward to your comment. [applause] >> thank you very much. i just want to begin by saying that i have not had the pleasure before today, but i would like to see the outpouring of affection and support that we see at the beginning of the ceremony demonstrates i think the great affection that you've been held and the fact that you've been a giant in tax
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policy and i want to express my appreciation for that. i fully appreciate how instrumental gone was in creating an office of tax policy at the treasury. with excellence and integrity as the hallmark of the office, an effort that began with your participation 50 or so years ago and somethin something that he t present i wanted to begin my remarks today by expressing my deep appreciation for the contributions that you have made and for the way that i've benefited from them in ways that are seen and unseen. thank you. when i began to prepare today's speech, i noted that figuring it was on the far end of tax law changes of the impact u.s. tax policy, i should speak on the topic assigned because that is something i've learned to do. i'm basically a follower and as bill mentioned i checked up the settinsetting of the brookings e and bill just quoted from and i
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worried my speech had been obsolete as the answers are steering a plane in the face ple here's what the website says. changes in ththe changes in they the major trading partners are creating shockwaves in the united states. corporate tax rates in other countries have been falling while a u.s. federal rate has remained at 35% since 1993. the combined state federal corporate tax rate in the u.s. is now the highest, most other countries exempt most foreign source income of their multinationals from tax while the u.s. continues to tax the repatriated profits and many other countries are providing new benefits for the multinationals including those that allow special tax rates for the income for research and innovation. how can any self-respecting policy tax maker do other and acknowledge that we must join the race to the bottom in our
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corporate rates to make one from further domestic tax and for good measure throw in the innovation box to further lower the rates of the certain taxpayers, what more was there to say? it is thinking about what i can possibly add to this debate, ann which one side seemed to command the unimpeachable intellectual of economic high ground. but as i recall having been the parents of teenage sons. i've heard these arguments before. mom, dad, everyone else's parents are letting them do such and such. to whatever it was we were asked to go along with always was purported to result in the dire
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consequences. i don't mean to make light of the deep business sector reform. the president ha has for the new digital business tax reform that the administration is proud of. but i do hope that as the debate unfolds it will address important questions and it will be more than a cry to join the race to the bottom. but as important, i want to talk about the international context in which the debate is unfolding, and how the context to inform my discussions on the specifics. its revenue natural in the budget window and over the longer term by lowering the rate and broadening the base. this seems reasonable in light of the fact that we face mid-to long-term fiscal challenges, and while we agree with the need to bring the statutory rate more in-line with the rest of the world, the responsible thing to do will be to make business tax
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changes taking into account our overall fiscal constraints. too often it seems to me a major impediment to the reform arises because there are those that desire revenue losing business tax reform, without making the case for how we are as a country to make the numbers add up to produce fiscally responsible tax policy. this argument for the revenue losing business tax reform is often advanced an urgent tones by those who insist the survival of american business depends on joining the race to the bottom in the corporate tax rate in keeping with other tax breaks on top of that while ignoring the issues such as the current ratio of the corporate tax to gdp as opposed to historic norms, or for that matter the overall ratio of the tax revenues to the gdp compared to historical norms. the issue of whether such tax
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cuts favor capital or labor or even whether other revenue sources might be available to all send the losses. there are other questions, too. in the territorial system, won't there be a need for strong base protection measures? in such a system should you as the parents of multinationals be able to enjoy the current deductions on interest expense that produce exempt foreign income coming in and finally, the whole potential topic onto itself, what should the tax rules on the investment look like? and how should we ensure a level playing field between companies investing here and those already here competing with them? all of these questions arise in the politically challenging environment. marty sullivan pointed out in the tax analyst the gallup poll results indicating on average over the last decade, seven out of ten americans believed
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american corporations were not paying their fair share of taxes. similarly, a 2015 research poll found that 64% of americans are bothered a lot by the belief that corporations are not paying their fair share of taxes. and indeed, the business tax reform debate is also taking place in an environment in which the writers on tax policy have wondered whether the political scene has been let out of the drive for the busines business r reform in light of the issues that affect everyday americans such as the minimum wage growth. i suspect in the panel that follows in the weeks and months ahead we will continue to debate those issues and i would only want to add today that i do not buy into the notion that the u.s. must do what everyone else is doing because we have our own unique circumstances and fiscal challenges that need to be taken into account as we do the responsible thing for the
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country. however as the nation's top ten diplomats such as it is, i think my value today is to step back and share a couple observations about the global tax landscape that we face as we consider international tax reform. and i have two observations i would like to expand on. first is an urgent need to create an international tax system that permits greater certainty and stability for investment in the system so that businesses can get back to doing what they do best, running great business. second, i want to operate on what i describe as a greater need for business involvement in the global tax debate beyond the halls of congress and the u.s. treasury. i'd like to begin with high-level observations based on over three years of representing the united states treasury treay department in a matter of engagement in the foreign government on the subject of taxation.
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covering the g. 20 base erosion profit project only matter of engagement on tax issues and asserting u.s. interest in the ongoing state aid investigations by the commission and dealing bilaterally with our important trading partners on a regular basis on all matters of tax issues. based on my experience it is clear the greatest contributors to the unstable environment that we see in the world has been wiped? the ability to dramatically reduce the worldwide effective tax rate as reported to investors by permanently investing some offshore. number two, the so-called mobility of the income capital, and ambiguities are all related, the role of the tax havens however defined as players in the international tax system. what we discussed each. i don't think it's open for debate at the ability of the u.s. multinationals to be for income has been a dramatic contributor to global tax and
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stability. i need to point no further than the state investigation where it is clear to me at least that if the sums that were deferred has been taxed somewhere including in the u.s., the cases may never have been brought. but if one needs more proof, look only to the points accentuated into places like the permanent subcommittee on investigation hearings in the u.s. senate, the haulage hearings in the public account in the uk parliament as well as those held in the eu parliament and the australian senate. these all focused on very low rates of tax that are achievable whether abroad or individual companies by multinationals, and it is in this affects that it's caused a great deal of outrage in the international environment. these effective rates can be gleaned from financial statements and other sources and can be achieved by multinationals whose techniques are widely available to them.
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countries around the world in times of austerity pounced on beastie for earnings, which the rest of the world believe will never be taxed in the u.s. and have sought to write the rules in such a way as to take what they view as their fair share of the so-called stateless income that thethat could be fertile ae doesn't produce the low effective rates. the mobility of intellectual property income and capital that is the relative ease with which multinationals can move these assets to favorable tax jurisdictions and the u.s. cost sharing and check the box rules have been a major contributor to the ability to achieve low effective rates such as promoted instability in the tax system by feeding off the notion that in particular they are not paying their fair share. and of course, none of this instability would have been possible without the presence of the taxi and however it is defined.
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in the present purposes it is just nice to say that large disparities in income tax rates, whether based purely on the location of the income or by qualifying for a special regime will inevitably drive the behavior to take advantage of the arbitrage possibility, of the best project simply pu put t of the countries write the rules in such a way as to minimize income shifting in the low jurisdictions as opposed for example for doing such impossible things into seeking the convergence on tax rates. any u.s. international tax reform that does not take a major step towards restoring stability will prove to be an apparent victory, no matter the rate that i is agreed on the def territorial or the presence or the absence. and while the u.s. has worked hard to put the issue of tax certainty on the agenda during
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china and germany . presidency come of his agenda simply will not succeed if the countries perceive that they are getting ripped off under whatever rules we end up with. one aspect of today's topic is of course the effects of the tax changes on the tax debate but let's look at some that are flying under the radar, and perhaps not adequately appreciated by all policymakers. i would submit many if not all of the rules i'm about to talk about are motivated by a concern that the rules as they exist today with the companies achieve unacceptably low effective rates and the countries are fighting back. let's consider the profits tax as the australian equivalent. but let's also consider the jurisdictions that are limiting the deductions on royalties and other payments if those payments are going to low tax jurisdictions. these sort of rules are the
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efforts of the source countries to take aim at the companies that shift income into the lower jurisdictions often by imposing taxes that would likely be credited for the u.s. tax purpose. in the absence of the fixing of the international system, i think we are closer to the beginning of the trend and we are to the end. and these changes go beyond limitations of the deductions for the payments to the low tax jurisdictions. consider the difficulty is multinationals have been deducting the management service fees paid among the affiliates oveall over the world regardlesf the destination as well as the drive to find the permanent establishment and then search the globe for the income that could be potentially sucked into the jurisdiction once it is found. and finally for good measure mee considered tconsider the recentd 6% equalization levy with
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respect to outbound payments into digital advertising services. as it is -- is a specific law in income tax imposed on all payments made to those outside of india for advertising services in india. what's remarkable here is india decided to leapfrog beyond income tax and its related permanent establishment rules to impose taxes on income often destined to the tax advantage. there is no movement among the countries to examine any of these areas of proposals that may be considered. if u.s. international tax reform perpetuates this instability, shame on us. we will see more of it and more time and money spent by our multinationals combating an increasing flow of inconsistent results around the world as well as the resulting disputes and if the u.s. multinational community
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continues to see it in their best interests to perpetuate a system built on the tax arbitrage and tax planning, shame on them. you are signing up for i and bringing on more of the very instability you loathe and that impedes your business. the president's global minimum tax proposal may well provide a strong antidote to such perceptions around the world. first, the business reform permits the repatriation amounts in countries taxed at rates above the global minimum rate wherever it is ultimately sent. thus permitting the multinationals to compete on a level playing field and virtually all of the major markets around the world and repatriate profits without additional u.s. tax. but the global minimum tax plan also takes the benefit out of shifting income into the love and no tax jurisdictions by requiring that the multinational
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paid to the u.s., the difference between the tax saving rate and the u.s. rate. the global minimum tax cuts have had an added benefit as well and that is protecting developing and low-income tax countries from foreign shifting so they can mobilize the resources to grow their economies. while it is true concepts just and on taxebeen among taxes andd foreign corporation rules or most effective if most countries go along imposing them and so far the uk has been a staunch opponent of tightening the rules. i believe it is also true the pressure will continue to build in the international community for the traditional residence countries to take into account the spillover onto the poor countries of tax policies that encourage foreign stripping. stay tuned. indeed at a recent imf
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symposium, the minimum tax was identified as something that could give a great help to the developing countries by the mayor expedients of the disincentive rising four and foreign shifting to the multinationals elsewhere. this last point, this discussion of what is happening with the developing countries and the need to help them protect their tax base shifts nicely into my final observation. the need for greater involvement by the multinational community and the international tax debate. let me begin by making two obvious points. first, the best project took the business by surprise, particularly in its effectiveness of changing the rules of the road and the environment with which the companies operate. second, whenever the eu does with respect to requiring the companies to report public country by country tax data and revenue data we've all have to
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admit that transparency issues spurred on in part by the panel all papers have shots to the top of the global agenda and no amount of lobbying and treasure on capitol hill .-full-stop global pressure for more transparency. might they stand to be served on its probably suspect at least one of the reporters in the tax analyst report have some choice things to say about that. a headline story in europe potential in making a public , how quickly my the ongoing standard and country by country be put on the chopping block? in fact, the effort we had to take a paper that seemed
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to us to write the standard out of the rules taught to bring it back to something to see more familiar was a very heavy lift. the us hasthe us has been a staunch defender of the ongoing standard and will continue to be for reasons i elaborate on elsewhere, but we don't control global agenda. so what do i mean by greater him and eat? first, i don't advocate greater involvement as a means of taking sides, as in i really need their help. it just appears to me for my approach that when i meet with government is a regularly do and as i attend global tax events which seems often push by ngos, if the community has a compelling perspective on global tax issues, that should be appreciated by policymakers around the world. but that leads me to my 2nd point, the perspective
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needs to evolve way beyond we pay all the taxes we owe to something more, shall i say, different to combat the pervasive perception to transfer pricing is some sort of illicit practice therefore those nations need aggressive national action terrain those multinationals in. how the multinationals get engaged and participate fully in this debate alisha them, but i don't think it is a path. part of it is creating conditions supportive of foreign direct investment in countries around the world relating back to that at the g 20 we will begin to look at the relationship between tax certainty and creating environments to increase
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foreign direct investment in countries around the world, and that is a good thing. by investment colony to teach says countries that investment means more than attaining the investment nearly to serve their markets. part of this discussion relates to the need for more data to analyze taxes saved by multinationals in the jurisdictions around the world and the focus the international tax more around a data-driven search for best policies and practice, including policies and practice that encourage investment unless on sensational and politically palatable anecdotes. a recent thoughtful piece, reference. failed to see the perspective of others outside. to give them an appreciation of this phenomenon, on one
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day i might be attending an international conference in which we parse and excruciating detail the transfer pricing equivalent of how many angels can dance on the head of a pin. i was talking about -- and i apologize. the tax seminars were people talk about how many angels can dance on the head of the transfer dressing pen. and then multinational settings where how we can stop the scourge of illicit transfer pricing and stop companies from using transfer pricing where the war is used in the same way as money laundering, and
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those are the bubbles when i was asking as we try and some ways this is not about picking sides. rather discussion needs to be fully engaged by all stakeholders so that we can move forward and promote growth and create more favorable conditions for investment around the world including the developing world. ngos and representatives of the business community should be at the same conferences listening to and challenging each other's backs,, arguments, policy proposals, and visions for an international tax structure that works for everyone. i made these point's at a -- poinsettia recent speech. he did not think moral
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suasion was going to be effective and then multinational community will always be looking out for the bottom line, and i was somewhat -- it drove him to me how ineffective i had been in trying to make my point because i think i am making a point based upon the bottom line and not moral suasion. i think i am making a point. after all, it is the boardroom that is supposed to care about the long-term consequences of actions and the reputational effects, aggressive tax planning and all the related elements that i have talked about has already imposed a great reputational cost on some forms and the future trend is clear. i am suggesting that at the end of the day companies and countries will both prosper and --dash -- in an international tax system
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that minimizes distortion, build your own tax benefits that can be achieved through a combination of the mobility and games played from tax savings with the booze for us cost-sharing regulations. policymaking should be explored, and all stakeholders, including him in the should consider whether they share these perspectives, and if so, how to participate together effectively with government representatives to build them. we are long past the days, if they ever existed, when congress and the executive branch were the only players of import with respect to the international us tax policy. globalization and the emerging political structures have brought this to the world stage, and the actions of each country has effects beyond its borders the must be take into account as we build an
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international tax policy in the years ahead. and the actions taken outside likewise will have a profound impact on the policies, and we are living through that. this is a challenging environment, and i will be the 1st to admit that other countries sometimes do little more than critique their own national advantage instead of supporting. we owe it to average americans as well as our successful country that we stay at it so that we can give the world a little extra skewed in the right direction during the time we are privileged to be engaged in helping perform. thank you very much. [applause]
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>> okay. >> this is a moderated discussion. >> i found your speech interesting. the general climate. was wondering more of that burden on multinationals. >> i'm afraid i will not rise to that because i have had trouble distinguishing my extra mortgage deduction when a bar really big house. if anyone else can go online where you cross from morality to immorality, i can't do it.
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i think it is about policies and rules we agree to live by. >> i guess whoever couple of minutes for questions. >> with the new more inclusive framework, the transfer pricing, profit split and related things may still be the acid test to reach any kind of consensus with a larger group. can you comment? >> my experience, i don't expect that would expand the number of engage players and
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technical. it has just not been my experience. we found it difficult to keep up. so 2nd, it looks like the census process, you know, i think we will have a strong influence. i do think, though, us policymakers completely ignore at their peril what is happening on the global political stage. if you're not paying attention you're missing a
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ship that can sale. us policy. >> a legitimate role for international tax competition. >> this really didn't exist. in every and drive out arbitrage. we will build the system, but i think we all recognize us companies should welcome. >> i think that it wants to be. but i think it is conflicted. we are seeing that it is going to be very reflective
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of anyone using the uk market, and they will limit deductions for what is going on right now, and you will have a 17 percent rate, so you will be aggressive. as a country that wants to be the head car company and get the spillovers of the benefit from having headquarters in london, there going to want to see that, too. >> i. >> the patent box is a part of it. they have viewed that as something beneficial to midsize companies. >> if you're getting
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10 percent income your getting a 10 percent deduction, and you have to figure out a way to land it is not clear to me. >> you talk about the uk headquarter companies. one of the issues we are facing, companies don't have nationalities. how is a policymaker do you address that? >> great question. i quickly realized there are interesting ideas. none of them are ready for prime time. we have the system that we have. it makes the current system
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tragic, no question. as policymakers we get to play the hand we are dealt. thank you very much. [applause] >> i guess the next panel should come up. [inaudible conversations] [inaudible conversations] [inaudible conversations]
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>> receiving medical treatment. he is still here. okay. all right. i just want to say, it is an honor for me to be down here. it is an honor for me to be here, honoring one of my mentors and heroes. the mentor to all of us on the panel. we have a great panel here. you have their full biographies. the national service leader for international tax. previously deputy assistant secretary for international tax at the u.s. treasury department.
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she has done many other things before that. david rosenblum, visiting professor of taxation and director of the international tax program at the school of law, also a member of the law firm, and david has many other accomplishments, but the one i will mention, he was the top international tax official of the treasury department back in the carter administration. john samuels is now the chairman of global tax with blackstone. many of us remember him as senior counsel for tax planning and general electric. i also remember john from his service with the treasury department during the carter years.
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and finally, we have barbara angus, the one member of this panel who is now in government, of the committee of ways and means. she has been a senior partner with ernst & young them before then she was a top international tax person during the 1st time with president bush. i think i'm going to try to hold you to eight minutes each, if i could. >> i will take a moment. serve under your leadership of the treasury. the moment we experienced earlier, the privilege to work with many of you and i reminded of your support.
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>> we have wonderful colleagues. so i'm tasked. i think understanding the origin, if you will, is critical to understanding the impact on us tax reform. watch this initiative, and then many have pointed a finger for having opened pandora's box. that has unraveled long-standing international tax rules and upset what was perceived stability ahead of their involvement. i think a look both at the historical record of the
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oecd and significant policy shifts as well as its ability to keep the initiative in check from policy objectives suggests the origins goes much deeper than the lec the initiative itself. that was not the 1st rodeo for the oecd in terms of investing in profit shifting. relevant examples include as far back as 1998, although not that far back. harmful tax. we saw the establishment of the oecd tax planning steering group with established identifying concerns about aggressive tax planning techniques. they started out with the
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participation of seven countries and is now 46 country strong with an inventory of over 400. there is also work been done in 2,005 and the incentive to minimize taxation. in 2010 and 11 reports on the task -- tax risks involved corporate loss mitigation and then in 2011 about the need for transparency and disclosure and may 2012 report on action. all of these initiatives reinforce why evidence is easily seen. never resulting in the action that we are seeing now being played out in a number of jurisdictions.
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receiving a fraction of the attention has been a hallmark of the initiative since its inception. most tax professionals might be able to now recite the reverse of the action plan and never noticed are worried about this initiative and thought that they were of immediate concern. so, what is new. it is not easily at play. bob, you cover a lot of the issues. very much the colloquial environment and largely outside the us. that really launched the initiative into what it yesterday. know the numbers of factors that have contributed to the environment, the crisis, the political pressure the
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politicians were under relevant to their handling of that crisis, and the austerity measures. an increased public focus on whether or not multinationals were paying their fair share. so that is really whispered politicians to action. that is the initiative. temper that and mitigate the risk call political driven unilateral action. there was a fair amount of concern that that action would in fact undermine existing standards and consensus. the oecd announced it will take this initiative over an attempt to evaluate and achieve rhetoric. when that initial announcement was made there was a point, a focus that was not on the vanities of companies but rather on the
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limitations in the modern world. that 1st report comeau what there really looking at is to evaluate whether the current rules are fit for purpose. the other thing that report emphasized was unilateral action would be disastrous for business and government, and the initial report promised that they were not going to relitigate the issue of force taxation. what happened since, i think, is foretelling as to whether how much of this is an oec the driven initiative versus is driven by forces outside the oecd. the g 20 hasg 20 has increasingly become involved in ways we would have never imagined. the number of reports. the political forces not
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surprisingly, that led to it and had an attempt to mitigate were also not surprisingly leading to some of the outcomes are seeing. and they have made it difficult to control. the brute -- blueprints and letters, we have also seen the taxation be reopened and unilateral action has not been filed. so continued by saying the relevance for that observation is understanding if you look to what extent where to contribute to that initiative, it is important
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that this is just about the oecd and we shouldn't have to worry. it is broader than that. the goal of tax reform is us government and companies and residents with interest, those interests are clearly impacted by the behavior of other countries. the us taxpayers can be eroded not only by the behavior of internationals but the behavior of other governments. >> thank you. i have seen this before. we all love to sit around and talk about policy. while we talk about policy, the tax system is being eroded.
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we don't have people to enforce it. if you take a quick look at what is happening to the internal revenue service, you will realize one of the reasons, it doesn't really matter what the rules are. the enforcement capability has diminished dramatically. who cares about that. our current tax policy, i think that the source approach to tax, but part of it i think moves to what bob said, because i understood it coming out, the eternal war presidency, the source countries would limit. and that has been doing
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well. it is particularly in dramatically way beyond favor of the countries of record. what has happened, i think, is that the resident countries failed to do there part of the deal. on their own tax. between the two. it is a direct reaction. and they were used aggressively in ways that got under the skin of a lot of countries. the foreseeable thing that that would happen. the problem, i have never been inside a corporation, but the war between the long view in the short. it does seem to be taking the short rule resulting in
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a lot of pretty impressive things. for me, how to the united states react to that? the reasonable. limited, but frankly they are just not buying it. i mean,, they basically say, look, we will try our own tax balancing, thank you very much. you guys in the states on doing such a good job either, and frankly that is where we are. we have to come to terms with that. so far my perception is that we don't pretend. unfortunately it is going to
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be dramatic for a lot of companies. although i do hope the resolution. that is one aspect. ways of getting it. so another thing we could do is double down on a basic policy. we try to convince them to be reasonable with the treatment. and particularly in india. so i don't see what that is going to do. .. samuels
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>> in the united states, you have everybody thinking exclusively about the outbound rules. i have seen entire books on international taxation. i saw the statistics this morning. it ain't 1946 anymore, guys. we ought to revisit rules that have been in place for over 50 years. we have not touched the fraud investors tax act and it is time to rethink that and our trading policy in my view.
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why people invert at the end of the day is it is better to be foreign in the united states. it isn't going to be cured by a little bit of policy around the edges. we really need to rethink where we stand in the world. we don't stand in the same place as 1962 and 1966. in my opinion, i think we are way too favorable to the treaties. these are radical thoughts, nobody pays attention to what i say, but i think we should take
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out the discrimination clause because we want to discriminate. let's get less hypocritical. you cannot really do it. you cannot start with the treaty. you have to start with rethinking the statute. my third approach, the three approaches i see are do nothing, double down on convincing the rest of the world it really is right that the source country should reduce tax and the revenue county will avoid double taxation or maybe take a few leaves from the books of brazil, india and china and say we have a market and we will pose tax on the entry to the market. we have a market in the united states and i don't think you can plan around that market. it seems to me that is what i would see as coming out of the
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best material. thank you. first, let me say how delighted i am to be here and thank don because without don i would motbe here. i was a lawyer and don called and said do you have anybody foolish enough to come to washington and work twice as hard for half the money and he said i have this guy. it changed my life. without don, i would not be here and i thank you. i rarely find myself in agreement with david but i certainly do. i think we need to focus a lot more on source-base taxation. we don't know what sources are anymore.
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to frame international tax reform, i always like to start outside of the tax world and what we are trying to accomplish. i think the answer is maybe to raise revenue, to increase the standard of living, investments, jobs and competitiveness of u.s.' firms but only to the extent it is a vehicle to increase lending. how should we change our tax system? i actually think looking at what other countries are doing is a good place to strart. i don't find race to the bottom very helpful. maybe it is a race to the top because they are looking to attract investments and using their tax system to do that. i have only two reasons as to why we would not look at what other countries are doing. one is maybe we think we are smarter than the rest of the world. for a long time we did.
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we met the enemy and he is us. no other country in the world could put together a group of people like the ones in this room and maybe that is a blessing or a problem. we are not smarter than the rest of the world. maybe we were once when we had the large u.s. market to ourselves and not much foreign competition and u.s. firms didn't have to compete abroad. today, with trade and low-cost transportation the u.s. is an open community. we are not different than the rest of the world anymore. the rest of the world is lowering corporate rates and adopting systems without minimal taxes. current home county tax on active business income.
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passive income is one thing but active business nobody is doing and that is a bad idea. it is a hybrid system, it is too broad, it is too narrow. we have a 15% minimum tax, intangibles will take that still and it will not raise any money. foreign governments raise their rates to soak up the tax and multi nationals will reduce the tax rate. it is a bad idea. if we have going to reduce our rates and adopt a territorial system how do we pay for it? i would rely on the ramsey rule and float appreciation on rail roads, pipelines,
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telecommunication, cable. improvements that have al-shabaab tear and can't move. -- using dynamic scoring and dynamic scores shows growth outside the windowindow. the uk did is study showing 60% of the loss would be made up in the long run. if i needed more money i would shift the burden to capitals and individuals with a dividend system.
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how to pay for territorial. first, on a status bases it doesn't cost much. in 2006, a study was done and if you exempted all dividends you would raise billions. having said that, the joint committee estimated moving to a territorial system would cost at 25% or 30% and i think there are two pieces to that revenue loss. one it incremental income shifting from a territorial system and the joint committee is anticipating the dividends will come back in a ten-year period. i don't know why they are
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assuming that but that is the headline number. i would address, instead of using a blunt tool like the minimum tax, i will address base erosion and i don't think it is a bigger problem under territorial than it is today. i think today it is a heads i win, tails i lose, and i can bring it back. i think it is a huge problem. where is the problem? you go to your cfo and say i would like to move something offshore. but when you move something offshore the tax savings are greater than the cost of moving. when do you have big tash savings you can count on? high margins and only when you have protected intellectual property. that is the only time you can
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have high margins over a period of time. that is the plus side of moving. what is the cost? the cost of moving, if you have your products that can be put into a fed-ex. in -- the problem is patent style.
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we are following up with the bases. i would address the outbound transfer, the rules are archaic, and i would limit to return with the weighted average list of capital. i would provide a patent box as well. it would be a low rate, the rnd would have to be done in the u.s., it would have to be scaled and manufactured here. i am out of time and negative
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-- [inaudible]
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>> it is a privilege to be here to honor the first symposium. i thought the question that was posed was a really important one. i think it also has a really simple answer. and they further reinforced the need for fundamental tax reform. that is the simple answer. i will wait for answers on that one. the uk announced their rates which are less than half of the u.s.' rate.
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these developments all matter. the u.s. tax system must be modernized to reflect the modern world. more recently, the focus on american companies. rather than seeing coordinated change in international tax poli poli policy, we are looking for grabs and actions that are at odds with the best recommendations. the uk diverted profit taxes is
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one example, a response to concern about the permanent establishment rules, and amendments to the treaty. one could say that the u.s. 38 regulati regulations which are controversial are a different response than the best action and the agreed recommendation with respect to limiting the tax code. the action 13 mandate of reporting this information to tax authority only. it seems likely this is the
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beginning of a long line of unilateral action justified but not in line with the agreed best-recommendations. it is beyond the original attempt to target corporations and almost exclusively. these transactions are labeled in versions but we should recognize them for what they are; a means for survival. the ways and means committee held a hearing on the global tax environment in 2016 and what that means for tax reform and the clear conclusion was we need fundamental tax reform that includes the modernization of the u.s. international tax
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rules. i think an important point driven home is that international tax reform is not just an issue for global american businesses but all american businesses. if is a global company is forced to move their head quarters through acquisition or takeover, that often means key decisions that used to be made in the u.s. will be made overseas instead and that is something that will be felt throughout the company's supply change including the local businesses that provide goods and services to the american company. it will also be felt in their local community where the company provided support to the symphony, museum and local sports teams. in looking at this issue, building a wall is not the answer. tax reform is the answer. the ways and means committee has been charged with meeting the effort to produce the blue print for comprehensive tax reform
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that will lay out the republican house vision for a 21st century tax vision that will be released this summer so the committee is ready to lead the efforts of the next tax reform in 2017. international tax reform is an intergral elelement of tax reform as it involves particularly complex issues that include had meshing of u.s. tax rules with the rapidly changing rules of our trading partners. we have seen the crafting benefits from consultation and input. we need more input. we need to spend more time looking at what is happening in other countries. by that, i don't mean to follow the lead.
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the process this year was questioned and foreign tax changes are significant, and they wrestled up the need for u.s. tax reform. >> does anyone have any experience? >> i agree with david rosenbloom that we should very carefully
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look at the sales tax coming into the u.s. and if is exploiting the market or base erosion. i think all of the focus on base erosion has been on outbound erosion. other countries are likely to retaliate and that will serve the lower income problem. countries acting in their own interest. >> one of the things i am struck by is to the extent the concern and impact of what is happening now. for us, it is re-litigation of forces and coming to the table and striking the deal the way the original deal was struck.
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if every county does their own thing, with respect to imbound exports, and operating and not worrying about double taxation. the approach to cross country taxation doesn't mean they will not worry with respect to multi jurisdictions claiming tax on the same revenue. don't we need to do more. >> we may need to do something more but i think it is critically important we do something domestically. all of the change happening around the world and it is
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completely different than the rest of the world. i think we need to have a larger discussion. and by another country, it has a different affect on that county's other trading partners. >> i don't disagree with the territorial system.
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unfortunately, i think the debate is gone. i don't think -- i think it is too late. >> even a coordinated source approach. >> whatever. i like bob's statement but i thought -- but then he gets paid to do this. it was idealistic in terms of -- look, i have been at the table with some of these countries and there is only so much pursuing you can do. we have not had a coherent discussion about what our national interest is. it can not be defined to always reducing the tax on outbound investments. we cannot pay for that and secondly these other countries are not completely stupid.
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they are acting in their own self interest and doing it for a reason and we have something to learn from them. we are not going to be able to dictate the international tax system. there was a time in history where we could come close to doing that but those days are long gone. >> let me respond to david. the world is a big place. it isn't all homogenous. if you look at the capitol export countries, europe and others, they have remasremarkab similar tax systems. not at all territorial and they lowered their corporate rates. they did that because it is in their own self interest. they have harmonized on outbound investment.
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we are an outlier. we call the source country the big rich market. india started and we don't care about the permanent establishment stuff. i think they are right. it is a construct of wealthy countries using their market and not paying tax. now the uk is following. let us join. we have a big market. bob stacks said the uk is doing to things. they want to tax source-based income, great. we should want the same thing. they want multi nationals to thrive outside and great. we can have both. so david said it, the goal should be national interest. back in 1962 when the architecture of our basic system was put in place the goal of every economist was global
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welfare not national. i think we ought to form coalitions of like-minded kaechs to talk about these problems on a one-by-one bases. i think it would be in our own interest to have -- >> we have things in common with market counties as well.
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>> that is a really important point. the dichotomy between source and resident in the country is i think a false choice for the u.s. when we are both a source and resident country and want to toin to be both. >> right. but we over emphasized source for far too long. >> i will ask a question about source. when i learned international tax, i learned there was a form of coordinated system and source country got the first bite of tax, whether there was a r residual tax is another topic. where is there a benefit to tax those profits? i think john is telling me destination. but i have a funny feeling about that. if you say a company develops an
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ip in the united states and all of their business is exports to other countries. does that mean all the other countries tax it? need help. >> really hard question. you say source, historic concept is where is the income earned. when i think about ip, the only thing that protects it are patent laws. maybe, if there were not patent laws in different countries, in other words, if you invent something in the u.s., and somebody in china could copy it and the rents would disappear.
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i can move my factors of production. i can move my residents. i can move where i do my rnd -- not as mobile as people think. the one thing i cannot move is my customer. i cannot move my customer which is why destination-based tax is value. that is the answer, i think. >> i think what you need is a careful review of that very question. i am not convinced it is an either/or answer. my response to your question is where are the deductions being claimed? that is what a source country tells you. if you ask about the income they will ask if you will allow the deductions and if they do they will want some of the income.
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>> i think with john's analysis, it begs the question in terms of where it is consumed where is the value. there are components of value but is there residual that goes to the owner or developer? or is it all transferred to the consumer? what if one country follows david's approach and looks to where it is developed and the other is looking to where it is consumed and don't you have multiple instances of the taxing of the same income? >> you do. but if you get away from selfishness in countries, the resident country is in a better situation to avoid double taxation. and international taxation was nomidated by the tern for double
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taxation -- concern. the modern concern is double non-taxaon. the shift from resident to source is going to be accompanied by international double taxation. it is inevitable when you move to a more source-based world but i don't think you can stop that. yng we have to come to terms with what is going on. and this discussion puts us in a posture of being a fallen country. when i entered the business, back whether the denny ran the earth. we are not the leaders anymore. >> so if we are not leaders do we pack up and go or do we become team players? >> i will put in a plug for coming back to the economic answer. income is earned where the
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economic value is contributed. and intangable transactions are complex and there is value at different points. but i believe in the transfer concept and see what the contributions and value were and the income earned should be decided among that. i continue to be grateful for the work that bob did in defending the transfer rules in this area. i think they are really important. >> that leads to a follow-up question. is that the right choice to continue the transfer of pricing or should they look at a different para dime? >> i think if the person was the right choice. i recognize there is a call for a move to formulate and i think
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any formula is artificial and arbitrary by its very nature. we were having this discussion about the disagreements among countries and i cannot see how they can agree on the fundamental to apply and more importantly on the day of the implementation of the formula over the years and that is what would be needed. i come back to transfer pricing. it is complicated but it is grounded in an economic truth. where is the contribution to economic value and any agreement needs have an anchor like that. >> and curious to your question about the transfer between the parents and subsidary. this whole motion of
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transferring risk from the parent to your subside and you cannot do it. why we allow this fiction that they are separate taxpayers and this is what a venture capitalist would charge. i respect to foreign entity but i might need tough guidelines about what arm's length mean when i am dealing with a controlled or whole subsidiary. >> there is a whole bunch of steps along the way including presumption of rules. again, i was one of the people who thought the brazilians were nuts and i agrut

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