Baucus confirmed as US ambassador to China. How does this impact tax policy?

February 6, 2014

By Sean M. King, President & Managing Director of Align Global Consulting, Inc.
On 6 February, 2014, the United States Senate easily confirmed longtime Montana Senator Max Baucus to become U.S. ambassador to China.

While reasonable minds can differ as to the appropriateness of the Baucus appointment, there is no question that his resignation from the U.S. Senate will have an immediate impact on U.S. tax policy.

Baucus had long driven the tax reform debate in the Senate Finance Committee with the release of four discussion drafts, including one on U.S. international tax rules. He has also regularly joined forces with U.S. House Ways and Means Committee Chairman, Dave Camp (Michigan Republican), with the hope of generating support for a tax code overhaul. In recent weeks since his nomination, Baucus had hinted that he would release additional international tax discussion drafts before leaving Washington, but most observers now believe that it is unlikely that any such drafts will be released prior to his confirmation to the ambassadorial post.

The extent to which the Finance Committee will build on Baucus’s discussion drafts as it develops tax reform legislation is now uncertain. Democratic Senator Ron Wyden of Oregon will now become the taxwriting panel’s new leader and has already hinted that he might take tax policy in a different direction. 

Wyden recently told reporters that “[a]nybody who thinks that their tax reform proposal is the gospel sent down from the heavens and is hereby going to be enacted into law doesn’t know anything about tax reform." 

Of particular interest is the annual ritual known as the "tax extenders" package. In this respect, Wyden appears ready to break with Baucus on the issue of how to address the many business and individual tax provisions that expired at the end of 2013. Baucus had previously argued that the extenders should be examined individually and either repealed or made permanent in the context of comprehensive tax reform.

Adopting a different tone, Wyden has stated in recent weeks that such an approach sounds good in theory, but the generally slow pace of U.S. tax reform makes it imperative to deal with "critical" extenders provisions now. In amplifying this position, he has told reporters that “if you don’t take steps to address [extenders] it could be very damaging to some key parts of our economy.”

On the international level, the most notable provisions that sunset at the end of last year were the subpart F exemption for active financing income and lookthrough treatment for payments between related controlled foreign corporations. In light of the Baucus-Wyden transition, U.S. international tax policy is poised to be more fluid over the next several weeks than at any time in the last two years. The professionals at Align can assist you and your organization in assessing the impact of any such policy reform. 

About Align Global Consulting
With offices in Research Triangle Park and Silicon Valley, Align Global Consulting is a globalization consulting and advisory firm that represents clients expanding globally or improving existing operations by providing creative legal and tax solutions to address commercial, trade, investment and regulatory matters. Align's comprehensive list of services includes global structuring, global business transactions, cross-border M&A transactions, and international tax planning for outbound and inbound investment. Align assists companies in all stages of growth, from emerging growth companies to the Fortune 100. With "big firm" credentials and experience, Align handles matters traditionally entrusted to larger firms, while maintaining a commitment to the lost art of one-on- one client service. Visit www.alignglobalconsulting.com.

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