Section 1 Short title
This Act may be cited as the “Border Tax Equity Act of 2016”.
Border Tax Equity Act of 2016
A BILL
To neutralize the discriminatory effect of any country that employs indirect taxes and grants rebates of the same upon export if United States trade negotiating objectives regarding border tax treatment are not met.
Sec. 2 Findings and declarations of policy
Findings— Congress makes the following findings:
The United States largely relies on a direct tax system, whereas 164 countries currently employ one particular form of indirect tax known as value-added taxes (VAT) as well as direct taxes. The worldwide VAT average in 2015 was 15 percent, and in countries of the European Union it was 21 percent.
Under the rules of the World Trade Organization (WTO), direct taxes, such as corporate income taxes, if rebated or refunded upon the export of goods, are viewed as export subsidies and prohibited on most goods and are at least potentially actionable on all goods. However, indirect taxes, such as sales taxes and VAT, may be rebated or refunded upon the export of goods and such rebate or refund is not defined as constituting a subsidy and hence is not actionable under WTO rules.
At present, there are no WTO rules on subsidies as applied to trade in services. However, a number of countries currently impose taxes on the import of services and exempt or rebate or refund taxes upon the export of services, to the disadvantage of United States service providers.
The disparate treatment of border taxes detrimentally affects United States agricultural producers, manufacturers, and service providers in that—
refunds of indirect taxes effectively act as export subsidies to foreign exporters; and
United States exporters are subject to double taxation, by paying direct taxes on domestic production in the United States and having their exported product or service face a border tax in the importing country consisting of indirect taxes.
As one example, governments of member states of the European Union, with an average VAT of 21 percent in 2015 and total exports to the United States of $427.5 billion, paid their producers an estimated $91.9 billion of VAT rebates on goods exported to the United States in 2015. These governments collected from United States producers an estimated $28.7 billion of VAT-equivalent taxes on their imported goods. For services, these governments paid their producers an estimated $47.6 billion of VAT-equivalent taxes on services exported to the United States and collected from United States producers an estimated $36.3 billion of VAT-equivalent taxes on services imported from the United States. The combined goods and services disadvantage in 2015 was $204 billion.
For more than 45 years, United States businesses have complained of border tax inequity and, since 1968, prior United States administrations and Congresses have sought to resolve it.
Congress has repeatedly recognized the prejudicial effect of the disparate treatment of border taxes with respect to goods and has directed the United States to seek a negotiated solution:
In passing the Trade Act of 1974 (19 U.S.C. 2101 et seq.), Congress sought “revision of GATT articles with respect to the treatment of border adjustments for international taxes to redress the disadvantage to countries relying primarily on direct rather than indirect taxes for revenue needs.”.
In section 1101(b)(16) of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 2901(b)(16)), section 2102(b)(15) of Bipartisan Trade Promotion Authority Act of 2002 (19 U.S.C. 3802(b)(15)), and section 102(b)(18) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (19 U.S.C. 4201(b)(18)) Congress declared that a principal trade negotiating objective of the United States is to obtain a revision of WTO rules with respect to the treatment of border adjustments for internal taxes to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes.
The disparate treatment of border taxes is arbitrary, inequitable, causes economic distortions based only on the type of tax system used by a country, and is a primary obstacle to more balanced trade relations between the United States and its major trading partners.
Declarations of policy— Congress declares the following:
It is critically necessary that the issue of border taxes be addressed and resolved during current and future WTO negotiations.
If such WTO negotiations fail to achieve the United States trade negotiating objective of revising rules with respect to the treatment of border taxes in order to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes, then effective action through legislation is warranted given the massive and inequitable distortions to trade that United States agricultural producers, manufacturers, and service providers face as a result of border taxes.
Sec. 3 Reports on results of WTO negotiations to revise WTO rules regarding border taxes and free trade agreements regarding border taxes
Report on results of WTO negotiations To revise WTO rules regarding border taxes—
Report required— Not later than 60 days after the completion of WTO negotiations, or by January 1, 2018, whichever occurs first, the United States Trade Representative shall submit to Congress a report certifying whether or not each of the United States trade negotiating objectives regarding border tax treatment, as specified in paragraph (2), has been met as a result of such negotiations.
U.S. trade negotiating objectives regarding border tax treatment specified— The United States trade negotiating objectives regarding border tax treatment specified in this paragraph are the following:
With respect to trade in goods, the revision of WTO rules with respect to the treatment of border adjustments for internal taxes to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes, as provided for in section 102(b)(18) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (19 U.S.C. 4201(b)(18)).
With respect to trade in services—
the elimination of the disadvantage in trade in services that exists for countries relying primarily on direct taxes that are not adjusted at the border rather than indirect taxes that are adjusted at the border; and
the revision of WTO rules regarding trade in services to ensure that such rules do not result in disparate treatment of border adjustments for internal taxes based on the direct or indirect nature of such taxes.
Definition— In this subsection, the terms WTO negotiations and negotiations mean any World Trade Organization negotiations that may result in revisions to WTO rules to meet the United States trade negotiating objectives regarding border tax treatment, as specified in paragraph (2).
Report on free trade agreements regarding border taxes—
Report required— Not later than one year after the date of the enactment of this Act, the United States Trade Representative shall submit to Congress a report certifying whether or not each covered country that is a party to a multilateral, bilateral, and regional trade agreement that has entered into force on or before such date of enactment with respect to the United States and such covered country is taking or has taken the actions regarding border tax treatment, as specified in paragraph (2).
Actions regarding border tax treatment specified— The actions regarding border tax treatment specified in this paragraph are the following:
With respect to trade in goods, the revision of laws of the covered country with respect to the treatment of border adjustments for internal taxes to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes.
With respect to trade in services—
the elimination of the disadvantage in trade in services that exists for countries relying primarily on direct taxes that are not adjusted at the border rather than indirect taxes that are adjusted at the border; and
the revision of laws of the covered country regarding trade in services to ensure that such laws do not result in disparate treatment of border adjustments for internal taxes based on the direct or indirect nature of such taxes.
Definition— In this subsection, the term covered country means a country that relies primarily on indirect taxes that are adjusted at the border rather than direct taxes that are not adjusted at the border.
Sec. 4 Tax on imports from foreign countries with an indirect tax system
In general— Subtitle D of chapter 36 of the Internal Revenue Code (26 U.S.C. 4461 et seq.) is amended by adding at the end the following new subchapter:
“E Tax on Imports From Foreign Countries With An Indirect Tax System
“4491. Imposition of tax
“(a) General rule—There is hereby imposed a tax on imports of goods and services from any foreign country that employs an indirect tax system and grants rebates of indirect taxes paid on goods or services exported from that country.
“(b) Amount of tax—The amount of the tax imposed by subsection (a) on an imported good or service shall be an amount equal to the excess of—
“(1) the indirect taxes that are rebated or not paid on the good or service upon its export, over
“(2) any indirect taxes imposed on the good or service at the border of the United States.
“(c) Liability and time of imposition of tax
“(1) Liability—The tax imposed by subsection (a) on a good or service shall be paid by the importer of such good or service.
“(2) Time of imposition—The tax imposed by subsection (a) shall be imposed on imports at the time of entry.
“(d) Period of Applicability—The tax imposed by subsection (a) shall apply during the period beginning as prescribed in section 6(1) of the Border Tax Equity Act of 2016 and ending on the date on which the United States Trade Representative certifies to Congress that the United States trade negotiating objectives of equitable border tax treatment have been met.
“(e) Special account—The tax on imports under subsection (a) shall be collected by U.S. Customs and Border Protection and deposited into a special account. This special account shall be the source of payments to qualified United States exporters under section 314 of the Tariff Act of 1930.
“(f) Definitions—For purposes of this subchapter—
“(1) Importer—The term importer means—
“(A) as such term relates to imports of goods, one of the parties eligible to file the required customs entry documentation or information pursuant to section 484(a)(2)(B) of the Tariff Act of 1930 (19 U.S.C. 1484(a)(2)(B)), and
“(B) as such term relates to imports of services, the importer of the service as defined by the Secretary in rules and regulations promulgated under this subchapter.
“(2) Time of entry—The term time of entry means—
“(A) as relates to imports of goods, the time generally specified in section 484(a)(2)(A) of the Tariff Act of 1930 (19 U.S.C. 1484(a)(2)(A)) and prescribed in regulations (19 C.F.R. 141.68), and
“(B) as relates to imports of services, the time specified by the Secretary in rules and regulations promulgated under this subchapter.
“(3) Indirect tax system and grants rebates of indirect taxes—A foreign country employs an indirect tax system and grants rebates of indirect taxes paid on goods or services exported from that country if such country imposes indirect taxes (including sales taxes and value-added taxes (VAT)) on goods or services, and permits a rebate of such indirect taxes paid on goods or services exported from such country.
“(4) Value-added taxes (vat)—The term value-added taxes means an indirect general consumption tax that is levied by the exporting country on the value added to goods and services in that country at multiple stages of the production and supply chain. This type of tax is also referred to as a goods and services tax (GST).
“(g) Regulations—The Secretary may prescribe such rules and regulations as are necessary to carry out this section.”
Clerical amendment— The table of subchapters for subtitle D of chapter 36 of such Code is amended by adding at the end of the following new item:
Sec. 5 Payments to United States exporters to neutralize discriminatory effect of border taxes imposed by importing countries
Part II of title III of the Tariff Act of 1930 (19 U.S.C. 1305 et seq.) is amended by inserting after section 313 the following:
“314. Payments to United States exporters to neutralize discriminatory effect of border taxes imposed by importing countries
“(a) Payments required
“(1) In general—Upon exportation of goods or services from the United States to any foreign country that employs an indirect tax system and imposes or applies indirect taxes on imports of goods or services at the border, the Secretary of the Treasury, acting through the Commissioner of U.S. Customs and Border Protection, shall, if requested by the exporter, pay to the exporter an amount equal to the amount of indirect taxes that the importing foreign country imposes or applies at the border to such goods or services, minus any United States taxes paid on such goods or services that have been rebated or funded upon exportation.
“(2) Information to be included in request—An exporter who requests a payment under paragraph (1) shall, in such request, identify the indirect taxes imposed by the importing foreign country and present proof of the payment of such taxes to the importing foreign country’s authorities within a reasonable period of time after exportation of the goods or services.
“(b) Special account—The payments required under subsection (a) shall be paid from amounts contained in the special account authorized under section 4491(e) of the Internal Revenue Code of 1986.
“(c) Period of Applicability—The requirement to make payments under subsection (a) shall apply during the period beginning as prescribed in section 6(2) of the Border Tax Equity Act of 2016 and ending on the date on which the United States Trade Representative certifies to Congress that each of the United States trade negotiating objectives regarding border tax treatment have been met.
“(d) Regulations—The Secretary of the Treasury is authorized to prescribe such rules and regulations as are necessary to carry out the provisions of this section.
“(e) Definitions—In this section:
“(1) Indirect tax system and imposes or applies indirect taxes on imports of goods or services at the border—A foreign country employs an indirect tax system and imposes or applies indirect taxes on imports of goods or services at the border if such country imposes indirect taxes (including sales tax and value-added taxes (VAT)) on goods or services, and imposes or applies such indirect taxes on imports of goods or services at the border.
“(2) Value-added taxes (vat)—The term value-added taxes means an indirect general consumption tax that is levied by the exporting country on the value added to goods and services in that country at multiple stages of the production and supply chain. This type of tax is also referred to as a goods and services tax (GST).”
Sec. 6 Effective dates
If, pursuant to subsection (a)(1) of section 3 of this Act, the United States Trade Representative fails to certify to Congress by the date specified in such subsection that each of the United States trade negotiating objectives regarding border tax treatment described in section (a)(2) of such section has been met as a result of WTO negotiations, then—
section 4491 of the Internal Revenue Code of 1986, as added by section 4 of this Act, shall take effect 90 days after such date; and
section 314 of the Tariff Act of 1930, as added by section 5 of this Act, shall take effect 120 days after such date.