During Thursday’s Senate Finance Committee hearing, Sen. Sheldon Whitehouse (D-RI) questioned Assistant Secretary of Treasury Nominee Kenneth Kies about offshore tax schemes.
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NewsTranscript
00:00Mr. Keyes, welcome. I don't have time this morning to get into your role with regard to the Caterpillar Company and the investigation into that,
00:17but can I get your assurance that when I ask questions for the record regarding your role in that episode, you will provide truthful and complete answers?
00:27Absolutely, Senator.
00:30Thank you. Let me give you an example, a hypothetical, if you don't mind.
00:41Company A and Company B compete with each other in the marketplace.
00:48Company A is an American corporation with its offices in America, and it pays taxes in America pursuant to American tax law.
01:02Company B, its competitor, opens up an offshore affiliate, which may actually be a place where work is done,
01:16with jobs moving from the U.S. to that offshore location, or it may be just a corporate shell to which profits are recorded
01:29so that it appears that profits that come from American consumers are actually overseas profits.
01:37And those overseas profits then get taxed at a lower rate.
01:44So Company B, by virtue of its offshoring scheme, is able to undercut Company A because it has a lower tax bill at the end of the day
01:58from the result of that offshore scheme.
02:01Is that good tax policy, and is that good for America?
02:05Okay. So, Senator, the hypothetical that you've described, which you did say was hypothetical.
02:12But it's actually real. We're not making stuff up. It happens, so please proceed.
02:17The change in 2017 to the international tax provisions eliminated what was previously deferral,
02:23which was the fact that an offshore subsidiary, if it earned income, whether in a low-tax jurisdiction or not,
02:30was not currently taxed on it. Deferral was ended by the 2017 Act.
02:34So the hypothetical that you're describing, you may be referring to the fact that when the U.S. currently taxes income earned
02:44by offshore subsidiaries, there may be a lower tax rate because of provisions that were also included in the 2017 Act.
02:52But the 2017 Act actually made what you've described less attractive because prior to the 2017 Act...
02:59But it still happens, does it not, as the ranking member's investigation has just shown with Pfizer, for instance,
03:06hiding potentially billions of dollars in overseas profits to reduce its tax burden by millions
03:15and providing them unfair advantage both against drug companies that do not take advantage
03:22of that offshore tax scheme and small companies that don't have the resources
03:29to set up complicated offshore tax avoidance schemes?
03:36How does that make sense?
03:38Isn't that something that, just as a matter of decency and proper economic policy,
03:43we should try to eliminate?
03:46Well, and again, Senator Whitehouse, you have described a rather, I don't want to say simple,
03:53a tax situation, but these aren't...
03:56Yeah, it's pretty simple.
03:57They're cheating.
03:57It's simple as hell.
03:58No, they're actually very complicated situations, which require significant analysis.
04:03Well, they're complicated machinations that it takes to get through to set up the offshore tax scheme.
04:10That's why words like scheme are appropriate.
04:12But at the end of the day, it's a simple proposition.
04:15You fake putting profits offshore, you reduce your tax burden, you save money,
04:19and you cheat both the American taxpayer and your competitors.
04:23Let me close with this quote.
04:26The hedge fund guys didn't build this country.
04:28These are guys that shift paper around and they get lucky.
04:31They make a fortune.
04:32They pay no tax.
04:33It's ridiculous.
04:35The hedge fund guys are getting away with murder.
04:37They're making a tremendous amount of money.
04:39They have to pay taxes.
04:41This was a comment that relates to getting rid of the carried interest exception.
04:46How do you respond to that?
04:49Well, I mean, it's a statement by someone.
04:55I'm not sure who.
04:56I'll tell you who.
04:57I'll give you a hint.
04:58Donald Trump.
04:59Okay.
05:00Interesting.
05:00And Donald Trump has raised the issue of whether or not they should revisit carried interest.
05:05And my job, if I'm confirmed, will be to carry out and implement the policies of the president and the secretary.
05:13You sure about that?
05:14Not to be the voice for the carried interest, special interest?
05:17I'm not just sure.
05:19I'm 100% confident of that.
05:21Okay.
05:21Well, events will prove it one way or the other.
05:24Thank you, Chairman.
05:26Senator Cassidy.
05:27Mr.