October 8, 2021
The Honorable Janet Yellen
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Yellen,
As the Ranking Members of the Senate Finance Committee, Senate Foreign Relations
Committee, and Senate Banking Committee, we are extremely concerned with theAdministration’s recent suggestions it is considering circumventing the Senate’s constitutional
treaty authority. The Administration’s posture on this issue is even more problematic given theimpending Organisation for Economic Co-operation and Development (OECD)/G20 agreement.
At last week’s Senate Banking Committee hearing, you indicated the Administration wasconsidering alternative means for significantly modifying existing bilateral tax treaties thatwould bypass Senate treaty approval. When asked whether implementation of Pillar One of theOECD/G20 agreement requires Senate approval of a treaty, you acknowledged that “would be
one way” Congress could approve the agreement, but you also stated—without any furtherclarity—that there are “a number of ways” that Congress could implement Pillar One. Even
more troubling, this week, a nominee for a senior position within the Treasury Department
expounded upon these alternatives. He asserted the “updating” of international tax rules being
contemplated by Pillar One “could occur through several means, such as through an Article IItreaty, congressional executive agreement or through legislation overriding the existing treaties.”
These comments are the first indication we have received from this Administration that it may beconsidering bypassing the Senate treaty process to implement Pillar One. As you know, under
the U.S. Constitution, a bilateral or multilateral tax treaty would require the advice and consentof the Senate, with a two-thirds vote of approval. Further, we are unaware of any existing
congressional authorization that would permit the Administration to conclude a lesser
international agreement, such as a congressional-executive agreement. As described, the natureof changes required to implement Pillar One necessitates the conclusion of a treaty, not acongressional-executive agreement or other legislative override. Prior administrations andCongresses have attempted to avoid such outcomes, which risk creating inconsistent andincomplete fulfillment of U.S. obligations to our international partners. Instead of adhering tointernational norms, these statements suggest Treasury may pursue action that would undermine
the Senate’s constitutional authority, as well as the United States’ role as a reliable trading
partner.
Based on the limited details described in the OECD/G20 agreement released in July, Pillar One
would require the United States to cede taxing rights over certain highly-profitable U.S.
companies to foreign countries based on those companies’ volume of sales in a particularjurisdiction, regardless of their physical presence in that country. This fundamental change intaxing rights would require provisions within all of the United States’ existing bilateral tax
treaties to be modified or overridden. Each of these bilateral tax treaties was approved in thesame manner—by a two-thirds vote of the Senate. Sweeping changes to modify these treaties
and alter long-established protocols under these agreements must be processed through the same
constitutionally mandated process. Bypassing this process to override our bilateral tax treaties
would irreparably erode the exclusive treaty authority the Constitution provides to the Senate.
Implementing this agreement without a multilateral treaty would also subject U.S. companies todouble taxation and tax uncertainty, ultimately giving their foreign counterparts a significant
competitive advantage. Tax certainty and stability—primary objectives of a Pillar One
agreement—depend upon the implementation of a dispute resolution mechanism that is bindingon all contracting countries, which cannot properly be effectuated solely through domestic
legislation or executive action. Without binding dispute resolution, U.S. companies may fallvictim to aggressive foreign governments seeking to expand their tax base, resulting insignificant double taxation, continued uncertainty, and ongoing litigation.
We are especially concerned given Treasury has failed to meaningfully consult our members on
the potential treaty or legislative action that would be necessary to fully carry out the Pillar Oneagreement. In particular, the Senate Foreign Relations Committee, which has jurisdiction overtreaty matters, has received no engagement from Treasury on this issue to date.
To be clear: our concerns are not limited to the process by which Treasury may attempt toimplement this agreement—we have received minimal information regarding detailed provisions
or the effect of Pillar One on U.S. companies. Back in June, you asserted Pillar One “will belargely revenue neutral” for the United States because “we will be on both the receiving andgiving end of the proposed profit reallocations.” However, despite repeated requests for
estimates on what the United States will be “receiving and giving,” Treasury has not detailed
how much profit would be reallocated from the United States and to which foreign countries.
The lack of consultation, in addition to these latest statements, calls into question how serious
Treasury is in achieving bipartisan consensus on any Pillar One agreement. Further, Treasury’scontinued use of the negotiations to advance the Administration’s tax agenda on Pillar Two, atthe expense of ceding substantial U.S. taxing rights to a global rulemaking body without seeking
constitutionally mandated approval, puts the durability of any agreement at significant risk.
We request a detailed response outlining the Administration’s proposed approach to Pillar One
implementation. Please provide your response to this request by October 15, 2021.
Sincerely,

Mike Crapo
Ranking Member
Senate Finance Committee

James E. RischRanking Member
Senate Foreign Relations
Committee

Pat Toomey
Ranking Member
Senate Banking Committee