December 14, 2022
The Honorable Janet Yellen
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Yellen,
For the past two years, the Biden Administration has routinely made commitments in the OECDnegotiations it has no authority to fulfill. Despite Treasury’s actions to date, it cannot dictate
U.S. tax law or compel Congress to act. As we look to the beginning of the 118th Congress, theAdministration must place the interests of the United States – the U.S. fisc, U.S. taxpayers, andU.S. workers – ahead of its political agenda. A critical first step is to recognize the fundamental
flaws with the Pillar Two enforcement mechanism – the UTPR – and stop encouraging othercountries to assert it on U.S. companies.
While some may believe that implementation by foreign countries of the model rules, including
the UTPR, will lead the United States to follow suit, Congress’s hand will not be forced. Nor
will Congress sit idly by as U.S. companies and profits are taxed in a manner inconsistent withU.S. law and our bilateral tax treaties. This should have been clear to both the Administrationand its international negotiating partners before, but it should be even more apparent now with
the incoming divided government in the United States.
Prioritizing U.S. interests must include defending U.S. taxing rights and business interests
consistent with our bilateral tax treaties. Despite the United States being the only country toimplement a global minimum tax, this Administration has agreed to allow foreign countries toimpose additional tax on U.S. companies’ U.S. profits under the UTPR. The Administration hasstated that Pillar Two can be implemented without treaty changes, conveniently bypassing theneed for bipartisan support. However, there is growing consensus among tax experts, including
former Treasury officials, that the Pillar Two UTPR is inconsistent with our bilateral tax
treaties. That this Administration has encouraged foreign countries to assert new taxing rights
against American interests, in violation of existing treaties, is unprecedented.
Under the 2020 Pillar Two Blueprint, the UTPR, formerly known as the undertaxed payments
rule, targeted base erosion by disallowing deductions on payments made by an entity to a lowtaxed affiliate. There was a clear connection between the jurisdiction asserting tax and thebusiness activities of the taxpayer. As we have previously highlighted, the UTPR negotiated bythis Administration – and sprung on the world when the Model Rules were released in December
2021 – is far more expansive. Now commonly known as the undertaxed profits rule, the UTPR

would allow a jurisdiction to reallocate income and collect tax from entities that have no nexus tothat jurisdiction. Foreign countries could collect tax from U.S. activities with which there is no
economic or transactional connection. This type of extraterritorial taxation is not permitted
under Article 7 (or any other Article) of U.S. bilateral tax treaties.
As you are aware, the Administration cannot unilaterally override U.S. tax treaties by politicalagreement. The Constitution establishes a careful balance of authority between the Executiveand Legislative branches, providing Congress with sole authority “to lay and collect taxes,”
while the President is vested with the “power, by and with the advice and consent of the Senate,
to make treaties.” While the Administration may have agreed to allow foreign countries to tax
U.S. companies in a manner inconsistent with our tax treaties, Congress has not. The
Administration must recognize the limitations of what it can and cannot unilaterally agree to ininternational tax negotiations.
Congress also expects the Administration to defend current U.S. tax law as passed by Congress,
not the law the Administration wants it to be. For example, the 2020 Blueprint made thecompelling case for GILTI to be treated as Pillar Two compliant, a position on which thisAdministration capitulated in order to achieve its failed partisan tax agenda. In addition, ourmembers have repeatedly raised concerns about the more favorable treatment granted torefundable tax credits than nonrefundable tax credits under Pillar Two, even though U.S.
business tax credits are generally nonrefundable. By failing to defend longstanding U.S. tax
credits, many of which have significant bipartisan support, Treasury has put U.S. companies atrisk and proffered U.S. tax revenues to fund foreign countries’ spending programs.
This Treasury Department has unsuccessfully attempted to blame the prior Administration for
the UTPR’s flaws. However, it was this Administration that negotiated and agreed to the Pillar
Two model rules behind closed doors, and immediately deemed them final with no public
consultation or meaningful Congressional engagement. We are not aware of any administration– Republican or Democrat – that has so blatantly used its role in international tax negotiations toadvance its partisan political agenda.
The Administration cannot continue to ignore the fundamental problems with the Pillar TwoAgreement, concerns that have been raised with growing frequency in the United States andabroad. While the Administration may treat these Rules as final, we do not. And while foreigncountries, and even Treasury, have threatened that U.S. companies will be subject to foreign tax
under the UTPR, Congress has shown united opposition to extraterritorial taxes in the past and awillingness to respond to such measures.
Just two years ago, there was clear, bipartisan agreement on the primary U.S. objective innegotiating an OECD agreement: to put an end to foreign countries’ extraterritorial taxation ofU.S. companies in the form of digital services taxes. Today, foreign countries continue tothreaten extraterritorial taxes on U.S. companies, but they do so at the Treasury Department’s
invitation pursuant to the UTPR. After two years of this failed approach, we urge theAdministration to set aside its partisan agenda and work with Congress on a bipartisan basis todefend the United States’ interests.

Sincerely,

Mike Crapo
Ranking Member
Senate Finance Committee

James E. RischRanking Member
Senate Foreign Relations
Committee

Kevin Brady
Ranking Member
House of RepresentativesWays and Means Committee

Charles E. Grassley
U.S. Senator

Vern Buchanan
U.S. Representative

John Cornyn
U.S. Senator

Adrian Smith
U.S. Representative

John Thune
U.S. Senator

Mike Kelly
U.S. Representative

Richard Burr
U.S. Senator

Jason Smith
U.S. Representative

Rob Portman
U.S. Senator

Tom Rice
U.S. Representative

Pat Toomey
U.S. Senator

David Schweikert
U.S. Representative

Tim Scott
U.S. Senator

Darin LaHood
U.S. Representative

Bill Cassidy, M.D.
U.S. Senator

Brad Wenstrup
U.S. Representative

James Lankford
U.S. Senator

Jodey Arrington
U.S. Representative

Steve Daines
U.S. Senator

Drew Ferguson
U.S. Representative

Todd Young
U.S. Senator

Ron Estes
U.S. Representative

Ben Sasse
U.S. Senator

Lloyd Smucker
U.S. Representative

John Barrasso, M.D.
U.S. Senator

Kevin Hern
U.S. Representative

Carol Miller
U.S. Representative

Greg Murphy, M.D.
U.S. Representative

David Kustoff
U.S. Representative