Border Tax Equity Act of 2016

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Border Tax Equity Act of 2016''.

SEC. 2. FINDINGS AND DECLARATIONS OF POLICY.

    (a) Findings.--Congress makes the following findings:
            (1) 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.
            (2) 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.
            (3) 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.
            (4) The disparate treatment of border taxes detrimentally 
        affects United States agricultural producers, manufacturers, 
        and service providers in that--
                    (A) refunds of indirect taxes effectively act as 
                export subsidies to foreign exporters; and
                    (B) 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.
            (5) 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.
            (6) 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.
            (7) 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:
                    (A) 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.''.
                    (B) 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.
            (8) 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.
    (b) Declarations of Policy.--Congress declares the following:
            (1) It is critically necessary that the issue of border 
        taxes be addressed and resolved during current and future WTO 
        negotiations.
            (2) 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.

    (a) Report on Results of WTO Negotiations To Revise WTO Rules 
Regarding Border Taxes.--
            (1) 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.
            (2) 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:
                    (A) 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)).
                    (B) With respect to trade in services--
                            (i) 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
                            (ii) 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.
            (3) 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).
    (b) Report on Free Trade Agreements Regarding Border Taxes.--
            (1) 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).
            (2) Actions regarding border tax treatment specified.--The 
        actions regarding border tax treatment specified in this 
        paragraph are the following:
                    (A) 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.
                    (B) With respect to trade in services--
                            (i) 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
                            (ii) 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.
            (3) 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.

    (a) 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:

``Subchapter E--Tax on Imports From Foreign Countries With An Indirect 
                               Tax System

``Sec. 4491. Imposition of tax.

``SEC. 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.''.
    (b) 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:

``subchapter e. tax on imports from foreign countries with an indirect 
                             tax system''.

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:

``SEC. 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--
            (1) 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
            (2) section 314 of the Tariff Act of 1930, as added by 
        section 5 of this Act, shall take effect 120 days after such 
        date.

Summary: Border Tax Equity Act of 2016 This bill amends the Internal Revenue Code to impose a tax on imports from any foreign country that: (1)&nbsp;employs an indirect tax system, and (2) grants rebates of indirect taxes paid on exports from that country. This tax shall be collected by the U.S. Customs and Border Protection (CBP) and deposited into a special account. The bill also amends the Tariff Act of 1930 to require the CBP, upon request of a U.S. exporter, to&nbsp;pay to the exporter from this special account an amount equal to the amount of indirect taxes imposed by the importing foreign country, minus any U.S. taxes rebated or funded upon exportation. The Office of the U.S. Trade Representative must report on specified matters related to World Trade Organization negotiations, border taxes, and free-trade agreements.