Tax News & Views International Weekly: Tariffs Go to Court

As Congress inches closer to an end to the shutdown, all eyes in the tax and trade world today are focused on the Supreme Court, as it hears arguments in the first major case against the tariffs that the Trump Administration has imposed without formal authorization from Congress.

The case, Learning Resources v. Trump, combines several lawsuits from retailers who say they’ve been hurt under the tariffs the administration has authorized pursuant to the International Emergency Economic Powers Act. They have challenged whether the act—which gives the president power to “regulate” transactions due to a national security threat, but does not mention tariffs explicitly—can be used to justify the broad tariffs and trade regime announced by the Trump administration.

IEEPA, passed by Congress in 1977, has generally been used in more limited geographic situations or threats, according to a Congressional Research Service report. The Trump Administration, in its “Liberation Day” executive order on April 2, said that “large and persistent annual U.S. goods trade deficits,” indicated a national security threat justifying the use of the statute. Trump is also the first president to use IEEPA to impose tariffs, according to CRS.

While this case could have a huge effect on trade policy, a loss for the administration wouldn’t be the end of all of President Trump’s tariffs. He has used several laws to justify imposing tariffs without Congressional approval, including Section 301 of the 1974 Trade Act and Section 232 of the Trade Expansion Act of 1962. Those both grant the executive branch power to impose tariffs in certain situations but give the president wide latitude to determine when those situations apply. (Section 301, which allows for retaliatory measures against alleged economic discrimination against American citizens or businesses, is one of the tools that Trump has used to threaten countries with proposed digital services taxes.)

Those statutes grant significant authority to the president to use tariffs as part of a trade negotiation, to retaliate, or for national security threats—but only IEEPA could (as the administration claims) be used to justify the reciprocal tariff regime which has imposed a baseline tariff of 15% on most countries in the world. The Supreme Court may soon weigh in on that claim, but it could take some time to determine what it means for the overall trade picture.

Noteworthy Items This Week

Lucrative Drug Patents in Ireland Threatened By US Tariffs – Saim Saeed, Bloomberg Tax ($):

While cautioning that a decision on whether to keep intellectual property in Ireland isn’t straightforward, companies are reflecting “whether or not there is a need to diversify, or move research and development from Ireland to somewhere more US-friendly,” including the US itself, according to Lincoln Tsang, a pharmacist and partner at Ropes & Gray, a law firm.

They “are thinking about it,” Tsang said. He added that’s it’s possible the tariffs could make the arrangements whereby multinational companies move their profits from other jurisdictions to Ireland “unsustainable.”

French Lower House Adds Digital Services Tax Rise to Finance Bill – Stephanie Soong, Tax Notes ($):

Lara Muldoon of the Information Technology Industry Council criticized the amendment’s introduction. "It does not make sense for France to expand its digital services tax as it is already a fundamentally flawed policy approach that violates international tax norms,” she said in an October 29 statement emailed to Tax Notes.

“This latest action would dramatically increase its material impact and make the tax even more discriminatory,” Muldoon added. “We urge the French government to reject this proposal.”

The amendment’s addition to the Finance Bill comes a day after House Republicans issued a statement threatening retaliatory action against France if the DST rate is increased, alluding to a legislative proposal introducing IRC section 899 as an example.

Tech Platforms Seek Dialogue on Mexico’s New Tax Data Powers – Sam Edwards, Bloomberg Tax ($):

Internet marketplaces and platforms called for discussion with Mexico’s government about measures approved by Congress this week requiring companies to provide real-time tax information and combat false invoices.

The government should enter into dialogue with companies and civil society groups before publishing regulations later this year to define technical details and the tools required to implement authorities’ access to platforms’ tax information, according to Fabiola Peña, regional manager for the Mexican chapter of the Asociación Latinoamericana de Internet.

EU Walks Fine Line Between Legal and Political Issues on Pillar 2 – Elodie Lamer, Tax Notes ($):

“What you have to keep in mind is that Union law does produce direct effect when it's clear enough. This is a very long-standing jurisprudence, established already by the [Court of Justice of the European Union] in 1962,” Benjamin Angel, the commission's head of direct taxation, said at the Irish Tax Institute conference October 21, referring to Van Gend en Loos. In that decision, the Court held that individuals may directly invoke EU law before national courts when provisions are clear and unconditional.

Academics cautioned against this approach at first glance. “The direct effect of European law in favor of individuals applies, for example, when a directive in force has not been transposed in time by the Member States, or when a national regulation violates a provision of EU law, such as the freedoms of movement,” Edoardo Traversa of Université Catholique de Louvain told Tax Notes October 28.

What’s Next for Retaliatory and Discriminatory Taxes? – Mindy Herzfeld, Tax Notes ($):

Negotiation with the sword of Damocles hanging over the heads (or effective tax rates) of multinationals is not an optimal way to conduct global tax policy. It’s time to consider better options to resolve countries’ concerns about tax competition and base erosion than the extreme threats to cross-border investment posed by section 899. And given unwillingness by members of Congress to cede their taxwriting power to an unelected international organization, it’s also time to consider how the United States can act more proactively to address questions about the allocation of taxing rights in the 21st century.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: Yankee Girl

Debut Year: 1947

Debut Publication: Dynamic Comics #23

Origin Story: For reasons unknown, she turns into Yankee Girl upon saying "Yankee Doodle Dandy!"

Superpowers: Like other patriotic heroes, she can fly and has super-strength.

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.

Tax News & Views International Weekly: Tariffs Go to Court

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