Study: Weakening De Minimis Would Require Billions in New Congressional Spending

New Oxford Economics study estimates that leading de minimis bills would require up to $3.2 billion in new Congressional Appropriations, the equivalent of nearly 40,000 new CBP officers

(Washington D.C.) – Oxford Economics released a study today showing that implementation of the leading legislation aimed at weakening the de minimis exemption would require billions in new Congressional spending each year. The de minimis exemption is a long-standing feature of U.S. law that allows low-value goods (under $800) to come into the US without paying import taxes that cost the government more to collect than they raise. The study found that HR 4148 (Rep. Blumenauer’s proposal) would cost the government $3.2 billion in 2025 alone, or the equivalent of 39,000 CBP officers. HR 7979 (Rep. Murphy’s proposal) would cost the government $1.6 billion in 2025 alone, equivalent to the cost of 20,000 officers.

These increases would be recurring expenses that would require new appropriations from Congress. The study notes that the need for additional staff is “exacerbated by the fact that CBP is already short by over 4,800 officers relative to what the agency’s Workload Staffing Model (WSM) has determined as necessary to accomplish the Office of Field Operations (OFO) current mission, as reported to Congress.” This would mean that CBP would face the choice between using its resources to collect a limited amount of revenue on low-value imports or using such resources to focus on other key missions at U.S. ports of entry, such as targeting, inspecting, seizing, and issuing penalties.

The study concludes that “rolling back the de minimis provision would considerably increase costs for consumers and small businesses, while costing the government considerably more than the revenue it is expected to raise.”

Key findings from the Oxford Economic report released today:

  • Rep. Blumenauer’s proposal would cost the CBP $3.2 billion in 2025, while generating $627 million in revenue in that year according to the CBO, implying that the bill would result in a large net cost to taxpayers.
  • Rep. Murphy’s proposal would also cost more than it brings in. The Oxford report estimates that CBP would need to spend an additional $1.6 billion in 2025 to implement this bill, which would only raise $1.0 billion in revenues during that same year.
  • These amounts would require new appropriations, as CBP does not retain the revenue it collects.
  • The elimination of the de minimis threshold for some US imports would inevitably slow customs operations, increase paperwork, and reduce CBP productivity.
  • Under Rep. Murphy’s proposal, affected goods will see a 55% price increase for end users. This is expected to affect 330 million packages in 2025.
  • Under Rep. Blumenauer’s proposal, affected goods will see a 40% price increase for end users. This is expected to affect 646 million packages in 2025.
  • The report also points out that de minimis volume, according to experts, will be routed into the postal environment, where there have been significant enforcement challenges.

The Oxford Economics study adds to other recent research on the increased cost to consumers and taxpayers of degrading de minimis. In June, economics professors from Yale and UCLA published a study that found that degrading de minimis would be a regressive tax on low-income consumers, disproportionately tax minority households, and result in a 12 percent tax increase for America’s poorest neighborhoods where families are struggling with inflation and rising costs.

This week, The American Action Forum (AAF), a think tank led by former Director of the Congressional Budget Office Douglas Holtz-Eakin, also released a study showing that eliminating de minimis would result in $8 billion to $30 billion in additional annual costs that would eventually be passed on to consumers and would harm small businesses.

Read more about how de minimis benefits U.S. businesses and consumers here.

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About the NFTC

The National Foreign Trade Council (NFTC) is the premier business association advancing trade and tax policies that support access to the global marketplace. Founded in 1914, NFTC promotes an open, rules-based global economy on behalf of a diverse membership of U.S.-based businesses.

2024 Tax Treaty Survey

The results of the 2024 Tax Treaty Survey are presented below.

#1 Treaty Priority Countries

NFTC member companies who responded to the survey (“respondents”) ranked one country – Brazil – as the clear priority for the most number of respondents. The next tranche of countries were closely clustered together.

  • For Brazil, the country identified as most important to respondents, Transfer Pricing was identified as the greatest concern, followed by Mutual Agreement Process (MAP); Business Profits, and Reducing withholding rates on royalties.

The countries identified as next most significant to respondents were: Ireland, Israel, Saudi Arabia, Switzerland, Taiwan, and Malaysia. The negotiation items listed as most significant for each country were:

  • Ireland: Business Profits, MAP, and Transfer Pricing were all equally significant.
  • Israel: Reducing withholding rates on royalties was most significant, followed by reducing withholding rates on dividends, MAP, and Transfer Pricing.
  • Malaysia: Reducing withholding rates on royalties and dividends were both equally significant.
  • Saudi Arabia: Business Profits were most significant, followed by Permanent Establishment (PE), MAP, and Transfer Pricing.
  • Switzerland: Reducing withholding rates on dividends were most significant, Gains and Interest were also a concern.
  • Taiwan: PE, Business Profits, and reducing withholding rates on royalties were all equally significant.

Brazil was also the clear priority for respondents in the 2023 NFTC Tax Treaty Survey. Taiwan, Saudi Arabia, and Switzerland maintain their 2023 position in the next tranche of significant country priorities, while Ireland, Israel, and Malaysia are new additions in 2024. Singapore dropped out of this grouping of the #1 priority, but was still overall relevant to respondents.

Overall Treaty Priority Countries

After evaluating the overall top priority for respondents, we aggregated the results regardless of rank. Atop the list of highest overall priority countries were Brazil, Saudi Arabia, and Singapore. These countries saw the highest combination of overall votes as well as being ranked first or second most important country by respondents. Next was India, in its own tranche, followed by a grouping of Ireland, Israel, Switzerland, and Taiwan. The final tranche featured Argentina, Australia, China, and the UK.

In total, respondents requested treaties with 32 countries.

Items that were selected as most important for these countries were:

  • Singapore: Reducing withholding rates on royalties was most significant, followed closely by Business Profits, MAP, and Transfer Pricing.
  • India: MAP was most significant, followed by Transfer Pricing. PE, Business Profits, and Limitation on Benefits were also a concern.
  • Argentina: Business Profits were most significant, followed by reducing withholding rates on royalties, MAP, and Transfer pricing.
  • China: Reducing withholding rates on royalties was most significant, with MAP, Transfer Pricing, and Covered Taxes also a concern.
  • UK: MAP and Transfer Pricing were most significant, with Business Profits and reducing withholding rates on royalties also a concern.

Compared to 2023 results, Brazil and Singapore maintained their position as top overall priority countries, with Saudi Arabia replacing Taiwan in the top tranche. India remains in its own tranche. The third and fourth tranches shuffled more notably. Hungary, Colombia, and Mexico are out, while Argentina and China are in. The UK maintained its 2023 position in the final tranche.

An infographic of the most requested countries can be found here.

NFTC Report Shows Economic Effects of Onerous FASB Provisions

WASHINGTON DC – A report published by the National Foreign Trade Council (NFTC) today showed the negative economic effects of the Financial Accounting Standards Board’s (FASB) Improvements to Income Tax Disclosures on the U.S. economy.

The report indicated that companies may experience cost increases in impacted business functions as high as 62% and averaging 9.9%.

“As the report itself states, the increased costs lead to higher prices, lower demand and lower employment,” said Anne Gordon, Vice President for International Tax Policy at NFTC. “The effects also go beyond that – at a time of economic recovery, these rules may decrease corporate investment which could lead to a decrease in GDP or about $12 billion in 2022 terms. Considering these effects, we’d urge FASB not to move forward with this harmful proposal.”

Other findings in the report include:

  • Lower employment and wage growth;
  • Reduction of 27,000 full-time equivalent jobs, in year one alone;
  • Impacts on economy-wide wage and salary income amounting to the cost-equivalent of the loss of 609,000 average-wage jobs cumulatively by 2040;
  • Slower economic growth;
  • Decrease in investment; and
  • Create competitive disadvantages for companies required to report.

Download the full report here.

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About the NFTC
The National Foreign Trade Council (NFTC) is the premier business association advancing trade and tax policies that support access to the global marketplace. Founded in 1914, NFTC promotes an open, rules-based global economy on behalf of a diverse membership of U.S.-based businesses.

2023 Tax Treaty Survey

#1 Treaty Priority Countries

While the survey was on hiatus for several years, we are not comparing this year’s results to prior years. NFTC member companies who responded to the survey (“respondents”) ranked one country as the clear priority for the most number of respondents. The next tranche of countries were closely clustered together.

  • The country that was identified as the most important to respondents was Brazil– with Transfer Pricing identified as the greatest concern*, followed very closely by (1) reducing withholding rates on Royalties and Dividends; (2) the Mutual Agreement Process (MAP); and (3) Covered Taxes.

(* Survey conducted prior to Brazil Transfer Pricing reforms)

The countries that were identified as the next most significant to respondents are: Taiwan followed by Singapore, Saudi Arabia and Switzerland. The negotiation items that were listed as most significant in each country are:

  • Taiwan: MAP was the greatest concern, followed closely by PE, Business Profits and Non-discrimination. Reducing withholding rates on Royalties was also a concern.
  • Singapore: Permanent Establishment, Business Profits, Royalty withholding, MAP, and Transfer pricing were all significant. Covered Taxes were also a concern.
  • Saudi Arabia: MAP and Permanent Establishment were both significant.
  • Switzerland: Reducing withholding rates on interest and dividends as well as MAP and LOB were all equally important.

Overall Treaty Priority Countries

After evaluating the overall top priority for respondents, we aggregated the rankings. The countries that were included as #1 priorities also rounded out the list of overall priorities with Brazil, Singapore and Taiwan comprising the top three countries (these countries received the most overall votes as as well as being the first or second most important country by respondents). India ranked next in its own tranche. Colombia and Hungary followed in the third tranche accompanied by Saudi Arabia and Switzerland. The final tranche was comprised of Malaysia, Mexico and the United Kingdom.

In total, respondents requested treaties with 31 countries.

The items that were selected as most important for these countries are:

  • India: The main items were PE, Business Profits, and MAP. Transfer Pricing and dividend withholding were also important.
  • Colombia: The sole priority item was MAP.
  • Hungary: Reducing withholding rates on interest was the main concern.
  • Malaysia: Transfer Pricing was the most important item.
  • Mexico: Permanent Establishment and Business Profits were both significant.
  • United Kingdom: LOB was a concern as well as withholding rates on Interest and Royalties

Question Responses

Question #1 asked respondents to expand upon any tax treaty negotiation issues that were noted in the selection of countries and items.

  • The most frequently cited problem was the transfer pricing and permanent establishment interpretations in India. India is taking very aggressive positions on PE, especially in relation to remote services. Transfer pricing is also challenging, including the ability to enter into an Advance Pricing Agreement. There are other challenges with LLCs leading to residence issues under the Treaty. Respondents requested that the tax treaty with India be renegotiated to clarify these issues.
  • Respondents also reiterated the importance of eliminating withholding taxes on interest, royalties and dividends. Specific countries were cited as having high withholding rates, including Brazil, Taiwan, Singapore, Switzerland and the UK.
  • Problems were encountered in permanent establishment interpretations in Italy, France and India. It was cited as a priority negotiation item for Taiwan, Singapore, Saudi Arabia and Brazil.
  • Binding arbitration and more efficient mutual agreement procedures were also referred to in several responses (to this question and to question #2); respondents noted that significant delays were encountered in resolving examinations and that settlements were often held hostage unless taxpayers waived access to mutual agreement procedures. Many respondents would like to see binding arbitration provisions added to all future treaties. A mandatory arbitration provision in India was requested.

Question #2 focused on tax treaty implementation issues, asking respondents to provide details about examinations, settlement problems, and procedural issues encountered in obtaining tax treaty benefits.

  • Respondents cited issues in:
    • Mexico with the VAT and denying advertising and promotion due to royalties.
    • Germany with transfer pricing issues and adhering to OECD norms. Concerns with Limited Risk Distributors were also raised.
    • Egypt with withholding tax on offshore services even after a residency certificate was provided. It is often difficult to obtain refunds.
    • China with market-based taxation.
  • Onerous procedures encountered to receive reduced tax treaty withholding rates were cited, particularly in Italy, Singapore, Portugal, Latin America and the U.K. Withholding tax issues in Saudi Arabia arise in relation to payment versus accrual of the tax and inconsistencies with local law and the Treaty.
  • The expansion by certain countries of what constitutes a permanent establishment and the attribution of profits to that permanent establishment (at times attributable to misinterpretation by tax authorities) is another issue of significant concern to respondents.
  • Respondents requested that the U.S. view be promoted that tax treaties are not purely for the avoidance of double taxation, but have a wider and more important goal, e.g., the bilateral agreement to the allocation of taxing rights, establish minimum thresholds before taxation rights accrue, facilitate cross border flows with minimal withholding taxes and establish procedures to resolve cross border disputes.
  • The inability of the MAP and Competent Authority to resolve issues of double taxation was cited with reference to India, Mexico, Saudi Arabia and Vietnam. Respondents cited numerous problems with India, both in its expansive view of what constitutes a permanent establishment and how APA and MAP cases are processed.
  • Inefficiencies and aggressive audits in Vietnam, Honduras and the EU were cited as concerns. Particularly, the ability to remedy issues is difficult due to multiple interruptions by the government for audit status and court proceedings.
  • The slowness of the MAP process with Canada has been problematic for many respondents as well as onerous documentation requests. Respondents also requested that Canada either accept bonds or not require prepayment of the tax to challenge a deficiency.

An infographic of the top most requested countries can be found here.