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“Good morning. Today’s hearing will review the president’s authority to waive provisions in the tax code aimed at discouraging Iran’s support for terrorism, and explore whether those provisions should be strengthened.
“Earlier this year, James Clapper, the Director of National Intelligence, stated, ‘Iran remains the foremost state sponsor of terrorism and is increasing its ability to influence regional crises and conduct terrorism. This has been the consistent view of the [intelligence community] for more than three decades.’ Let’s start by looking at how this all began.
“Thirty-six years ago today, in 1979, Iran’s now-ruling theocratic regime seized the U.S. Embassy and our diplomatic personnel in Tehran. In response, we severed our diplomatic relationship and imposed strict economic sanctions against Iran. We also enacted provisions in the tax code to discourage U.S. companies from doing business in Iran.
“Iran has long been one of the most active and prolific state sponsors of terrorism in the world, funding hundreds of attacks through its terror proxies abroad, including Hezbollah, Hamas, and Islamic Jihad. In 1984, the State Department officially designated Iran as a state sponsor of terrorism.
“A year later, in 1985, Iran supported the Hezbollah-led hijacking of Trans World Airlines Flight 847 en route from Athens to Rome. The hijackers diverted the plane to Beirut, and held most of the passengers and crew hostage. One victim, Navy petty officer Robert Stethem, was singled out because he was a member of the U.S. Military. He was tortured and murdered during the attack. For his heroism, he was posthumously awarded the Purple Heart and Bronze Star. His brother, Kenneth Stethem, is one of our witnesses here today.
“Over the years, Iran has increased support for terrorism, committed heinous human rights violations, and engaged in an illegal mission to develop nuclear weapons. To punish these bad acts, numerous countries have imposed economic sanctions against Iran, and the United Nations Security Council has followed suit.
“Fast forward to the present day. In July 2015, the United States and the P5+1 countries finalized a so-called Iran nuclear agreement. Under the deal, the U.S. and our international partners agreed to dismantle the current sanctions regime, in the hope that Iran will slow its pursuit of nuclear weapons technology. The agreement also gives the Iranian regime access to an estimated $150 billion in currently frozen foreign assets.
“The Obama Administration pursued a nuclear agreement with Iran at any cost, rushing forward to implement the terms of a bad deal despite majority opposition in both chambers of Congress. In order to do it, President Obama violated the Iran Nuclear Agreement Review Act that he himself signed. Instead of submitting the full text of the nuclear agreement, plus any related documents and side deals to Congress, as the law requires, he refused to provide the text of two secret side deals. As a result, the American public still doesn’t know the full scope of the concessions President Obama gave to Iran.
“What we do know is that the Iran nuclear agreement says it will, ‘produce the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear programme.’
“Under the law we are examining today, U.S. companies get two benefits on their worldwide business—foreign tax credits and deferral.
“One of the relief measures the president may provide to Iran while implementing his nuclear agreement is to waive these provisions, which work to discourage U.S. companies from doing business there. Under current law, because of Iran’s extensive support for terrorism and because the U.S. Government has severed diplomatic relations with Iran, no foreign tax credit may be claimed by a U.S. company doing business in Iran.
“I’d like to show a graph demonstrating how this works.
“When U.S. companies do business with foreign countries—say Japan, for example, they are typically eligible for a foreign tax credit, which offsets taxes paid to foreign governments. These foreign tax credits make sure U.S. companies don’t pay the same taxes twice—once to their home country and once to a country where they may be doing business internationally. But business with Iran is not eligible for this benefit. U.S. companies do essentially have to pay tax twice for any business conducted in Iran—first any taxes required by Iran, and then also the usual amount of taxes required by the U.S. Under current law, for every $100 in profits earned in Japan, a U.S. company would be left with $65 after taxes. This is shown on the left. But for a U.S. company doing business in Iran, they would have far less—from $100 in profits, only $42 after taxes. This is shown on the right.
“In addition to the foreign tax credit, the tax code requires U.S. companies to immediately pay taxes on any income derived from Iran by foreign subsidiaries. This is much harsher than the rules that would apply for international commerce in Japan, for example, where taxes are only owed in the U.S. once those profits are repatriated.
“These provisions have generally been effective in discouraging U.S. companies from doing business in Iran—business that would certainly improve the Iranian economy and increase the power and financial resources of Iran’s regime. However, the law currently gives the president the authority to waive these punishing tax provisions and allow beneficial tax treatment for business conducted in Iran. Historically, waiving these provisions has only occurred after a country has followed through on the concessions they have promised. For example, President Bush waived the provisions for Libya in 2004, but only after Libya had demonstrably ended its support for terrorism and its weapons of mass destruction programs.
“In contrast, President Obama has already entered into an agreement with Iran that will waive most current sanctions, potentially including these tax provisions. But instead of requiring concrete proof that Iran’s concessions have been achieved, the administration actually said it will waive sanctions against Iran even if the country does not comply with the nuclear agreement. So we ask ourselves, how will Iran move forward under the agreement?
“Iran’s Supreme Leader Ayatollah Khamenei has publicly said that Iran will use some of the $150 billion in newly unfrozen assets to continue funding terrorism, and influential Iranian clerics and government officials, including Khamenei himself, continue to call for ‘Death to America.’ The White House not only ignores these declarations, but actually defends them, assuring Americans that this rhetoric is only intended for a domestic political audience in Iran. Secretary Kerry has said that it doesn’t reflect Iran’s intention to destroy the United States, because he has, ‘no specific knowledge of a plan by Iran to actually destroy us.’ I think most people consider illegal efforts to build a nuclear arsenal, while declaring ‘Death to America,’ a clear demonstration of intent.
“With the lifting of sanctions, the tax code provisions that we examine today are more important than ever. This committee wrote to President Obama asking whether he would waive the provisions, or if he would commit to not waive them during his presidency. He has not responded.
“Stopping Iran’s support for terrorism is crucial for the safety of the American people, both at home and abroad.
“On a final note, let’s be clear from the outset. Funds Iran will receive under the administration’s nuclear agreement will go to sponsoring terrorism. Whatever one’s opinion of the Iran nuclear agreement, we should be able to agree on the importance of taking measures to counter Iran’s support for terrorism. The tax provisions we are discussing today are in our jurisdiction and are related to Iran’s support for terrorism, not nuclear proliferation. It is that support for terrorism which triggers them, so they can and should remain in effect outside of the framework of the nuclear agreement. I hope that we can work on a bipartisan basis to fight and defeat terrorism, and examine how we can strengthen these tax provisions to achieve that goal.”