Come April, Pope Leo might need a tax adviser
Here's a not uncommon situation confronted by tax attorneys and advisers: A U.S. citizen is suddenly, perhaps unexpectedly, elevated to a CEO position. And that CEO holds dual citizenship in a country with which the United States does not have a bilateral tax treaty. To complicate the situation, the company's headquarters — or siège social, in international law — are in a third country with which the United States also does not have a bilateral tax treaty.
I'm referring, if you haven't already guessed, to Pope Leo XIV.
He is an American citizen and a citizen of Peru. He is now also head of state of Vatican City, a sovereign nation. That's a complicated tax posture under any circumstances.
What would happen to an American corporate executive — say, in the manufacturing or extractive industries — in a similar situation? That person would continue to face U.S. taxes and have serious challenges regarding taxes due in the second country of citizenship and the country of residence, very likely leading to double taxation. This is one reason why people hire tax advisers.
One shouldn't really expect the pope to engage in sophisticated tax planning. Yet Jesus told his questioners to 'render to Caesar what is Caesar's' and told Peter to pay the temple tax, so the successor of Peter can do no less. So, absent some relief, His Holiness could spend next April 15 finishing a Form 1040. (One can only imagine the issues with valuing the Apostolic Palace as a fringe benefit or parsonage allowance.)
Only partly tongue in cheek, therefore, I hope Secretary of State Marco Rubio (who has already visited Leo) and Treasury Secretary Scott Bessent will negotiate a bilateral tax treaty with the Vatican. It's an independent country with which the United States has diplomatic relations, so this poses no difficulties under international law. Working from the U.S. model treaty should not be difficult with an American pope, and translation of any technical terms could presumably follow our existing treaty with Italy.
There is, of course, a broader purpose for this as well. At a time when bilateral tax treaties have come into question — specifically the U.S. treaty with China, which the Trump administration is considering whether to suspend or terminate — it's important to understand why they are so essential, both for multinational companies and for growing international commerce, and to expand their spread to help U.S. companies operating around the world.
Most important, bilateral tax treaties help prevent unwarranted double taxation. They smooth the path to foreign direct investment by reducing overall corporate tax burdens that can easily discourage new projects. Their absence is a deterrent to American executives considering jobs abroad — and to foreigners considering jobs in the United States, hoping to gain experience in the U.S. market. For both American and foreign executives in multinational corporations, the experience of working internationally is valuable as they climb the corporate ladder and prepares them for leadership of truly global companies.
Far from being unfair to U.S. interests, bilateral tax treaties reinforce fairness by ensuring that the same obligations to avoid double taxation apply to foreign countries as well as to the United States. The concerns that prompted the One Big Beautiful Bill's Section 899 provision on 'unfair foreign taxes,' which congressional Republicans recently agreed to remove, don't apply when bilateral tax treaties are in place; the only sure way to benefit U.S. executives working abroad is through a well-working bilateral tax treaty.
So why not start with the Vatican? It should be quick and easy. And it should renew the impetus to negotiate new bilateral tax treaties based on the Treasury Department's model treaty with countries — including important developing countries in Africa, the Middle East, Latin America and Central Asia — that are modernizing their tax systems to help investors with compliance, digitizing them to increase transparency and bringing more businesses into the formal (rather than informal) economy.
Just as the Reagan administration made a strong push in negotiating these treaties, not least with China and Italy, about 40 years later, it's time for another expansion of U.S. bilateral tax treaties reflecting today's global economy. It would be a signal that America is open for business and wants to conduct commerce on fair and mutually beneficial terms with the world, including many emerging economies in developing nations that are ripe for U.S. exports, U.S. investment and U.S. executives overseeing those investments. It would also strengthen America's position in international tax negotiations.
U.S. policy, including through its bilateral tax treaties, is designed to promote global foreign direct investment on fair terms. Without more bilateral tax treaties, the United States risks ceding important economic relationships and prospects for future growth to other countries.
And it would help a nice guy from Chicago, now holding one of the world's most demanding jobs, who really shouldn't have to worry about tax compliance.
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