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U.S. Tax Proposals and the TCJA

Howard Telson: 

One of the biggest issues that are being considered currently on the table for corporate tax reform is revitalizing the international tax structure a bit, obviously, the international tax structure changed significantly with the 2017 tax reform. This is an area where folks are really interested. So it’s great to have your expertise today.  

And you know, I just want to kind of set the scene when it comes to international tax: When we think about an international tax, there’s kind of two different philosophies countries to take in terms of how they tax from an international perspective. So a country can take a territorial approach or they could take a worldwide tax approach. Could you just provide some context and explain for the listeners, what is a territorial system versus a worldwide system and how, how do these two concepts different?  

Alex Parker: 

Yeah, that really is kind of the big picture debate that is in tax policy: worldwide versus territorial. 

So “worldwide” means that – and we’re just talking about corporate taxation now, although the same principles apply for individual, that’s a whole different discussion. That’s actually pretty interesting.  

But in corporate taxation, a worldwide system means the tax authority tries to tax all the income that a corporation earns globally. Just your total income. That might seem pretty intuitive to people that like, ‘Well, the US company ought to pay US taxes on all the income it earns.’ The territorial system says, ‘Okay, we really want to focus on the income that is earned in our jurisdiction. And we don’t care so much about what is earned in other countries.’ And normally that’s accomplished by giving an exemption to foreign earnings of US companies. 

I think there’s a couple of important things to understand about this. The first is that no system totally one or the other. Almost every system in the world is kind of more on a scale. The US for instance, until the 2017 Tax Cuts and Jobs Act, was ostensibly a worldwide system. But the catch was that US companies could defer earnings that were earned abroad, basically indefinitely. And that created a system that was really in practice, closer to a territorial system. And that’s kind of what the TCJA did was just say, ‘Hey, let’s just acknowledge that we’re a territorial system and make that official.’  

I think the other important thing to understand is the tax system needs a foundation. It needs a bedrock. And when it’s a worldwide system, that foundation is residency: Where is a company headquartered? And then if you are a US company, that means we tax you a lot, we tax you based on everything. A territorial system looks more on: Where is the income earned? Where’s that economic activity happening? How do we define it?  

There are drawbacks and pluses to both of those philosophies, the issue with the residencies that you have in versions, you have corporate takeovers. You put a lot of pressure on that principle. It will respond to that pressure. 

And when you think about it in this era of giant global companies, where you happen to have been founded and where you happen to have your headquarters can kind of feel like an arbitrary concept. Although, a company like Apple is probably never going to stop being a US company. In fact, Tim Cook actually said that in a congressional testimony, once he said, “We will never leave the US.” 

On the other hand, tracking the location of income can be very tricky. You could argue that it’s more substantive because it really does relate to where a company makes its money. But again, we live in an online world where a lot of stuff happens in the digital sphere. You might have disagreements about whether something is based on a sale or based on the research. And so those conversations get very complex.  

Howard Telson: 

I think that the last point you made, which was fantastic because, when folks used to debate these two different taxation systems, it was more in the brick and mortar context. And it was a little bit easier to wrap your head around.  

But now in the digital world… everything is digital. Every company has a digital presence, things around the cloud… It becomes a lot more complicated, a little more dicey. And then, your point on the US tax system, what we’re talking about pre-2017 tax reform, where the US was considered on that worldwide tax basis. But like you said, it was sort of pseudo-worldwide tax basis where you could defer tax on income that was kind of permanently reinvested abroad and maybe the incentives were a little skewed then to kind of keep income shifted or grown.  

And now we shifted to more of the pseudo territorial system where an hour taxed more on a US basis, but we do have this kind of mechanism to tax some foreign earnings as well, which I think we could touch upon now. And what I’m referring to here is GILTI or global intangible low tax income.  

So this kind of clause in some foreign earnings and takes our territorial tax system to really a pseudo territorial tax system. But basically, this was the intent of the law was to help companies from prevent them from rad shifting profits outside the US and claw back some of those earnings into the US.  

But could you just give us a brief overview of GILTI and maybe touch upon why it’s become such a hot button issue in the US tax system in general and why it’s really a focus every time there’s changes to the US stock system?  

Alex Parker:  

Yeah well, you’ve got right at the issue that GILTI is meant to capture income that has been shifted out of the US. It is a worldwide tax. It’s one of the few remaining worldwide taxes, it’s not the only one. But in the system after the TCJA. And it says we look at income that is earned by a company that’s abroad, and then it’s taxed at actually half of the US rate. So 10.5 [percent].   

The way they do it is it wants to get at in intangible income. That’s what the ‘I’ in GILTI is… the first ‘I’ [laughs]. And that’s income that is earned through patents, through IP, what they call assets intangibles. They only exist legally. They’re not things you can see. They’re not, like you said, brick and mortar, and they tend to be involved in tax shifting structures because they are relatively easy to move jurisdiction to jurisdiction.  

But when you hear about like Facebook and Apple and all the money they’ve accumulated offshore, that was always through earnings with intangibles. And there were rules before to try and block that, or some gaps in the rules. GILTI gets at that, but what they basically said is it’s too hard to really come up with like a good definition of intangible and that captures everything. It’s a very squishy kind of concept. 

So instead, we’re going to look at what’s tangible, which is pretty simple to say, ‘Okay, these are tangible assets.’ It’s depreciable, tangible assets that are held off shore and an unusually high profit return on those assets. Just kind of arbitrarily, they picked 10 percent. So anything over 10 percent, because that’s a lot for a tangible assets to be making… ‘we’re just going to say that’s intangible.’ 

And that’s kind of how GILTI works. Like I said, it’s taxed at half of the rate. And the idea is that if you can’t achieve a very low tax rate in a tax haven of below 10.5 percent, it’s probably not worth it to do all of the work that goes into creating a elaborate tax. If you’re not going to achieve that like really low rate. And that, that way the income will stay where it’s earned. Lot of it’ll stay in the US and you won’t have that leakage,  

Howard Telson: 

The foreign tax credit element on GILTI as well. Some folks when in 2017, when tax reform was passed, people saw GILTI. And there was a lot of headlines that [said] ‘Okay, if you’re not a low tax jurisdiction, if you’re above a certain rate…’ And I think it was a 13 percent, and basically a lot of companies thought, ‘Okay, we won’t be subject to GILTI because we’re not in these low tax jurisdictions.’  

However, then once folks actually started applying the rules and kind of going through the rules, they realized, well, if I start allocating expenses to my foreign tax credit on GILTI, then I actually am going to be subject to GILTI, even if I’m not necessarily in these low tax jurisdictions.  

Alex Parker:  

Yeah. I’ve heard people say that like every letter in the acronym of GILTI is misleading in some way, [laughs]. Although, I mean – not global and not income, but low tax and the intangible because it’s really all a formula. So you get foreign tax credits and there’s a 20 percent haircut. So what I mean is the amount you can claim is reduced by 20 percent in theory, that covers most of the income you earn. If a jurisdiction is above 13.1,2.5 percent – but like you said, in practice, there are some restrictions limitations on how much you can claim in the foreign tax credits, including interest, expense, research and development.  

Again, because of this issue that so much in what we do is global and it’s hard to pin down which jurisdiction that’s created. Some situations where GILTI has ended up companies can have a pretty huge GILTI liability, even when they’re not operating with low effective tax rates. I mean, that issue we could do a whole podcast on. [Howard laughs.]  

I think kind of the broader point is that because they decide to go this formulaic route – which has a lot of pluses, and that’s why the OECD right now is considering a similar concept – the downside is that you end up casting a pretty wide net and you end up taxing a lot of stuff that is not exactly what you were going for. And that’s been the big complaint about GILTI that you hear often is that it’s just the small penalty that only affects egregious tax practices, but it hasn’t totally worked out that way in practice.   

Howard Telson: 

Right, yeah. I think that’s completely spot on.  

We’ll touch on the OECD in a moment and how they’re looking at this concept. But before we do, I just want to circle back to QBAI or qualified business asset investment for a moment. You mentioned the 10 percent break you get on the value of kind of depreciable intangible assets. And how a roundabout approach we’re basically trying to get to: How do we establish the tangible assets as opposed to the intangibles, so we essentially put a tax on the intangibles – so we’ll give taxpayers a routine return on the tangible and then tax any excess.  

But just in terms of policy, I think you speak about it a bit in your article, and I know other folks have touched on that policy as well, but why are folks looking at that as potentially a negative? Why are folks saying that QBAI may actually incentivize behavior that folks in the U S may actually not like?  

Alex Parker: 

Right, you have to sort of picture the way it works. That when I talk about like a 10 percent return, that means the first 10 percent of the value of however much tangible assets that you have abroad, that just gets taken out. That’s exempted from taxation, and then everything above that is taxed.  

So the more tangible assets you have off shore, the bigger that exemption is going to be provided. And this is a really important caveat that the profit remains the same: If the more tangible assets you have off shore, the profit increases, then it might stay the same, or you might actually pay more.  

But because of that basic principle, Democrats – and I remember this watching the floor debates about the TCJA, even before it was passed – they started pointing out, “Hey, you’re actually giving an incentive for companies to create more offshore tangible assets.”  

 And that became kind of a democratic talking point pretty quickly. Since it’s been passed, it’s something that critics of law have returned to – not just Democrats. I show you [in the article] some papers that have been written about it, that talk about whether there is this incentive. And I remember Chris van Hollen at the time, he was a representative from Maryland. He’s actually my representative. He was saying, “This must be a mistake. Why would anyone want an incentive to have more off shore?”  

So it obviously seemed very counterintuitive to people and they call it a loophole. And you can find references to that in President Biden’s speeches, where he says, “There’s a loophole that allows companies to pay less in tax [with] he more they have off shore.”  

I really don’t view it that way, as a loophole. I think it’s actually pretty fundamental to the philosophy. We can go back to at the beginning, having a territorial system that only wants to tax what’s inside your jurisdiction, and then kind of trusts that when other countries – either they have similar tax rates or if they don’t – but that it’s an honest competition between countries to see what the right mix of taxes versus things you might spend taxes on like infrastructure to see which works the best for them.  

Howard Telson:  

That leads the next piece of the discussion, but just to sum that up at a high level, basically the higher your QBAI, where the higher your tangible asset amount is that’s abroad, essentially the lower, your GILTI income and the lower your tax—which why a lot of this has become a bit of a contentious issue. But to your point, it does kind of form the basis of this territorial philosophy.  

And along those lines, GILTI as a whole has seemed to become a bit of a popular concept in the sense that the OECD, when they’re looking at a more global tax reform, this BEPS 2.0, and when they’re thinking about Pillar One and really focused on Pillar Two. But they’re thinking of adopting a similar principle the OECD is to GILTI where they would potentially institute a minimum tax as a means to  tax the digital economy. 

However, some points of contention when it comes to this pillar to concept and adopting a “top-up” tax, similar to GILTI for countries sort of around the world. One of the contention points is in terms of the carve outs. So things like a QBAI, could you speak a little bit to that point? Whether it’s Pillar Two in general, or just in terms of negotiations: Why [have] those type of carve outs like a QBAI type carve out has become a bit contentious between various countries and how they’re looking at this topic?   

Alex Parker: 

Yeah. It’s kind of funny when in the US political discussion, you hear all these bad things about GILTI, but then all of a sudden in Europe, it seems like everyone likes this idea. You had these OECD discussions going on that were trying to look at how do we deal with digital taxation, what they call the taxation in the digitalization of the economy. They always want to make that point, because I think you mentioned this before: everything is the digital economy now.  

So it was kind of stuck and there was a huge disagreement between the countries about how to best do that. And then the TCJA came along and somehow that kind of broke things loose. And the main reason was that countries saw the GILTI concept and there was a lot of support for that. And it kind of became a grand bargain that countries, which only really wanted a destination-based new digital tax – so like [to] tax digital income where the consumer is – they could live with the idea of also having a tax, which is more worldwide based, and then vice versa.  

Like Germany is a country that’s very export based. They weren’t huge fans of the idea of a new destination-based tax, but they liked the idea of something that’s worldwide based tax. And so those two things went together and, but it’s still a long way towards finding an agreement on this.  

And actually, we’re taping this on.. Wednesday. The OECD may announce something in the few days, but it’s not clear where supposedly very close to to a final agreement, but we’re talking about 140 countries, not just the OECD countries, but the countries that are participating in the negotiation, what they call the Inclusive Framework, a much larger coalition. And they’re trying to get everybody on board, all of those countries.  

So finding a consensus on that was really hard. One issue that kept coming up was countries were saying, ‘We want to be able to provide incentives. We have various incentives for our domestic companies. We don’t want to have to stop doing that because we now have this new minimum rate of 15 percent.’  

And so it eventually became clear that if this deal was going to happen, it had to have what they call a substance based carve out. And the substance based carve out was basically the same concept as QBAI that it’s a percentage of tangible assets. And what’s actually interesting is they took its tangible assets, but they added payroll. So it’s even more directly connected now to how many workers you have. So you could argue it’s even stronger the incentive to move workers around.  

Now of course, the dynamic is different if every single country is doing this, because then it’s not like it’s just one country, that’s going to lose a bunch of business, but you still then have this issue.  

Janet Yellen and President Biden talked a lot about ending the race to the bottom in taxes that you have this tax competition that is just so strong, that countries are under so much pressure to undercut each other. This global minimum tax having a floor is going to help with that issue and maybe give developing countries some room to breathe and be able to have a low rate that they can build up their infrastructure with but not lose out on investments. But because of this carve out, you still do kind of have a race to the bottom in terms of as long as it’s connected to real activities and not just to profits that are just written on paper.  

Howard Telson: 

It’s an interesting point. You know, I think when folks are thinking about these negotiations and kind of BEPS 2.0, it is really all about leveling the playing field and kind of putting all countries on an equal footing. But to your point, there’s definitely could still be some incentive for lower tax jurisdictions when you look at kind of these carve outs, but I guess we’ll have to see how it plays out. And it definitely seems like it’s a step in the right direction.  

Just shifting gears a little bit from a worldwide perspective back to kind of honing in on the US we mentioned at the beginning of the episode, the current tax negotiations going on in the House and House Ways and Means Committee has this Build Back Better plan, which we went into detail on a previous podcast episodes. So we won’t get into all the nuts and bolts of it, but one area I did want to focus on is there a treatment of GILTI and QBAI with regard to QBAI specifically and this House plan, they essentially dropped it from the 10 percent rate currently to 5 percent. So you need a 5 percent exemption on humpies foreign reachable property.  

This was a bit different than the Biden plan, which actually completely got rid of QBAI. And you mentioned,  Biden’s comments previously on how it was an incentive to move assets abroad. So that makes sense from this perspective, but it seems to have sprouted back up a bit here, just lowering from 10 percent to 5 percent. It seems like this is kind of more of a general consensus among Democrats.  

In your article, You mentioned that the change in the QBAI isn’t necessarily like a minor tweak, I guess? What makes you say that? When some folks see this 10 percent to 5 percent, they may not think much about it, but what did you see when you saw that provision in this bill?  

Alex Parker: 

Well, what I meant was that the issue of QBAI is important and that may have been more directed to general readers who might not have heard of QBAI. But the fact that they decided to reduce it by 5 percent, instead of eliminating it, was significant. If they had eliminated it, [then] GILTI, really the nature of it, changes.  

Five percent means they are acknowledging the issue, the offshoring issue, but they weren’t quite ready to make such a drastic change to GILTI. And the reasons which I’m sure you’ll want to get into a lot of it has to do with that interplay of what the OECD is doing and not wanting to be too out of step with the rest of the world.   

Howard Telson: 

Yeah, it definitely makes sense.  

And, you know, I think a lot of folks have been interested on what’s going to happen, you know, with GILTI, if this pillar to consensus comes to fruition and what the interplay is between GILTI and pillar two, you know, that is a point that’s going to need to be worked out, you know, in these negotiations.  

Just focusing on this still back, better plan in general, outside of this reduction to Q by what other areas are looking at potential changes on the GILTI front. You know, we could talk about the ACE of GILTI in general and on how that’s computed. Currently, we were able to offset losses against income across jurisdictions, and it seems there may be some changes on that front.   

Alex Parker: 

I focused on the QBAI criticism, but Democrats have been equally critical of the fact that GILTI allows all the income to be aggregated. What they wanted to do was to have it look at every jurisdiction when you decide whether or not it’s below that 13.125 percent, because [when] you aggregate, you might have a mix of low and high tax jurisdictions, and you might just barely get in under the overall rate but you’re still utilizing havens. So the OECD looked at the same issue and they came out in favor of a country-by-country system. And there’s some interesting arguments about that either way, a country-by-country system, it is a big administrative and compliance issue, all of a sudden your effective tax rate in every single jurisdiction matters.  

So that’s going to put a lot of strain on transfer pricing for tax administrations. All of a sudden, they’ve got a lot to look at. But the interesting kind of flip side is that one of the other reasons that people in the business world have been critical about GILTI is that it kind of was designed with this assumption that companies are always going to be profitable.  

It’s something you see throughout the TCJA. And it’s kind of interesting, the political reasons that happened. They were really desperate for revenue and, you know [laughs], unprofitable companies don’t have as much pull on the hill as profitable companies do when it comes to how deciding those issues and pushing back on those issues. And then of course the pandemic happened and suddenly every company was dealing with calculating their losses. When you have excess foreign tax credits, you pay more in taxes than you had in profit. Under the GILTI system, you just lose them. You cannot carry them forward, which is the way that foreign tax credits have traditionally worked.  

You also cannot carry forward losses if you have one unprofitable year and you don’t pay taxes that year, but you also under a traditional system would have had a credit for future years. You don’t get that under GILTI either.  

And there was kind of a philosophy there that, ‘Okay, you have a lot of flexibility in the jurisdiction, so we’re not going to have as much flexibility in terms of they call temporal differences, [or] timing differences.’  

So the House bill actually flips that and it says, ‘Okay, we were going to be stricter on the jurisdiction and have country-by-country. But we finally are going to allow you to carry some foreign tax credits forward and have some losses, which is also in keeping with the OECD plan.’ So some people were surprised that the House plan was as taxpayer favorable as it was because these are things the companies had been asking for to say, look, there’s a lot of companies that are just in cyclical businesses and they have one on profitable year – or they have one really profitable year, but then they might have another. And if you’re not averaging those out, you’re not really getting it the right amount of tax payments for them.  

So this is almost sort of a bargain with taxpayers that like on the one hand, you’re, you’re going to have this new stricter country-by-country system. But on the other hand, we’re giving you some flexibility and it’s actually interesting. It may work out to be that some companies will pay less under the new system. Other companies will pay more.  

Howard Telson:  

 We were talking about this on the last podcast episode, but like you said, I mean, there’s some bad here, you know, maybe going to country-by-country and not being able to mix and match losses could hurt some countries, but having just carry forwards, like you said, over time to help being able to carry forward for our tax rates and losses. And then the GILTI rate is generally going up here, the corporate tax rate jumped…     

Alex Parker: 

I have got to mention that the GILTI rate, they increase it to about 16 percent – which seems like they’re kind of intentionally overshooting the 15 percent a little bit. So they can then bring it down to the 15, but very close to the 15 percent of what the OECD [rate] is. 

Howard Telson: 

Yeah, one hundred percent. So yeah, you have this potential country-by-country approach and increase in rate. So those both sound pretty bad. Right? And you know, you think a reduced QBAI… So maybe all these companies are going to be paying more GILTI? But then like you said, you’ve carried forward these foreign tax credits, these losses; there’s also a provision where companies could potentially a portion, less expenses that are their foreign tax credit basket. So only a portion of the Section 250 deduction, as opposed to things like interest R&D and stewardship, so that could help. So you do have some good and some bad.  

We were talking a little bit on the last episode [about] how this obviously could hurt some companies, but to your point: it definitely also helps some companies. I think each company out there is going to have to kind of model out these differences and see in total, is this actually potentially even a good thing on the GILTI front even though the House seems to think it’s a revenue raiser, we’ll kind of add more of a tax burden to more companies than less, but, you know, I think it really depends on individual facts. So I appreciate that context.  

Shifting over to higher level questions, bigger picture, would you say in general, QBAI is contributing to foreign investment? As in, when President Biden talks about it as a loophole and other politicians talk about this measure, they’re concerned about the fact, as you mentioned before, that companies are potentially shifting assets and investment abroad.  

Have you seen this in terms of, you know, looking at the data, have you seen this actually come to fruition these last few years? Or is there a different story to tell here?  

Alex Parker: 

Story to tell is really that at this point, nobody knows for sure. There is some data out there, but it’s pretty inconclusive at this point.  

And it’s actually surprising that there hasn’t been more analytical work done on this issue. And then you also have the fact that it’s only been three years since the law was passed. 2018 was a transition year and a 2020 [laughs] was a very unusual year.  

So between those two issues, you don’t have a ton of data to base conclusions on. And then also on the fact that when, just anecdotally, I talk to people, they say, “Look, there are so many decisions that go in, so many factors that go into the decision on whether or not to make a location decision.”  

In theory, on the margin. This might tip it one way, but all these other factors that are going to play about the workforce, and the costs, and whatever trade wars might be going on… And then even factoring in all that, it’s just [that] companies there’s quite a lag in terms of when to build a new factory, when to do something, they don’t just make decisions like this on an instant. 

Democrats are pointing to a few things. Back in 2018, the plant in Lordstown, Ohio GM plant closed, and they had been opening up some plants and other [facilities in] I think it was Mexico.  

That was a big deal to me because I actually used to be a newspaper reporter in Ohio, not Lordstown, but nearby very much… It’s an auto area where everybody’s life revolves around these plants. So that’s really a big deal when a plant like that closes.  

But again, you have to look at GM’s long-term plans, reasons that they are maybe shifting what kind of cars they make. And it just, it is a very difficult kind of issue to tease out of the data.  

Howard Telson: 

Yeah, one hundred percent. I think when folks think about tax and how tax drives decisions, sometimes tax could be a primary factor in the decision. But usually there’s a business reason for most, you know, large company decisions that comes first. And then, like you said, if all else is equal and the only differentiating factor between maybe two choices of where to go in a country is taxe, then maybe factor them. But typically the business decision really asked the traffic out here.  

Alex Parker: 

The part that often people forget is that the other country is going to have taxes too. So it’s not like the US is just in a world where there are no other taxes. It’s kind of interesting because the rhetoric they use to pitch the TCJA talked about how there was just going to be this flood of jobs as soon as they passed it. 

And Donald Trump, kind of in his usual style, he made a lot of big statements about the effect of the law, sort of implying that businesses are very responsive to taxes. But then the design of the law actually assumes the opposite. GILTI kind of assumes that your tangible assets are less likely to shift than you’re intangible. And so you have kind of that dynamic there of sort of different ways of looking at the tax system.  

Howard Telson: 

Yeah, completely. And I think the other element that companies have become wise to is, as the political landscape is shifting in Washington, they need to be careful through making decisions on passage of a bill that could change in four years or less. They need to be really careful on how those decisions are made, because if they made a decision based on that 2017 Tax Act, some of those provisions are changing here that could significantly impact them. And that’s why it really is key to balance the business decision with the tax impacts and how they can change in the future.  

Alex Parker:  

Anecdotally, I hear that very often, like maybe we do have money in a tax haven and it’s not profitable anymore, but we didn’t want to move it because we really don’t know what the situation is going to be in five years, 10 years, whatever.  

Howard Telson: 

Yeah, a hundred percent. And you know, along those lines, we think about looking forward to have the tax system is potentially changing—and the Pillar One, Pillar Two, the BEPS 2.0 initiative – making the taxation system as a whole on a worldwide basis, more connected.  

How do you think that looks kind of in the coming years? Where do you see the worldwide tax system going? Do you see a coming together?  

How do you see this kind of shaking out at a high level?  

Alex Parker: 

That’s a good question. It’s.. really hard to know [laughs] because there’s so much momentum with this, OECD project. But on the other hand, there are so many potential roadblocks, but I think it’s undeniable that the system is becoming more connected. You have more cooperation now than was even conceivable 10 years ago, 15 years ago.  

I think kind of the point I made in the article is despite all that, you still have this desire to have a carve out for substance, desire to be able to compete a little bit based on substantive investments. That part’s not going away, the kind of larger point that isn’t so connected with GILTI and what we’ve been talking about.  

But it’s just something that’s, I think, important – at Law 360, we did an article with Chip Carter who was an official treasury involved in the OECD discussions. And he said when you sit in these rooms with so many other world countries and they all want a bigger piece of the pie, they all think that they deserve more based on their workforce and based on their consumers; that there is going to be more, what they call source-based taxation. Source versus residence is kind of analogous to worldwide versus territorial, but there’s a lot of differences.  

So it gets confusing, but basically the principle that the system is going to become less dependent on worldwide taxation and probably a lot more focused on where our workers, where are sales, where are the real value drivers of economic creation.  

Howard Telson: 

Yeah. I think that definitely makes sense, you know: where where’s the economic engine of the company and how does that dictate taxation as opposed to kind of a more antiquated approach? That used to be kind of a really core concept when it was more of brick and mortar.  

Alex Parker: 

The US was always really lucky because we.. [laughs] we have everything! We have a lot of headquarters. We have a lot of the R&D stuff, like all those campuses out in Silicon Valley where they’re inventing these great new formulas. And we have almost one of the biggest consumer bases in the world.  

So we’re lucky enough that we work out every way, but it still affects us a lot: which of those things you want to rely on. And you have these emerging economies where more and more people are buying things and the internet allows them to be more involved in the global economy than they were before. And so that is going to shift things in terms of where the major tax bases are. 

Howard Telson: 

Now just to kind of wrap things up, we talked a lot about how things have changed and then how they’re potentially changing going forward with another batch of us tax reform and the potentially some global tax reform as well. Is there anything you would recommend that companies should be doing now? Obviously it’s a possible note exactly how everything is going to shake out. And then like we were just kind of alluding to before things could definitely be changing, you know, in a few years, things could definitely be changing again, particularly from a us perspective, but who knows, you know, the global scale there could be changes as well. So what would you kind of recommend companies be doing it at this point in time to kind of get ahead of some of this?  

Alex Parker: 

No, I’m not sure what to say other than, and I guess this is a little obvious, but just stay very focused on what these changes are going to be. [Also] that the world is in such flux, that it may be hard to base a conclusion and decide on a plan of action based on these changes. But definitely companies need to be aware of the nuances in these debates. And also I think it’s always better if you’re a company to make sure the taxes are not siphoned off into one little corner, which kind of used to be the way it was and that these issues are considered kind of in a holistic way throughout the company.   

Howard Telson: 

I think that’s so important. And you know, I’ve worked with some companies who are really good with that and taxes involved in key decisions, and they have a seat at the table, and they work with finance, and accounting, and operations… And then I’ve worked with companies that are very siloed and a lot of times, the tax firm will get blindsided. And they’ll say, “We didn’t advise on this. This doesn’t make any sense!”  

So I think that point is super important, especially as things are so fluid and changing it’s as important as ever for the tax department to kind of have a seat at the table on business decisions.