INTERVIEW: Anne Gordon

Anne Gordon is vice president for international tax policy at the National Foreign Trade Council, a business association which advocates for an "open, rules-based global economy." She previously served as chief tax counsel for Senators Rob Portman and Todd Young. We spoke on May 22.

There's been so much discussion about Pillar Two, but it's pretty clear it's not going away at this point. And I'm kind of curious, where do you think that leaves us, in terms of what's going to be happening in the future? And what are companies doing to adapt to that sort of inevitable future?

I think it going away is wishful thinking. Maybe certain aspects of it will change. I think the future of the [under-taxed profits rule] is a little more uncertain than the rest of Pillar Two. Certainly, Pillar Two is in place in Europe, Australia has put out legislation, Singapore, other countries in the world. It's something that is certainly here. And companies need to comply with it, and most of my members are working to comply with it. However, if the United States is not Pillar Two compliant, and these safe harbors run out, they're going to be in a very tough position. And it's going to be a competitive disadvantage for US companies.

Because their competitors are based in jurisdictions that are compliant, they're going to have less to worry about in terms of the [income inclusion rule] and the other taxes. They'll have a safe harbor, basically.

I think you've got the safe harbor, I think you also have, the US tax regime plus the Pillar Two tax regime. And then you have, depending on how you're structured, especially once the UTPR safe harbor expires, then the R&D credit comes back into play, and the nonpreferred tax credits. Even with the [Inflation Reduction Act green energy] credits, which are favored by Pillar Two, certain companies are making investments such that it could put them below 15%, even with the fraction that results there. So I think there are a number of things. Also, it's a revenue loser for the United States, if we don't do anything. I guess it's a choice between losing some revenue and losing a bit more revenue.

That's a really interesting point about the IRA, because I do sometimes make a point to remind people that it's not totally protected, because it does count as income. And I know that those credits are just huge. So for some companies, even though it's not the way it would have been otherwise, it's still so much that they're getting under the 15%.

Some companies have communicated that they could be under 15%, yes.

And do you know what they're doing to try and deal with that? Are they just prepared to pay?

I think they're trying to figure out what solutions might work. I also don't think that's a great look where Congress gives incentives, and then you pay that in tax to another jurisdiction.

So in a similar vein, we're waiting for Pillar One text. But there's a lot of people who are pessimistic about that, and are preparing for a world where digital services taxes are a permanent feature of the landscape. What's your feeling on that?

We certainly don't want digital services taxes as a permanent feature of the landscape. It's May, we thought we were going to see text in March. There was supposed to be signing in June. Clearly, things are being worked on. I think that's a positive thing, that the OECD is still discussing, especially some of the issues that came up during the U.S. consultation.

I think that we probably won't see this until June, possibly even later, because of the number of technical issues, and the concerns on Amount B–it being mandatory is something that's a priority for the United States. But other countries are pushing back pretty hard on that. And then there are some other concerns that have been in the footnotes, and I'm not sure which of those have been resolved or not. But there are a number of really technical issues the OECD needs to work through, and getting consensus on those might be difficult.

It was a little surprising to me that the Amount B issue has ended up being such a sticking point. I knew it was important for the U.S. But I didn't quite see that as something that ends up blocking the whole project.

I was recently in Australia, and the Australians are pretty dug in that they are very comfortable with their transfer pricing benchmarks, and they do not want a mandatory Amount B. They seem to think that it's only for developing countries. Whereas, I think the reduction of disputes in transfer pricing is a goal that we should all have. And my members would even say that we should expand past Amount B to services and digital goods.

So you recently spoke at the United Nations, for their new tax initiative. This new tension between them and the OECD, how do you think that's going to affect things moving forward.

I'm not sure how new the tension is, I think it's just finally become more public. It's certainly a motivator. I think it's pushing the OECD to act. I'm sure there are some concerns that if they don't act, the UN is going to come in and push.

But I think even with the OECD acting, or the even with the OECD putting forth the [multi-lateral convention] text or other final things, there is a concern among developing nations that the OECD does not go far enough. And some of the tax principles they are putting forward are troubling. There are some very legitimate concerns about how technical the Inclusive Framework is, some of the unique situations and challenges that some of these nations face that do need to be addressed. But there's also a desire for revenue. And some of those desires for revenue are not within the norms of taxation as we would see it. Things like gross basis taxation are something that that some of these countries are very comfortable with, and it's something that we would see as highly problematic. That's going to lead to double taxation, maybe even triple taxation, and increasing prices on consumers. As well as companies choosing not to invest in certain places, if that's the path that they're gonna take forward.

Are there any issues that are kind of under the radar now, that you think might become a bigger deal in the future, as all of this other huge stuff is happening?

I think the biggest thing is the dispute resolution mechanisms. People talk about that, but I really do think that is a gigantic challenge, in that we're developing a new system. Under Pillar One, there are potentially new taxing rights, and if there's no dispute mechanism, it's going to be very difficult for countries and companies to get certainty and to resolve disputes.

In that vein, I think it's agreed that this is a very chaotic environment compared to almost any other time. How are companies responding and dealing with this unpredictability?

There's been an investment in compliance resources. I think there has been increases in folks' tax staffs in some companies. In other companies, I think they're doing the best they can with the resources they have, but it clearly puts a strain on the system for them. Especially because a lot of these new taxes or new requirements are really a request for more information, which doesn't always come with an increase in associated tax. So you really are seeing compliance costs increase, with little or no increase in taxes paid.

The [Pillar Two global information return] just asks for a lot more data that companies hadn't distilled before.

Contact the author at amparkerdc@gmail.com.