Musings on Multinational Tax: What to Expect From GILTI Conscience

Skadden, Arps, Slate, Meagher & Flom LLP

Intro (00:02):
This is GILTI Conscience, casual discussions on transfer pricing, tax treaties, and related topics. A podcast from Skadden that invites thought leaders and industry experts to discuss pressing transfer pricing issues, international tax reform efforts, and tax administration trends. We also dig into the innovative approaches companies are using to navigate the international tax environment and address the obligation everyone loves to hate now, your hosts, Skadden partners, David Farhat and Nate Carden.

David Farhat (00:36):
How's it going all. Welcome to GILTI Conscience. My name is David Farhat. I'm a partner at Skadden primarily focusing on transfer pricing, transfer pricing planning, and multi-country controversy doing comp and authority matters and APAs. Nate.

Nate Carden (00:51):
Nate Carden. Also a partner at Skadden. My practice is focused on transfer pricing, international tax, all things related to the operations of multinationals and the way they're taxed around the world.

David Farhat (01:03):

Stefane Victor (01:05):
My name is Stefane Victor. I am a first year associate at Skadden. Just graduated law school and about to be admitted to practice in DC and really excited for this podcast.

David Farhat (01:19):
Congratulations and last and definitely not least, Eman.

Eman Cuyler (01:23):
Hi everyone. I'm Eman Cuyler. I'm also an associate at Skadden in the DC office where I do different things, including a lot of transfer pricing, and I'm really happy to be here.

David Farhat (01:33):
Oh, thanks guys. We're the ones that are going to be doing GILTI Conscience. And on this first episode of GILTI Conscience, we kind of want to talk about why we're doing the podcast, what you here on the podcast and things of that nature. It's supposed to be a casual conversation for all levels. Yes, we want to let you know that we're good at what we do. We want to let you know, we know what we're talking about, but we also want to have a bit of fun and talk about transfer pricing, and enjoy what we're talking about. Especially now that we're in COVID. This is a good opportunity to have conversations we had in the past that we can't have anymore, talking after conferences meeting and just talking casually about what we enjoy doing. So please, I hope you're going to join us for a lot of these and have some of these conversations. So let me open it up to the folks and we can start talking.

Nate Carden (02:19):
Fantastic. One of the things you're going to hear is a lot of discussion, debate, and sometimes the opinions are going to be different than maybe what you're expecting people to hear. The goal here is not to advocate for a particular position or to represent a particular client. We do all that in our day jobs, but we're here to really talk about a variety of different topics that we're thinking about every day from technical stuff to career stuff, to where we think the overall profession is going. That's why we have a diverse range of people from very junior folks that are just starting out in their careers to those of us who have been doing this longer than we want to admit.

David Farhat (03:04):
Indeed. And you won't hear from just the four of us as Nate kind of alluded to, we would love to have guests on here. We want to have folks from the government, folks from industry, other advisors, just to talk about things, skate things around. And like I said, have a good conversation. One of the motivations for me doing this podcast is coming up in tax. I enjoyed going to conferences and I got more from conferences as I kind of mentioned before, having conversations with people afterwards and learning and getting a bit more and getting a bit more insight into practice. And I think this is a good place to do it. We know people who are in practice and we want to hear about it. We know people who are advisors and we want to hear about it. And as Nate also mentioned, junior folks want to get into it.

David Farhat (03:46):
I think we're in a fascinating time, especially around international tax and transfer pricing with all of the evolution you see, not just with the US rules, but around the world. BEPS has kind of taken over our lives. And we think it's here to stay. It's caused some confusion I think around the world, I think it's increased the potential for controversy. We're seeing MEP and APA become more of a regular conversation in international tax and not something that is a bit kind of boutique and left to specialists.

David Farhat (04:18):
So these are the conversations we want to have. These are the things we want to kick around. And please, if you come across the podcast, and you're in a place where you can comment whether it's LinkedIn or somewhere else, and you want to talk about something or even if you want to be a guest, drop a comment and we can go from there.

David Farhat (04:36):
One of the things I like about the current environment, we're in, everything thing seems to be new, if not new newish. With what's happening with the OECD with tax in the US becoming a bit more political, constant conversations about tax reform when we hadn't had these for decades prior. So there's a lot of conversation to have. And I think it's a good forum to have it. I actually can't really take credit for the podcast idea. In my previous life at EY, a gentleman named Saul Povich was the one that gave me the idea. He said, Hey, we should do a podcast. At the time, I thought it was fairly ridiculous. Why would I be doing a podcast? I'm not Joe Rogan, this stuff isn't interesting. But his view was look, the world's changing. People get their information in a different way. We have something interesting to talk about and he actually sold me.

David Farhat (05:29):

So I think this is a wonderful forum to have these conversations and to bring people in to talk about these things. I find myself talking to Nate, Eman, and Stefane every so often in kind of going off on a tangent about transfer pricing. And before you know it, the work you had to do, didn't get done. So you've got to spend a couple extra hours at night doing it, but you have the conversation and things become interesting. So on my side, that's really what I want to do with this podcast, as well as again, reach out to clients, reach out to practitioners and have some of these discussions and debates.

Nate Carden (06:05):
I think one of the hard things, right, having done this for a long time is thinking about how you're going to structure your career. How do you make choices about what paths to take, what paths not to take? And so a lot of the stuff that we're going to talk about is trends in the industry and trends in the way people practice as well as some more technical kinds of things and debates about particular issues as they come up.

Nate Carden (06:31):
So hopefully we'll be able to keep all this current and relevant to a broad audience of folks out there. But I will also say that I think it's really important that if people listening to this have ideas, things that they want to hear about articles that they read, that they're curious about, drop us a note, happy to talk about it. And we'll do our best to answer questions and have a live debate. I frequently disagree with David about a lot of different topics. He says that BEPS leads to a lot of confusion and uncertainty. I just think other people are wrong and I'm right. So we'll just go through it and resolve these debates in a fair and amicable way. Stefane, I got to ask you what made you choose to get into tax?

Stefane Victor (07:24):
And I was going to ask that question of you. So I've told this story a few times, my first summer at Skadden I had lunch with a retired partner, Fred Goldberg, and one of the first things I said to him of upon hearing that he had retired from the tax practice was I'm not going to join tax. Don't try and make me. And after having a great, fantastic lunch, he was extremely charismatic, I guess I reconsidered that. The thing that made me want to join tax though, along with that conversation with Fred was just in general at the firm people they kept saying, if I had another time to choose what practice group I'd be in, or if I could wave a magic wand and go back in time, I would have chosen tax.

Nate Carden (08:14):
You could create a full service, completely staffed tax department out of the people that have been influenced by Fred Goldberg. So I cannot say I'm in any way surprised by that. Eman, what do you want to hear about as the kinds of topics that are interesting to somebody that's actually been doing this for a little while?

Eman Cuyler (08:36):
I could think of a few things like the first being just like the current pandemic that we're in and like how COVID is really impacting multinational companies. For example, are they changing their transfer pricing documentations or their policies? I'm generally interested in that. And if you and David have any insight into that, I think that will definitely be very beneficial. And then another thing is just like David mentioned earlier, I feel like there is tax reforms all around the world, whether it's the United States, individual countries like in Europe, Asia. And I think touching up on that, I think that will be really great. And for listeners, some of the future topics that we're working on are going to touch on that.

Eman Cuyler (09:17):
And I think a lot of experienced attorneys, whether they're partners at firms, in-house and even clients, I think they can generally benefit from those topics. Yeah. So I think just how COVID is going to impact transfer pricing generally and just tax reform across the globe. I guess like a third thing is just that, how to deal with the current climate with increased audits and just general litigation and what you guys think about that. I think folks would be really interested in hearing about that, for sure.

David Farhat (09:46):
Now I think that's actually fascinating. COVID being a big topic I feel, and I'll put this in quotes "fortunate" from a tax perspective to have been practicing when we had the downturn in 8 through 10 and practicing now, and kind of looking at the parallels and looking at the differences and kind of having conversations with folks who have been practicing longer than I to say, look, it's a really unique time. And it's a really interesting time. One, there's job security because things change so much and that's always a good thing. But as a bit of a tax nerd that you're interested in this and you really enjoy doing this apologies. And as you said, Stefane that logic game of tax.

David Farhat (10:28):
I think we're in a place where a lot of things just don't make sense anymore. So having these conversations and talking about these things, as well as doing our day job, I think is fun. We get lost a bit sometimes when we're doing work in just doing the work and serving the client, or kind of writing the memo and not really stepping back and saying, what am I doing? Having that conversation about what's going on and thinking generally. Which I think is very help full when you get into your day to day practice.

David Farhat (10:59):
One of the things I really miss about working at the government, well, I think folks at the IRS do this really well, kind of stepping back and saying, let's think about this from a policy perspective. Let's think about this from an overall perspective. Having this opportunity to do this. And I think doing it with folks that are a bit more experience and folks that are new and having guests come in to talk about this, I think will be absolutely awesome. But Nate, as a veteran, what do you hope to kind of talk about or get from some of this?

Nate Carden (11:31):
Veteran is a very kind word. I appreciate that. You know, one of the things that I think is going to be a really interesting element of this is, is talking about the evolution of how tax practice and how tax rules have evolved over time. When I first started doing this, right, it would've been my greatest dream to have a transfer pricing question that I was working on appear in the Wall Street Journal. Now that is my worst nightmare. The public perception and the political focus on the way multinational companies are taxed is completely different. It's to me, the defining difference between where the tax practice was when I started my career and where the tax practice is today.

Nate Carden (12:20):
And so one of the things that I hope many of our guests will get into is not just the X's and O's of how the tax law works and how different countries are applying these rules. But also these background considerations, how tax and trade are getting wrapped up with each other. So if you look at the section 301 investigations that were a response to the digital services taxes that in turn are the driver of the pillar one effort, you can see tariffs on French wine, going all the way to a fundamental redesign of the way market countries get to claim income and get to tax companies around the world. And that is something that when I first started working on this, it was never even within anybody's imagination.

Nate Carden (13:12):
So, that is certainly something that I hope to get out of that. And I hope that we can convey to our listeners, to Eman and to Stefane and to other people that may be interested in this, just how rapidly this is changing and how dynamic a career you can make out of it.

Stefane Victor (13:29):
I have a question for both of you. Both of you in different ways of mentioned or touched on how the tax system now, where there's increased rate of reform now than there was when you started your careers. Is there a reason that you... Can you-

Nate Carden (13:46):
I think so. And I think that it actually gets to a question that I've been wondering about, and as you listen to this podcast over time, you're probably going to think that I just think about the same thing over and over, which is really where is income taxation as a concept headed, right? Governments have been raising money for four, five, 6,000 years. They've been using income tax it for 150. It's not like it's the only way to do it. There's lots of different ways to do it. But one of the basic foundations of the international tax system and the international income tax system in particular is the idea that the right way to tax people and the right way to tax business activity and the right way to tax companies is based on where are they doing stuff. Right? And that has been something that has started out as a governing principle, led to a lot of planning that planning led to a lot of responses and concerns that in a highly digital era, in a highly multinational era, that it just wasn't the right way to think about the underlying principles of what is a good way to raise money for the government.

Nate Carden (15:06):
And you can see that even in the BEPS project, which started in, in 2015 telling us that what we wanted to do was align transfer pricing with value creation. Six years later, it looks like we think that's not a very good idea anymore. That's why we have pillar one. We're not worried about where value is created. We're worried about where the customers are. We're worried about where the markets are. And so to me, part of the reason that I think you're seeing this acceleration of tax reform initiatives is that there is an underlying questioning/dissatisfaction with the idea of taxing business activity through an income tax.

David Farhat (15:46):
That's a great point. And if we can pivot a little bit, these conversations are great if we're having philosophical conversations or kind of the cocktail hour conversation. But we have to remember, this is real life for a lot of folks, and this is why I want to have guests on. You can talk about these things that just, this is what happened in the past. This is what we want to do. These are these policy discussions. But a lot of the folks we'll talk to, and even those of us on the podcast now, we have a day to day responsibility to deal with this. So you can think about kind of someone working in-house, how they look at all these changes and they're thinking, okay, I have a responsibility. I have to look at how this impacts my one client.

David Farhat (16:26):
And then you have governments who are looking at this, and they're kind of in the cat position of the cat and mouse game. Right? Am I collecting enough revenue? Am I doing what I'm supposed to do? Am I being faithful to my population? Right? Am I making people pay their fair share? And then you have us as advisors that are coming in and trying to balance all of this and have the conversation with folks and give our clients good advice.

David Farhat (16:53):
It's a push and pull when you're dealing with all of this, where sometimes you can have the conversation in a vacuum where you're having the kind of ivory tower conversation. That seems to make sense. But then when you get where the rubber meets the road and it gets practical, it's a completely different set of considerations. And I think when we start talking about controversy and we have something planned to talk about MAP, APA and multi-country controversy, I think you're really going to see that. You're going to see that they're kind of competing interests. And you have some folks who yes are aggressive, but you have other folks who just want to do the right thing from a tax perspective. And you have conflicting rules sometimes.

Eman Cuyler (17:34):
Completely agree with that, David. Following up on that as an advisor, what are some things that you think in 2022 multinational companies should consider moving forward to the new year?

David Farhat (17:47):
One, I think controversy preparedness. And I know as Nate mentioned, people will say, this is your OneNote, or you're thinking about the same thing all the time. And this might be my OneNote, right? And it's like, if you're a one trick pony, it better be a very good trick. And I think this is definitely a good trick going forward. I think controversy preparedness and controversy planning should be a big thing for multinationals. A friend of mine once said, listen, you may have consensus at the OECD, but you will have hundreds of interpretations of that consensus. You have kind of unilateral measures that may not align with that consensus. You have the implementation of that consensus. And then you have the exam team's interpretation and application of consensus and how it's been kind of refined through domestic law.

David Farhat (18:34):
And you have COVID that has created this need for revenue, because there's been a big spend by governments around the world as a result of COVID and they've got to collect, they've got to make some of that money back. So I think you're going to see more aggressiveness from tax authorities and I think more multinationals need to be prepared for that and they have to have a strategy around that. So I think that's one of the many things they need to think about going into '22.

Eman Cuyler (18:58):
Nate, do you have any take from a planning perspective?

Nate Carden (19:01):
Flexibility, flexibility, flexibility. You have to be able to be ready for the tax system to change on a dime. The fact of the matter is that if you had proposed something like pillar one in 2013, '14 or '15 as the BEPS project was going on, and as the rules were being considered, that ultimately gave us DEMPE and the action 8 through 10 report. The idea that we would then flip to purely destination-based concept as one of the pillars of international taxation, I think would've struck people as crazy. And yet here we are. And the same issues happen at the US domestic level, right? Five years ago we had a radically different international tax system than what we do today, which may be a radically different international tax system than what we have in a year. And so you have to constantly be thinking about how is the planning that I'm doing, how are the structures that I'm creating, aligned with what my actual business objectives are and nimble enough to deal with tax rules that may actually evolve faster than my business is evolving.

Stefane Victor (20:25):
And I think I know the answer to this question, but would you say that tax reform or changes to the tax code are something that brings you excitement at different stages of your career? Is that an exciting idea or is it something that makes you [inaudible 00:20:43].

David Farhat (20:43):
It depends on how you define excitement. If you like working on Christmas and that's exciting then yes. Tax reform will do that to you. Because several Christmases I've had to work as a result of tax reform or new regs or something along those lines. But all jokes aside, as a bit of a tax nerd, you're exciting. Like what's going to happen. And then your reaction to the reform sometimes is, oh, this is great. Or most times, oh this is horrible. What are they thinking? But yes, that's exciting and that can be fun. But as I said to a client once, these changes cause a lot of stress for you, but they pay the bills for me. Right?

David Farhat (21:22):
So it's a different perspective. So I think that's a good question to ask as we have various guests come in, government folks, people from industry. How do you feel when you see tax reform? I think a lot of tax people, especially I think in the in-house community, they like when things stay the same, they like when things are constant because you know what's coming. And I think some folks in the advisor community may like it when things are it up a bit, because then it gives you more to talk about and more to sell. So there are competing interests there, and it depends really on how you define excitement.

Nate Carden (21:58):
I have one tax reform left in me. That's it. If we get this one fine, I'll deal with it. If there's another one, goodnight, Charlie. It's over. I am tapping out. The one thing I'll say is that tax reform makes it interesting as a leader, as a coach, as a mentor to people that are coming up through the system and just beginning to build their tax career. Because something that may now seem obvious, but wasn't obvious to me in 2017, was that the creation of a new system created the opportunity to learn with junior people a whole new way of thinking about things.

Nate Carden (22:47):
Ten, 15 year ago, the way I thought about transfer pricing, the way most people think about transfer pricing was completely different than the way that we think about it now because of evolution in the law, because of the changes to the overall US international system and the changes to the global tax climate and the opportunity to learn that with people who have 20, 30 years left in their career, who aren't coming to it with all the baggage that I come with really has been a source of excitement for me.

Nate Carden (23:25):
And the process of seeing people understand why a system works the way it works. What are the underlying rationales for the words that they're reading, I think is creating frankly, a great generation of tax advisors. You know, not only will I be too old to be doing this in 20 years, but there will also be a generation of people behind me who are going to be absolutely tremendous. And the opportunity to work with them early in their careers has been a pleasure. And so in that respect tax reform is great. Working on Christmas, not so much.

David Farhat (24:04):
Any other questions, comments as we're kind of doing this intro episode?

Nate Carden (24:09):
I do hope that folks listen. This was an introduction to us and how we think about things. Going forward, we're going to have a lot of topical podcasts, hopefully great guests, government speakers. And again, if people have suggestions. things that they want to hear about questions that they have, our executive producer, Eman, will also bring topics to us. Things that she's thinking about. Feel free to reach out to her and get her to ask us some questions.

Outro (24:41):
Thank you for joining us for today's episode of GILTI Conscience. If you like, what you're hearing, be sure to subscribe in your favorite podcast app, so you don't miss any future conversations. Skadden's tax team is recognized globally for providing clients with creative and innovative solutions to their most pressing transactional planning and controversy challenges. Additional information about Skadden can be found at