In this episode of the GILTI Conscience podcast, Loren Ponds, Member at Miller & Chevalier in Washington, D.C., joins our hosts to share an overview of the tax legislative process. She discusses the outlook for current tax bills moving through the house and how changes and feedback are incorporated.

Over the past two decades, most of the major tax legislation has gone through a reconciliation process where the bills start in the house. The review procedure includes a scoring process to ensure the bill will not increase the deficit before it can be passed. 

Feedback also plays an important role in shaping the final version of a tax bill. Bills can be improved by inviting taxpayers to share the real-world implications of a change. In addition, asking the advisor taxpayer community to share critical feedback, with a clearly defined scope can be very helpful. 

Predicting all of the fact patterns that might apply to a certain bill is impossible, but collecting feedback can help anticipate more of them, making a bill more comprehensive before it is passed. 

Tax bills are gaining in popularity and controversy thanks to increased coverage from the media. This means more attention is given to how politicians approach tax legislation. This attention often focuses on how both sides of the aisle collaborate on tax policies that are easier to agree on, such as international tax provisions.  

So how does this affect current legislation and how will Congress review the Build Back Better Act amongst the many pressing issues on their agenda? 

Episode guest Loren explains, “There are a lot of other things that are on Congress's agenda besides tax. That said, the Build Back Better Act has some spending provisions that are a very high priority to the current administration.”

💡 Featured Guest 💡

Name: Loren Ponds

What she does: As a Tax Member at Miller & Chevalier, Loren centers her practice on providing strategic counsel to clients on legislative, regulatory, and other tax policy issues, as well as advising on technical tax matters related to transfer pricing and other international tax topics. She also co-hosts the podcast tax break with her colleague, Steve Dixon.

Organization: Miller & Chevalier

Words of wisdom: “When there's legislation on tap, if you are adversely impacted by the provision, make your position known. It may not change the outcome, but at least you're participating in the process.” 

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This is GILTI Conscience: Casual Discussions on Transfer Pricing, Tax Treaties, and Related Topics. A podcast from scattered that invites thought leaders and industry experts to discuss pressing transfer pricing issues, international tax reform efforts and tax administration trends. We also do 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.

How's it going all. Welcome back to GILTI Conscience. As usual, I'm joined by Nate Carden, Stefane Victor and Eman Cuyler. We have a great episode today. We're going to be joined by Loren Ponds and I'll let her introduce herself and also tell us a bit about her podcast so you guys can take a listen to it as well. But I'm super excited to have Loren on today. Hopefully she can come back and do a couple more episodes with us. So that being said, I'll throw it over to her to introduce yourself.

Thank you, David. That's a hard intro to follow. I am a tax member at Miller & Chevalier. I focused my practice on international tax and tax policy. Before I joined Miller, I was a tax council for the majority staff of the Ways and Means Committee in the United States House of Representatives. So I worked on the tax cuts and jobs act, the international provisions of that bill, which was enacted in late 2017. And before that, my prior life, I was a transfer pricing practitioner at EY National Tax Office here in DC, working largely on controversy, Transfer Pricing Controversy, APAs and also restructurings and IP transactions. So that is my career in a nutshell, I'm sure I could go on but I'm going to stop there and let this podcast proceed. Also, oh, speaking of podcast, I do have my own, it's called Tax Break. It is available on Miller & Chevalier's website and also on YouTube. So check it out when you have some time.

Well Loren, thanks for coming, thrilled you're here. As everybody knows, I am from Chicago. I am not a DC person. We have different ways of solving our interpersonal disputes in Chicago than how DC works. I'm not therefore a legislative person. I have however seen Schoolhouse Rock!. I know how it's supposed to work. And I got to say, I look at something like TCJA, it doesn't look like the happy little bill that comes out with a ribbon on it at the end of the episode. So what happens? Tell us about the tax legislative process.

And I am a little disappointed we're not allowed to sing the Schoolhouse Rock! song.

Well you know, copyright.

Yeah, we cannot afford that kind of rights payment. So let's not infringe anything.

I'm not even going to try. Not even going to try.

Were just a small little podcast here on a shoestring budget. So the Schoolhouse Rock! depiction of how bill has passed is true. Unfortunately or fortunately, depending on your point of view, tax legislation in the last probably two decades, let's say, roughly has been through a process called reconciliation, or I should say most major tax legislation has gone through reconciliation process. And so that exercise is named bipartisan, but the general rules still apply. So all tax bills have to start in the house. That's in the constitution, the origination clause. And so if it's a reconciliation bill, that means that largely, the Ways and Means and Senate finance staffs of the party who is in charge will be the responsible for putting together the contours of the bill. So that's what happened with The American Jobs Creation Act of 2004. That's what happened with ACA in 2010. That's what happened with TCJA in 2017. That is what Democrats hoped to impact in with the Build Back Better Act of 2021, 2022 depending on how things go this year.

Interesting. And so maybe talk a little bit about just for those like me who don't know all these. The reconciliation process also involves that magical black box that we call scoring. Can you tell us a little bit about the relationship between the reconciliation process and how bills get scored and the impact of that?

Sure. So reconciliation bills are subject to some special rules, bird rules or you may hear re reference to those. So one is that outside of the budget window, so in TCJA context, it was 10 years. There cannot be an increase to the deficit. So everything has to balance out so that when the budget window is over, there's no addition to the national debt. There are other rules around reconciliation bills having to do with the substance of provisions that are included in the bills. So they have to be, there's geminous requirement. There are certain provisions that maybe have tax elements, but can't be included in a reconciliation bill. So most often cited are social security taxes can't be touched in a reconciliation bill. But everything else, almost everything else is pretty much fair games. So you will see in the tax cuts and jobs act, all the provisions mostly relate to individual taxation or business, international and domestic.

And that is how it has to happen. And so when you talk about scoring, those numbers are extremely important because of the deficit rule. And so everything has to kind of balance and in TCJA for example, there are provisions that sunset toward the end of the budget window, and that is to conform to the restrictions on adding to the deficit. So in a nutshell, that's what it is. Build Back Better is a little bit different. They have the same considerations in terms of the deficit, but right now the status is really undeciding what the spending provisions will be. And so of course the scope of the spending informs the scope of the tax revenue razors that you need to cover the amounts of money that you want to spend. And so if Build Back Better is to be revived in some new form and it has as anticipated a more limited scope of spending provisions than necessarily the amount of tax that would need to be raised to balance the bill overall would also shrink.

And how is that impacted or how is the scoring impacted by let's say, a technical correction say at bill. In other words, does technical corrections on TCJA also have to get separate scoring or is that a different process?

Well technical corrections are understood to generally not affect the score because they're effectuating the provision as it was meant to be effectuated in its original form. So in theory, technical corrections don't score anything. At this point, we know what the revenue outcomes of a lot of the TCJA provisions were as compared to what was projected. But I don't think that that should have necessarily a bearing on whether or not those... The bill has passed so what the revenue implications are of TCJA, they are what they are, but it passed and as passed, it balanced. And the same will be true for Build Back Better.

Actually is this something I very much wanted to ask you about, do the scoring people get a report card? Does anybody ever say, "Hey you said this was going to raise X and the money never showed up." How does that work?

No, they don't get a report card. So JCT Joint Committee on Taxation is responsible for scoring legislative measures. And you might have also seen scores coming out of The Congressional Budget Office for proposals. But in terms of the bill going through the legislative process, joint committees score as what controls and they do a really good job. They work really hard and they were a great partner to have in the process, really, really smart people, both economists, lawyers and tax accountants who are extremely bright and very, very technical. And it would be impossible to pass anything without them, especially from my point of view for tax legislation. But yeah, once the bill goes and once it's enacted, we can look back and say, "Oh well, it didn't raise what we thought it was going to raise."

And it's not a science, it's an art. And JCT of course, has access to taxpayer data, but they're also trying to predict behavior, which as we all know is very difficult to do. And so they're trying to predict taxpayer behavior, not in isolation. So there's a provision, but they're looking at the bill or these provisions in tandem with not only each other, but existing tax law. And so trying to think about how are these changes or these proposals going to impact behavior vis-à-vis what's in the bill itself and also vis-à-vis, what tax laws exist and aren't going to change. So it is not an easy task.

So on that, if you can give us a look into the influence from the taxpayers industry, as all of these things are coming down, as you guys are asking for comments, how some of that handled when you're going back and forth.

So I can only speak from experience for TJA, but we certainly invited taxpayers to come in and give us real world impacts of these proposals. And that started before we released the bill in committee and went all the way up through until really almost the end of the entire process. And so taxpayer feedback is essential to kind of the process, I would say, because thinking about policy and how we think the role should operate or will operate is very different when faced with taxpayer specific fact patterns. And of course, we can't anticipate or envision all of the different fact patterns that might exist out in the world. And so it's very important to have that feedback that says, "You thought that this is a good metric or a good way to measure something, well, in reality, it doesn't work."

Or, "You think that at the impact of this deduction is small. When in fact it is quite large and here's why..." Or, "If you change this limitation, here's the impact to our business." So all of these things are important. It's important to... That is our legislative process in general, not just with tax, we hope for those impacted by the rules that are under consideration to... we hope for their input and their assistance in the drafting process. And I think honestly, it's a better result when we get that kind of input. And I know that during TCJA, there were a range of emotions, like some tax payers were just like, "That's never going to happen." And so we heard a lot of feedback in January 2018, but you know, the bill passed in December 2017.

So I would encourage anyone who, when there's legislation on tap, whether you think it's going to pass or not, if you are adversely impacted by the provision, to make your position known. It may not change the outcome, but at least you're participating in the process. The place you don't want to be is a bill is up for consideration. You know that, you don't give input because you think that it's not going to pass or it won't affect you or you haven't really done the due diligence to figure out how it does affect you. And then it passes. And then it's much more impactful than you might have imagined. So I would encourage taxpayers to participate.

And you talk about getting all the comments in January. And I must say I was amongst a lot of the folks making some of those comments, whether they got to you or not, I don't know. But I think a lot of us understand the frustration from the advisor taxpayer community, when these things happen. If you can pull the curtain back for us a little bit and share with us some of your frustrations, what frustrates people on the hill are folks up there that are actually doing the drafting when we're looking at this thing. So you get this storm of, we'll say, complaints in January, what are some of what you're feeling or saying, because I can kind of hear a little bit from what you're saying like, "Listen, you should have said something before you had a shot and didn't," but what are some of the frustrations there?

Well, I'll start with what would be ideal instead of what is not ideal. So what is ideal? I don't mind critical feedback we're not... I can only speak for my own experience. So there was nothing personal about feedback. So don't be afraid to be intense with your criticism. Don't hold back. But at the same time, I'm for a solution. So it's great if you want to come and complain for 30 minutes and tell the tax writer, the staff, how terrible their idea is and how it never is going to work. And here's why it's awful. And then wrap up and say thank you, that's fine. But that's not really... that's not something that they're going to really take away. Like what do I do with that? I know you don't like the provision, but how would you make it better?

I think avoiding what I call chicken little prognostications, like the impact of this provision is going to bankrupt my company or if this is passed, we're going to go out of business or... that's really not helpful. It's much more helpful to say something like, "The impact of this provision is material to our business." That gives me a sense of scope or, "Here's where we were before this proposal and here's where we would be after. Here's the impact on our business. Here's the impact on our ability to hire folks, keep them employed, things like that." So constructive feedback is what I'm trying to convey here is most effective.

So you're saying the email I wrote with all the cussing wasn't helpful?

Straight into the trash.

Okay. Spam filter but the-

For taxpayers Loren, once there was a proposal, ideally, what is the timeline to start the engagement process?

It depends on the process itself. So TCJA, a lot of criticism was that it happened very fast. I will say that a lot of the components-

No.

... of TCJA were prior, provisions that had invented like Camp One and Two, Green Book proposals, I think from an international tax perspective, the only thing that was brand new in TCJA was The BEAT. Everything else had been floated.

I think one of the hard things for a lot of us is about TCJA was it's really hard to rewrite essentially all the international provisions of the internal revenue code in six weeks. My sympathies, not an easy task. And-

But I'm saying we didn't start from scratch is my point.

You didn't start from scratch. I think one of the things that I'm curious about from a feedback standpoint is how much do you hear from taxpayers, the representatives, whoever, interested parties about what I'll call the policy wisdom, right? "If you do this, you will cripple my company and destroy America," versus, "Hey, you wrote this provision and now that I sit and look at it, I don't think it's trying to do what you want it to do. So why don't you say this instead?" How does that piece of the feedback work?

That works in the same way? And that's constructive feedback. So if you come in and you want to get to Roman at three with us, let's do it. I think that those are the fun meetings, the really constructive meetings, the ones where we can say, "Okay, we see your point. This might not align with the policy or what the members hope to achieve," but we could also be of the view that actually your articulation of what you think our policy is, isn't quite right. And maybe what you're proposing doesn't effectuate the change in the way that we want it to be effectuated, or maybe it does.

I mean, it's a conversation. It's not a one way, "Here's what we think you did wrong. Here's our solution." And they disappear. We do this work in consultation with JCT with our counterparts in Senate Finance, with folks at Treasury. So it's not like a vacuum where it just kind of goes into the Ways and Means Committee drawer, we never see it again. Of course, there are some ideological differences around the margins on between Ways and Means and finance, and you see that there was no BEAT in the Ways and Means Bill, but that's part of the process.

So I was going to ask about competing interests or competing comments. And I think you might have touched on this. So is it, how do you weigh competing interests and how do you take the constructive comments and decide which direction to follow?

Well, I mean, I said this all the time in the hill, we work for members. It's not up to us what the policy is going to be. And so ultimately, the policy has to be reflective of what the members hope to achieve. So Ways and Means Committee, members of each house read large in what the leadership hopes to effectuate through the changes to the code. So to the extent, the constructive feedback, even if it's thoughtful and the points they make are correct, if it's not consistent with what the members hope to achieve, I would say that there's a very low likelihood of seeing it work its way into the bill.

And what about those of us who felt The BEAT was a personal attack?

Well, why would you feel like it was a personal attack, David? It doesn't even say your name.

How much time do we have?

Just let it all out. Just... Yeah.

This is a group therapy session.

That's not why it's defined. That's not why.

You know, it's only been what? Four years, move over four years. So are you hoping for the shields instead? I'm going to pivot to Build Back Better.

Oh, what's the word? What's the old saying the devil you know...

Better the devil you know than the one you don't.

Than the angel you don't. But I'll leave that one at that.

So I'm hear, a BEAT proponent. Yes.

That will be the day when we hear David advocate for The BEAT. Maybe one thing that you could tell talk about before we switch over to Build Back Better and kind of how you're thinking about that is, can you put this into the overall political process for us? I mean, obviously, one of the things that is strange at least at the outset is, "Hey TCJA, we got to do it really, really fast." As I've said before, the constitution gives a party two years when they control both chambers and the White House to do what they want to do. That obviously is not practical, but just within the tax writing process, how does that broader political cycle play into it?

Well, it certainly does compress the timetable and so we see this every time there was a reconciliation bill, we know that midterms are coming up now for later this year or later in 2022, which certainly is impacting what people might view as the unlikelihood of BBBA passing sometime this year. The conventional wisdom is you go in the year immediately following the changeover, so ideally, it would've happened in 2021 because they have the whole year. You also have budget constraints. So this is budget reconciliation, So after 9:30, the end of the fiscal year, it's impossible to pass a reconciliation bill.

So in the second year in that we're looking at midterms, you've got political calculations, regardless of the party that's in charge, you have to be concerned with midterms. You also have a September 30 deadline because of the budget constraint. Closer you get to November, less likely as the conventional wisdom goes, members will be to pass a tax bill depending on its contents and how it might be viewed by voters. So that is the calculus and that is, as you note, a feature of our system. Like the two year turnover rule is not really going to change. And it's also conventional wisdom that the party that wins the presidential election will lose in the midterms two years later, it's just kind of a natural, just the way it goes, at least in the house.

So then I guess, one of the things I'm curious about because you mentioned the 2004 Act, American Jobs Creation. And one of the things that I think is going to be an incredibly naive comment, but intentionally so is after all the battle of reconciliation happens and the people that are in the minority party are grouchy about the fact that this was done on a reconciliation basis, one could imagine a mentality that says, "Okay yeah, we lost that political fight, but fundamentally, we want the law to work properly. And so let's do a Technical Corrections Act." Didn't happen with Affordable Care Act. Didn't happen with TCJA, has that changed or has there never been a willingness on the part of everybody to just do a technical correction so that at least what past works?

I think that it has gotten more of a contentious prospect to think about passing technical corrections after a reconciliation bill for tax provisions. I remember earlier in my career, technical corrections were not necessarily controversial and now I would say the substance of technical corrections is still not controversial. It's just the process around them. And so to your point, the non-controlling party might be a low grouchy. Awesome. And so that manifests in a refusal to go along on the technical corrections front sometimes. That certainly happened after TCJA.

If you'll bear with me to go on a bit of a tangent on something we talked about on an earlier episode-

Were not going to get rid of BEAT.

No, I'm not going to advocate that. I've got my T-shirts, I didn't wear it. We're good. We had a bit of a conversation before about how tax is now a bit of a political hot potato. It's on the news and more, transfer pricing particularly. What are your thoughts on that? How do you feel about that as a practitioner? Just to kind of... something we did that seemed to be so obscure before now being kind of front and center.

Yeah. I think that's a really, really good question. It's taken... I can speak from my personal point of view, which is that I think international tax provisions particularly, or probably what I view, is they should be kind of non-controversial. Because I think both parties will agree on the basic tenets of international tax. How you effectuate those tenets, they may disagree, but overall, all politicians, both sides of the aisle will advocate for things like American businesses being competitive overseas. We don't advocate for a double taxation. Things like that. And so we don't-

Are we sure? Given recent news?

Oh, come on now. She's just chumming the water now. That's not even fair.

Loren and I have known each other for a long time. I doubt that was unintentional.

So things like these basic concepts, I don't think of them as controversial. I think people like to make TCJA political, but certainly international provisions came from a variety of places or had their Genesis and thoughts that were put forth in Obama Green Books. I mentioned the camp one and two drafts. So those are examples of, if not bipartisan thought, two sides of the aisle putting forth ideas that were generally thought of as good ones, some kind of minimum tax GILTI, things like that. Limiting interest expense deductions. And these are also ideas that came out of OECD for PS 1.0. So these are, I think kind of generally agreed ideas, limiting base erosion, not loading subsidiaries with interest expenses and deducting it. These are not foreign concepts, pun intended, and they're not... I don't think that they're particularly controversial in isolation, but because the process is through reconciliation, it has been for the last several years, that makes it political. And so everything becomes a politicized conversation.

Well, without GILTI, there'd be no GILTI Conscience. So we can't complain too much, but-

That's right.

I'm curious as to what do you think happens, maybe transitioning a little bit to Build Back Better and asking you to dust off the crystal ball a little bit. What, and also, maybe tell us what's the relationship between Build Back Better and some of the technical corrections that I think everybody recognizes, would maybe make TCJA a slightly better crafted product?

Well, I haven't revisited the technical corrections draft from 2019, that Ways and Means my former committee put out. I think that... Well, let's go with BBBA for a minute. As I mentioned, we all know the timeline is pretty compressed we're in the midterm year. Here it is already, middle of February. We also know that Congress has some other things on its agenda besides tax. Like I don't know, appropriations. There's a Supreme court nominee to deliberate over. I read the other day, there's talk of addressing the violence against Women Act that expired a couple years ago. They just passed a bill to fund the post office. I mean, there are a lot of other things that are on Congress's agenda besides tax. Now that being said, the Build Back Better Act has some spending provisions that are very high priority to the current administration.

So it's really, I think, a matter of them getting together and negotiating what this revised package looks like. And as far as I know, those conversations haven't gone very far. So I would say that right now, we're in the same posture that we were in at the end of December 2021 when the bill collapsed at that time. But there's no prohibition on them. Starting talks again and coming up with a slimmer package and passing it. They still have control. They still have a little bit of time. But I do think as the year goes on and the legislative calendar gets into by these other priorities, of course, the prospects get dimmer and dimmer. So it's really it's up to the lawmakers to get together and pull something together. Whether that happens before September 30, my crystal ball is currently out of commission. So I can't say.

Fair.

It's tired. It's been working over time.

Interesting. Suppose that nothing happens and putting sort of your current role more to the front of the discussion and thinking about this, some of the things that the treasury department and OECD are trying to do with the pillars. At the risk of asking a overly controversial question, might seem to me that the treasury department was pretty far out over its skis. In terms of where we are with respect to the pillars, what happens if Build Back Better doesn't get passed?

Well, I think that we're going to have to start thinking about some other vehicles to look to pass the changes for GILTI that are going to be required for that regime to be deemed consistent with the income inclusion regime under pillar two. And when that happens, what that vehicle might be, anybody's gas. But I mean, it does have some really serious implications for what's happening on the OECD side. And I think as American tax practitioners talked a lot about GILTI coexistence and as long as we get this, everything will be good. But I think even with GILTI coexistence, there are based on the model rules that came out the end last year, some new novel and complex issues that have been presented, even if we had GILTI coexistence. So without GILTI coexistence, I think all of those issues are exacerbated obviously, but even with GLTI coexistence, we might have some issues. And that's another podcast, another at least hour of talking about all of the intricacies of these rules.

You're always welcome back. You're always welcome back to have the conversation.

Totally. I mean, honestly, I do think that the GILTI coexistence issue is not going to go away and we're going to have to figure out when we can legislate to get that because without it, it's a really burdensome prospect for US multinationals to have to face.

Right. I will note for those who are just listeners and not on video, that Loren gave me a very stern look that when she said, "When this happens," so it's going to happen.

When. I mean, when. Yes. I do think it's a when not if... just the when is the huge question. I don't know when it would be, but the need for GILTI coexistence won't go away because we weren't able to pass these conforming changes this year or last year.

And Nate, without GILTI, we could have been the BEAT goes on as well.

Wow.

But that would've been lot of trauma from [inaudible 00:32:33]. Wow.

Or David on The BEAT.

Oh yeah. Satisfied his-

We would have been a one person, no guest podcast.

Yeah. Lot of victory you ll.

And man, you look like you've been trying to get in the game.

Well, I guess I will get in the game now. Loren, what are some of international tax reform proposals that you're excited about? And what are some that you're not so excited about?

Oh, I wouldn't say I'm excited or not excited about any particular one. What I am excited about is that the conversation is continuing. Like this work is never done. And so it's always fun to look at what's on the table, figure out what these changes are, vis-à-vis what its existing law. How will it impact my clients? The overall framework that we're trying to put into place with regard to our international tax system. Does this make sense? Is the system holding together? What's happening rest of the world? What are people doing? Folks are trying to move toward a, some kind of, DST or delayed implementation of a DST while they wait for pillar one to come into being. This is all fun to me. I think it's really interesting to see how our rules work in isolation.

And then of course, since nobody is really operating in isolation, how our rules work in tandem with what's going on in the rest of the world, what's happening with treaties? How might treaties evolve if this pillar work advances? What can we do? Like what is dispute resolution going to look like 20 years from now? So with every new proposal, come new challenges and new things to think about and new ways of thinking. Changing our ideas about what we can all agree on in terms of international tax. What are the tenets that we're going to be all coalescing around in the 21st century? Because it's going to look different than what it looked like in 1900.

See Loren with a far more positive view on tax reform and things than Nate had when we asked him that question.

Nate. Nate, well I always say-

I have one. I'm telling everybody, listeners know I have one left in me. So let's make it a good one.

Make account.

One tax reform. That's it.

One experience. I was saying yeah, one more experience of living through tax reform. And then you're done. So does the OECD process count? Is this going to be your last?

No, it's-

Good.

No, I sort of lump all that together.

Oh, thank God. Good. Thank you.

It's going to be all right.

It will be all right.

It's going to...

It will be. This is, I always say, I like tax, I like what I do obviously on its own. But I also say, it's just money. Like it's not life or death.

There you go.

Nobody's dying over here. It's tax. So it's good.

Death and taxes, that you go together.

Yeah. And that you can't escape either one.

Right. Especially with two more tax reforms, then death and taxes will definitely go together for me know.

[crosstalk 00:35:47]something all right. You just have you're not concurrent.

Exactly. Yes. What to ask you about treaties. You just mentioned treaties. Feels to me like they don't get the attention and coverage they deserve. And just to throw out a controversial statement. It feels to me like a lot of what we're doing now, particularly on the OECD front, is really a substitute for dissatisfaction with the treaty network. Agree, disagree?

Can you expand on that?

You know, it seems to me like we have a set of treaties that have evolved over time. We have provisions that prevent withholding. If you have a treaty partner on the other side. Used to be the case that we said, "Hey, we entered into this treaty with this country because we're satisfied enough with their tax system that we don't feel like we have to withhold on our end." Now roll the clock forward to pillar two, we don't like that anymore. You on the other side, you're not doing that, you're not doing what we think you should be doing. One solution should it just be, get rid of or renegotiate the treaties so we can withhold. And instead, what we've done is we've created a big multinational apparatus for what feels to me like we just don't like the treaties anymore.

I think I see your point. I think that what we don't like might not be the treaties, but just the overall taxation mechanisms that countries use. Not necessarily withholding, but the idea around the minimum taxes that companies, taxpayers can kind of pick and choose where they're going to be and manage their ETR by incorporating some low tax jurisdictions into their structure. Whether or not we could ameliorate those perceived abuses through an expanded or strengthen treaty network, I'm not sure. But I think this is bigger than treaties in some ways. The OECD work is bigger than treaties because countries have decided that's that. And it was kind of a slow merge. Like maybe a decade ago, people were talking about stateless income and then we got to BEPS 1.0, so tightening up rules about interest expense deduction or implementing CFC regimes or looking at hybrids, or all kinds of things that we felt were ways of eroding tax base or artificially lowering your tax bill.

That wasn't enough. So now we're going another step further and looking at a minimum tax. So if everybody has to pay at least something, then nobody's going to be getting away with these shenanigans. And if you still manage to do it, we're going to type you up anyway. And then Pillar One is looking at how and why is transfer pricing deficient in certain examples? And what's this excess and how can we reallocate it? And those rules, I don't think that's a failure of our treaty network, so much as an evolution in of the thinking that goes along with how to, really capture what taxpayers are doing, where are they doing it and how are they calculating the taxes due in these jurisdictions. Where they operate and now, where they penetrate the market without even being there.

So is it just a natural evolution of the cat and mouse game, so to speak?

I think so. I mean, I feel like jurisdiction, certain jurisdictions feel like they're just not able to keep up with innovation with the change of business. Like that's not, I don't think of that as anybody's fault. The markets have changed, the way we do business has changed. Economies around the world have changed. We don't only make things anymore, like physical things. It's just not, it's not a reality. And so I think the work now is looking at ways to capture that change, that shift in how economies run, how they hum along based on commercial activity. It's different.

That's a great point because things changed very quickly because for a long time, there were changes in innovation, but it was generally the same. And I think since maybe the late '90s to now. Technology kind of took over and all of that's very different. So I guess the tax system does have to evolve and very quickly. So this might be some of what we're saying. No, that's an actual point.

Yeah, also don't forget about COVID.

For COVID just... Yeah, yeah. That impacted revenue.

Right.

That money wasn't... Countries weren't getting as many tax receipts as they planned on because of a global pandemic so that makes the need for revenue more acute. But I think even without COVID, we know without COVID we were heading in this direction because the Pillar One and Two work started before COVID did.

COVID was a bit of an accelerant if nothing else. No, but I'm watching the clock and unfortunately we're getting to the end of time which-

I have one last question for Loren, that's going to be-

Please. I was going to say, do we have a last question? And then we could give it to Loren for some closing remarks.

It's going to be totally, totally unfair. And I remind everybody that when you're on GILTI Conscience, Loren speaks silly for herself. Listen to all this, listen to the discussion about technological change, et cetera. Is income tax worth it still? It's hard. It's complicated. Would revenue based taxes or VATs just be a better way to tax businesses?

Here you go.

Nate, some of us have to work in Pay bills for a while.

I know [crosstalk 00:41:47].

We ain't that old.

But seriously. And if so how can I get that question-

One more reform.

I mean yeah, that is the perennial favorite as a source of revenue that remains untapped in our lovely home country. But politically, I think it's a hard obstacle to overcome. There's just, people always say that whenever there's a tax reform conversation like well, why don't we just Institute a Vet? And it's like, because the people who make the laws don't want one. That's in short the answer.

Was that your best impression of Nate?

It was a composite of Nate and everyone else who asked that question. Nate's like, "Thank you."

It had to be asked. No, it-

It does. It does. It's a legitimate question. It really is a legitimate question. And it's just, we don't... In the US, for whatever reason, Vet is still not an attractive option. And that doesn't mean that it never will be. But right now there's no political appetite by those who are in office to put one into place, as far as I can tell. I mean, you see that there's a bill on the table with a bunch of tax reforms and there was no back provision.

In exactly. Well, we could keep going for a long time. It's fascinating stuff. I just want to thank you for coming on.

Indeed.

Always a pleasure to talk to you.

Sure. Thank you for having me. This was fun.

Please come back. I'm sure people will realize why I want to be you when I grow up once they listen to this. But any final comments for us before we wrap?

You don't think so. I want to come back. I want to talk about OECD. I want to talk about the role of transfer pricing in this new world we're approaching.

Write this down so we can hold through.

And whatever else you guys want to talk about. But this was a lot of fun.

Awesome. Thanks so much. Really appreciate it. And thanks all for listening. Hopefully you guys join us for another session.

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 skadden.com.