Marna Ricker, global vice chair of tax at EY, discusses the latest developments on the global minimum tax and digital service taxes at the Organization for Economic Cooperation and Development, and how they will affect the U.S.
Transcription:
Mike Cohn (00:03):
Hi, welcome to On the Air with Accounting Today. This is Mike Cohn, online editor-in-chief at Accounting Today. We’re joined today by Marna Ricker, global vice chair of Tax at Ernst & Young. Welcome, Marna. It’s great to have you with us.
Marna Ricker (00:14):
Nice to be with you, Mike.
Mike Cohn (00:15):
Well, could you show us a little bit first about your role at EY?
Marna Ricker (00:19):
Yes, I am the global vice chair of tax and I have the privilege of leading 75,000 tax professionals globally. And so quite a pleasure. I’ve been enrolled for about a year now and love to talk anything tax, Mike.
Mike Cohn (00:34):
Oh, excellent. Yeah, we always love to talk about taxes here. Well, the Biden administration has been doing a lot on the tax front. They have been supporting this global minimum tax of 15% on multinational corporations, but I understand that was recently delayed until 2026 at the Organization for Economic Cooperation and Development. Could you explain what the latest developments mean for companies?
Marna Ricker (00:57):
Yeah, happy to. I think there’s maybe a couple of top takeaways I would put forward. So first, maybe this is one of the most complex technical and maybe politically sensitive undertakings that I’ve seen in my career, which is a lengthy one, and I think it’s really major change. It’s really the rewriting of a hundred-year-old tax code. And so it’s an incremental, it’s an iterative process and I think as it’s moving forward with, I think with great pace, given the complexity of what we’re undertaking. So we have a number of countries that have really put out final legislation. I think we have up to four now. So the EU has obviously stated its intention to move forward. We have Japan, we have South Korea, we have roughly eight that have put out draft legislation including some really big countries like Germany and the U.K., and we have up to 21 that have really put out official communications on what they intend to do, obviously including the OECD has put out obviously its framework and we did get, it’s very, very active right now.
(02:05)
We did get a second set of administrative guidance out of the O E C D just last week, the inclusive framework, so on July 17th. And so there were several technical documents in that we were obviously awaiting, eagerly awaiting. And so those included some administrative guidance, the global antib base erosion information return, the actual return and what that might look like and some model tree provisions and related commentary subject to the pillar two and a consultation document seeking input on the amount B under pillar one. So again, a lot of activity and a lot of documents to continue to have great pace around getting obviously implementation done, particularly around obviously pillar two for 2020, implementation in 2023, at least from a reporting perspective. So much to be done still obviously a huge amount of technical detail yet to come around pillar, both pillars, probably particular pillar one, but we will, I think we’ll continue to see a lot of output from the inclusive framework overall.
Mike Cohn (03:14):
I understand there was a delay in the OECD’s two pillar system on digital service taxes, but there’s been some pushback in Canada, maybe some other countries. How do you think that will be resolved?
Marna Ricker (03:26):
Yeah, look, I think that’s probably one of the trickier areas is pillar one obviously coming to an agreement on that. So you’re exactly right that right now we have a stand down on enacting new DSTs through December 31st of this year, so 2023. And so they did put out a statement ultimately on that and look, it takes at least 30 jurisdictions representing a minimum of 60% of the entities that are in scope for pillar one to sign an M L C before the end of 2023 to defer that. So that’s what we need to see here in the next, I guess we’ve got about five months left in the year to have a deferral around that through 2024. So we’ll see if that is going to unfold. Clearly the US would have to be part of that. Many of the multinationals in the US are subject to obviously to pillar one, and so that’s what we’re looking for and to see how that unfolds. That’s obviously, and not for the faint of heart. I think we’ll need to be a lot of collaboration and consultation around that to avoid being in a fact pattern where we see DSTs come forward. Once again, country DSTs.
Mike Cohn (04:39):
What kinds of tax trends are you seeing in other countries? Does it seem like these countries are moving forward on imposing some of these taxes? And I know things seem to be a little bit stalled here in the US and you mentioned the EU or countries around the world making progress on this or imposing some of these tax changes.
Marna Ricker (05:03):
Yeah, yeah, look, I think there’s a lot moving forward and I think if, I don’t know if you had the opportunity to look at the house ways and means hearing that was held last week, but I think that’s really what we’re going to have to pay close attention to. I’m not going to make any predictions of how this is going to unfold and certainly how it’s going to unfold here in the us but countries are moving forward. As I said, there are four who have put out final legislation. We have another eight that have put out draft legislation. Obviously the EU has been very clear about its intention to move forward, and so I do think that the US is going to have to decide how it wants to react to that. So you know, certainly have on one side with the Republicans wanting to be very, very thoughtful about the USS sovereignty, there was a J C T estimate that this is 120 billion worth of lost revenue from a us.
(05:58)
You obviously have a counter to that on the democratic side saying we do need to act and we do need to be thoughtful about that. You saw the Biden administration put forward in its budget. Ultimately its intention to, we have the corporate AMT obviously in place already at a 15% minimum tax, and then you saw their intention to modify and repeal the beat rolls. And so again, you see a signaling by certainly the administration with an intention on how they would intend to bring that revenue obviously back into the US fold. And so anyway, we’re going to have to see how that plays out. Mike, I don’t know the answer to that yet. I don’t think any of us know the answer to that yet, but you certainly see a signaling by the administration on how they would intend to deal with that and just I think the reality that other countries are intending to move forward with pillar two.
Mike Cohn (06:52):
Oh, yeah, you mentioned that there’s already a kind of a 15% corporate AMT that was put in place, and I understand the OECD has this kind of top-up tax that’s supposed to bridge the gap between the versions that countries like the US have and their overall international kind of rules is that can be complicated to work out trying to line all these jurisdictions with this top up tax.
Marna Ricker (07:22):
Yeah, it is. And so that probably brings me to, I guess if I wanted to get to give advice and really what we’re seeing and working with our clients really directly, I think there are four things I would want to make sure that I was giving counsel around and I’d want people to hear business is not standing still. And so what is really dynamic for our clients right now and what we’re supporting them around is they’re making really significant capital investments and really trying to figure out how they continue to move forward. And what is a bit of an uncertain time from a tax perspective is all this is unfolding, but they still have to make their business decisions, they still have to make really big capital investment decisions. And so what we’re seeing really right now is companies, again moving forward and getting modeling done.
(08:11)
And that’s sort of number one to do really good modeling, you have to have really good data. And so there’s a lot of attention being paid to the data side. This is a modified, I would call it almost a modified book accounting calculation. And so it’s data that companies have, there’s over 200 data points that need to be pulled, and they’re from places that companies have never even pulled the data. And so a lot of attention is being paid to where are they pulling that data from? Is it clean data ultimately? And so a lot of work being done from a data perspective. And then finally, if you’re an I F R S reporter, I wanted to make sure I was making the statement, if you’re an I F R S reporter, then you have to make a reasonable ESPI estimate on your pillar two exposure for 2023.
(08:58)
So we’ve got, again, a short window of time, a five month window of time in order to get that reasonable estimate done. And so if you were asking what am I seeing and where a company’s going on this are the big things that we’re seeing and maybe a bit of data too. Again, I always felt like it’s helpful for our companies to know what other companies are thinking about and what are they doing. We just completed our T F O survey just a handful of months ago, and what we found in that it was over almost 2000 C-suite executives that we surveyed. So in CFOs said 90% of the CFOs said that they were expecting to see a significant or moderate impact from BEPS 2.0, but only 30% of them had gotten their really this big M U assessment, impact assessment done. And so that’s a challenging fact pattern to be in. So anyway, so that’s what we’re saying. I mean, people are wanting to move ahead and business, they are expecting a 90% of them are expecting a significant impact, and about 30% of them in total have gotten their modeling done. So I think those who have gotten the modeling done are obviously able to make really good business decisions around it.
Mike Cohn (10:05):
Well, that sounds great. Well, we’re going to take a short break and we’ll be right back with the Marna Ricker from ey. Hi, this is Mike Cohen with Accounting Today, and we’re back with Marna Ricker Global Vice Chair of Tax at ey. We were just talking about the data that companies need to be able to do these kinds of tax adjustments that are going to be demanded and what are some of the ways that they can leverage the data that they have and kind of model it to adjust for these things. You mentioned about I F R S that they need to make some reporting changes for that, and I understand for us GAAP to FASB’s proposed some tax reporting changes as well that are still being worked out.
Marna Ricker (10:53):
Mike, I think that maybe just to stick to the reporting side for just a few minutes here. So I think i’d, what I’d want I’D our controllers, our CFOs to hear on this conversation is again, if you’re I an I F R S reporting, you’re going to go first, right? You’ve got this disclosure that you’ve got to get done for 2023, you’ve got a little bit more time, not much, but a little bit more time if you’re a US gap reporter. So you’re going to have to do, obviously consider this for your effective rate for 2024 ultimately. And then you’re going to have your Q one reporting. So again, I don’t think you’re going to see a material impact in Q one reporting, but you’re going to then obviously need to get ready for your 20, 24 year end. And so again, you’re going to go through the normal processes of what controls you have in place, obviously to make a reasonable estimate around that.
(11:40)
And then ultimately you’ll be putting it into your 20, 24 year end financials, and then you’re going to have a longer window now, obviously from a compliance and reporting perspective. So I think those are the things I’d want our CFOs and our controllers to hear. Certainly our tax professionals are all over this because again, it’s one of the most significant changes we’ve had certainly in our history or our careers as you’re rewriting it, a century old TA tax go global tax code effectively. And you’re doing that again to modernize from what’s been a historical bricks and mortar code to a, frankly, to a digital or modern, a modern digital and reflective of that type of tax code.
Mike Cohn (12:23):
Oh, I also wanted to ask you about carbon taxes that those have been this come up for discussion more lately or more countries starting to implement those and will the US do it too after passage of the inflation reduction Act? I understand there were some provisions in that law that maybe could allow it to be imposed.
Marna Ricker (12:44):
So I won’t speculate on what the U.S. will and won’t do around carbon taxes ultimately, but we should talk sustainability. Certainly sustainability and overall ESG is very really important. Ultimately, I think in many, many countries that the EU has been out front in particular around carbon taxes. And so towards the end of 2022, the EU reached an agreement on CAM, the carbon border adjustment mechanism ultimately. And so it was originally supposed to go into effect in January of 2023. They deferred that to apply starting in October, so just right around the corner. So it’s going to come quick right after a labor day, obviously. And so they have a transitional period about a three year transitional period. It’ll go into effect January 1st, 2027. So again, these are big changes that organizations need to make. And so, and a nice roughly three year transitional period that proposed the scope of C B A M has been extended also to hydrogen, so some pretty significant things related to indirect emissions and so on downstream type products.
(13:53)
And so from a tax perspective, what it effectively does is impose a price on carbon emissions that occur during the production of certain categories of products that are imported into the eu. And so it certainly is going to impact US multinationals. And so where those emissions are not ultimately taxed or taxed you disproportionately on certain pricing regimes, that’s that’s going to happen when those products are imported into the eu. So a lot to be done on the tracking of those products and what the pricing is, what that sort of import taxation is going to look like. And so again, in working with our clients, we’re seeing a lot of of work on what that tracking is going to look like, what that price increase is going to be, obviously how that’s going to impact obviously the profit margin associated with those products and how companies are going to want to make changes, not just because there’s an import tax, but certainly in their ambitions, their green ambitions and their carbon emission ambitions.
Mike Cohn (14:56):
And could you show me a little bit about what kind of work EY is doing on the international tax front for clients with not only adjusting to these changes like the carbon taxes and the global minimum tax and digital service tax? There must be some, so many other things. There’s a lot going on. So no shortage shortage of things to do, that’s for sure, Mike. So you’re exactly right. I mean it’s really almost hard to do to think about anything other than BEPS, but I’ll set that aside. A ton of work obviously for all of us, for everybody, for obviously our clients and certainly for EY in the context of the work that we need to get done around baps. But there are a number of other really significant things that we’re focused on. And so it’s not just limited to BAPS in terms of increased reporting and compliance requirements around the world. And so we’re seeing a really, really significant up uptick obviously, of companies focused on the increased burden around compliance and reporting. And so we’re seeing a massive uptick in companies looking to co-source and outsource work. And so coming back to the T F O survey this year, again, saw almost 96, almost 96% of companies are looking to outsource or co-source in the next two years.
(16:14)
And so really significant numbers, that trend has continued to rise. We’re seeing a really significant, I’ll call it just now, how do companies want to navigate and prepare for these tax policy and legislative environments? And so a lot of work we’re doing in helping them track and think about those changes, again, massive change, so are the Bess regime. With that has come a big and significant increase in tax controversy. And so again, a lot of support. We’re seeing a pretty significant uptick in cross-border tax controversies and how we support our clients around that. We hit on sustainability and all things, I’ll call it green and geo. We have a geopolitical dynamic and environment that is continuing to unfold. And so a lot of supply chain reconfiguration as a result of that. We just talked about the carbon tax, that obviously plays into supply chain as well.
(17:12)
And so a lot of supply chain work, helping companies make really good supply chain decisions and obviously wanting to do that in a tax efficient way. And then maybe the last one I would talk about this is all things data and all things technology including generative AI. And so I really looking at and listing the top things that are on our mind, those would be the ones in addition obviously to that. So we are doing a lot of work in that compliance reporting space policy and legislative change controversy that obviously comes from those types of changes, supply chain and the data and tech.
Mike Cohn (17:46):
Well, it’s interesting you mentioned about the generative AI and we’ve been seeing a lot of discussion about that the last few months ever since chat beat G P T came out, I think it was last November or something, and now we have borrowed from Google and all these other systems under development. And how do you see that being applied in the tax spaces that can help analyze some of the tax laws or maybe advise accountants on the things they can do that they maybe should bring up with their clients and possible tax strategies?
Marna Ricker (18:20):
So we’ve been using, I’ll call it generative AI for years, for decades, Mike, all, I think it’s, so I’ll talk about chat G B T in particular in just a minute, but we’ve been doing lots of things. If you think about all the document intelligence, the scanning of documents, you know, look at documents and you take specific things out of documents and put it into a nice Alexa file that can be imported in different ways. So we’ve been using, I’ll call it really intelligent, intelligent AI for quite a while. What’s really unique and what’s special I think about chat G P T is it’s computing capability and how you can teach it. And so that’s been really fun since the November we’ve been obviously jumping in and so it’s learning capability and it’s computing capability. I think that’s what, what’s unique. And so you’re exactly right.
(19:10)
I think what there’s all kinds of uses. I could go on and on, we could spend the whole podcast on this topic, one that I’m really excited about because of that capability, but you take control data sets, we obviously have so much data inside our tax practice and you take really confined pieces of the tax code and you can teach it and it gets smarter and smarter and smarter. And so that’s been really fun for us is how quickly we can get a headstart on our work and then spend our time on our highest and best use, which is creative thinking judgment. And so how fun to be two times more productive. I’d like to go back and be a staff and be two times smarter starting in 30 years ago. And so that’s what I’m really excited about is its capability to make us even brighter, even more creative. And so that’s what I’m excited about.
Mike Cohn (20:02):
Yeah, it does seem to have a lot of uses and it’s certainly a lot of fun to play around with. It is pretty fascinating to see how,
Marna Ricker (20:09):
Imagine how, again, having a PowerPoint started for you and having your emails sorted and Hey, Marni, you need to pay attention to these three or four things. Or having the P, your p and l dissected and hey, red lights on these three countries, or there’s just so many uses. I could go on and on internally and externally on what I believe the uses are. And so we’ve got a lot of pilots and a lot of use cases running already, and I, I’m seeing personally the power, I’m using it myself. You seeing the power of it in my day to day.
Mike Cohn (20:38):
Oh, that sounds excellent. Yeah. Yeah, it’s very exciting times. Well, I enjoyed talking with you today, Marna, just wanted to thank you for joining us on the podcast today and it it’s great having you as a guest. This episode of On the Air was produced by Accounting Today with audio production by Kevin Parise. Please rate or review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guest, Marna Ricker, Global Vice Chair of Tax at EY, and thank you for listening.
