John Gimigliano (John): Thanks for joining us today, Manal. Happy New Year.
Manal Corwin (Manal): Happy New Year to you.
John: Well, it's 2017. We had an election, and we have just a few more weeks until the new administration comes in. So I thought a good place to start would be to talk about maybe how the incoming administration might affect—and the election in general might affect the way companies should be viewing the BEPS project.
Obviously, this administration may have a different view from the outgoing Obama Administration, which was obviously central and played a very active role in negotiating the OECD BEPS recommendation. So initial thoughts on what we might expect from the incoming administration?
Manal: I think the U.S. Treasury has always been a very active player at the OECD for years now. And certainly, over the last few years, where we've seen BEPS emerge into some real initiatives and changes, this Treasury has been an active and an important voice at the table.
I think we don't know what the next Treasury's views are going to be, either of the OECD and U.S. participation at the OECD, as well as some of the BEPS issues that have been agreed to previously.
I think whatever their views about the policy aspects of BEPS, it strikes me as it would be really important for this Treasury to participate, because the U.S. voice at the table does ultimately help U.S. interests and companies, as well as the government. But there's a bit of an uncertainty there as to their perspective on that.
John: Well, speaking of uncertainty, then, let's turn to a related question, which is, obviously, BEPS has been maybe the hottest tax topic over recent years—certainly, 2015, 2016. Maybe the hottest tax topic in at least the U.S. in 2017 is going to be the question of whether or not the new administration in Congress can negotiate, implement, and enact tax reform.
So I guess that raises an interesting question, as, obviously, if we're looking at tax reform as potentially the House blueprint proposal, some pretty dramatic changes in there, not only domestically, but for multinationals. So again, coming back to the question of how does that change the way companies think about what they're doing around BEPS, any thoughts on what companies should be thinking there?
Manal: I think the increased prospect for tax reform has really complicated the consideration and planning that companies have been thinking about in the context of BEPS and addressing BEPS challenges. The fact is that a number of aspects of the blueprint are very attractive to certain companies, particularly the lower corporate rate, the move towards territoriality, and the prospect for a border-adjustable tax—you know, for some companies, attractive enough to consider, for example, onshoring intangibles back to the U.S. as an approach.
The challenge, of course, is, it's quite uncertain still, both the timing and scope and characteristics of reform we'll actually get. And in contrast, the changes, the legislative and regulatory changes that have been ushered in by BEPS are actually quite certain in a number of countries right now and will have very real impacts immediately that aren't going to wait for reform.
So I think while some companies are taking a bit of a pause, trying to think about what this is going to mean, we're increasingly seeing companies realize that they really need to assess BEPS impacts, model the potential for reform and act now to address BEPS concerns, mitigate potential issues on their tax rate, reputation, et cetera, while at the same time keeping in mind that reform might change some of their plans in the future.
John: One last question for you. Let's bring it back to the executive branch for a minute. One of the things, again, that the incoming administration has talked about is reviewing the regulations, the tax regulations and others, that have been put in place by the Obama Administration. We've seen quite a flurry of them here towards the end of 2016, but even before that. So, putting it, again, in the BEPS context, any of those regulations in particular that companies should be looking at and thinking about that would, again, affect the way they're viewing their process around managing BEPS?
Manal: Well, interestingly, while the U.S. signed onto a number of the recommendations that came out of the BEPS project, as a practical matter, the only regulation that actually ended up implementing a BEPS revision was the regulations dealing with country-by-country reporting.
And it's hard for me to imagine that this next administration would change those regulations or pull them, because, as we've discussed in the past, country-by-country reporting is going to impact U.S. multinationals whether the U.S. has adopted those regulations or not, because it's -- other countries will require the reports.
And in light of that, for most U.S. companies, having the U.S. be the place where they file their country-by-country report is much preferable to the alternative. So I don't think, certainly, from the public there'll be a lot of energy around wanting to change those regulations, and I'm not sure what incentives the new administration would have. So, other than that, I don't see changes in regulations that are directly related to BEPS.
John: Well, there's so much more to say about this, but we've got a lot of questions at the moment and not a lot of answers. I guess in 2017 those answers will be made clear to us. But until then, thank you very much for joining us.
Manal: My pleasure.
John: And I look forward to talking to you more.
The information contained herein is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
January 17, 2017 | KPMG LLP’s John Gimigliano and Manal Corwin discuss how the incoming administration, following the 2016 U.S. elections, may affect the ways companies should be viewing the OECD’s base erosion and profit shifting (BEPS) project and actions to consider taking to manage BEPS in this new environment.