The Evolution Of International Corporate Taxation

Marna Ricker, EY’s global vice chair of tax, discusses how international tax advisers and corporate tax clients have handled recent tax reforms and what to expect next.

This transcript has been edited for length and clarity.

David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: shifting sands.

We’ve seen several unprecedented reforms to international tax policy over the last decade from BEPS (base erosion and profit shifting) to the Tax Cuts and Jobs Act to the two pillars the OECD is currently working on. How do you manage the constant changes to the tax landscape, and how do you guide your clients through it?

Here to talk more about this is EY’s global vice chair of tax, Marna Ricker.

Marna, welcome to the podcast.

Marna Ricker: Glad to be with you, Dave. Nice to be here.

David D. Stewart: Let’s start off with, could you tell us about your role and how long have you been doing it?

Marna Ricker: I am Marna Ricker, obviously global vice chair of tax for EY. I have had a passion for tax for almost 30 years now. I am a lawyer and an accountant and have been in this role, just came into the global vice chair of tax role about a year ago, and before that I was in the Americas vice chair of tax role. And I’m an international tax partner by trade and have loved obviously getting to know and learn the tax systems all around the world in that role.

David D. Stewart: Clearly international tax is the best tax.

Marna Ricker: I’m going to agree with that.

David D. Stewart: Let’s get into it. And what I’m really interested in learning from you is about how you have dealt with, first off, this last decade of major changes in tax. What you’re doing both internally and what you’re doing with clients.

I guess the first piece that’s somewhat in the past is the OECD’s BEPS project, as well as the Tax Cuts and Jobs Act. What things have you had to do to deal with both of those changes over the years?

Marna Ricker: I’d say in many ways some of that’s really unsurprising. I look at the economic and geopolitical environment. I obviously look at an unprecedented pandemic — maybe one that hopefully we’ll never experience something like that again. But on the flip side, I think we may; I think the world is a little bit more dynamic and unpredictable at this point in time.

And then you look at technology — I’m sure we’ll get into technology. I think you probably can’t leave a conversation like this in tax without getting into technology.

And then I think we ultimately look at talent and the shortage of talent, not just obviously in tax, but I think the demographic shift that’s happening around the world. I think you take those three big things that are happening and you look at how that impacts tax and you look at, obviously, the impact on BEPS and TCJA.

I’m not surprised by any of that. I think all that ultimately leads to a change in tax policy, a modernization of the tax code. We’re going from bricks and mortar to a digital economy, obviously globalization of the economy, and that’s what happens with TCJA, and that’s what ultimately happens with BEPS.

I think that’s where we are, sort of unsurprisingly — maybe not expected, but unsurprisingly. I think that’s why we are right where we are in BEPS and in TCJA and a decade that has been extraordinary, and I think a decade to come that will be equally extraordinary in tax policy and tax change.

David D. Stewart: What do you do when presented with these changes? They’re out there, you are trying to prepare your clients. What sort of things do you need to do in order to be ready as these changes are happening?

Marna Ricker: I think there’s a handful of things that companies really need to be ready for, certainly that we ready ourselves for. I think the first thing is you [have] to get your data in order. I think that’s probably the number one thing that we’ve seen come forward.

You [have] to have great, clean data, and those companies that have gotten ahead on technology and data, gotten it clean, are the ones that have been able to advise the business most effectively. And because the law keeps shifting and changing, if you’ve got clean data, you’re able to model very quickly to these changes to track them and to model really quickly.

And then, frankly, to advise the business quite well, because the business isn’t standing still, the business is moving forward, it’s moving forward in this dynamic environment, and it has to keep moving forward.

I think those companies — and too we’ll get into our tax and finance operate survey, I’m sure — but it really shows that those companies that have gotten ahead on their data strategy, their technology strategy, are the ones that are able to advise the business quite well. I think that’s what you [have] to do: You [have] to grab ahold of that data, get it in a great format, and allow your department to be able to advise the business supporting.

David D. Stewart: Now, is it different moving from the BEPS project now where we’re dealing with the OECD’s pillar 1 and pillar 2 projects? Is this a unique challenge, or is it basically more of the same?

Marna Ricker: Definitely unique, and getting 143 jurisdictions to agree on anything would be very unprecedented. But I do think that’s what’s necessary. Like I said, we’re moving to a digital economy — we’ve moved to a digital economy, I should say — and now we’re really trying to bring forward a tax code that matches that digital economy. And doing that in a way that is consistent around the world is no small task. And I do think it’s necessary.

I do not think it’s easy, but I do think it’s necessary. And how we get that done, I think, is what’s important. Taxpayers are also really looking for consistency. They’re looking to be able to apply the laws in a consistent way, in a way that allows them, again, I’ll come back to advising the business. And I think that’s really what’s happening, that is not going to happen in one fell swoop.

And I think one of the things I want to make sure that everybody here that’s listening ultimately to this, Dave, is that I think it’s going to unfold and happen over a period of time. That I think it’s going to be no less than three years, and I think it could be as many as five or seven, because you’re first going to go through this process of getting all the rules done, then there will be obviously adjustments for the things that we didn’t get exactly right, ultimately the governments didn’t get exactly right.

And then you’re going to go through controversy ultimately around it, and adjustments will get made. And it’s going to be a window of time; it’s going to take us, like I said, I don’t think it’ll be less than three [years]. I think it probably will be something more like five or seven, or maybe the full next decade.

David D. Stewart: Is there going to be a challenge as countries are adopting these things not necessarily completely in sync [with] the timing differences between the jurisdictions?

Marna Ricker: I think that’s absolutely true. If you take a look right now, we’ve got four countries that have final legislation laid out, we have eight countries that have draft legislation laid out, and then we have 21 countries that have made an official statement or put publications forward, including obviously what the OECD has put forward in their draft. And they’re not in sync yet, but we have 143 countries that have said they’re on board with the inclusive framework.

You see there’s a difference in pace already and what countries have put forward. That’s exactly right. Getting 143 to have fireworks go off all at the same time is not where we are, even now. You’re going to see that pacing or that subsequent nature in which things are going to come forward isn’t going to happen simultaneously. And that is what we’re going to see on both, ultimately.

David D. Stewart: Now, the other side of that is if some countries don’t happen to get all of this put together properly, there’s the potential for retaliation — perhaps DSTs come back. Is that something that you’re concerned about?

Marna Ricker: It is. Absolutely. I think that’s a really serious conversation that needs to take place. It’s, obviously, a very complex conversation. I think sector taxes are nothing new, but I think DSTs are obviously far more targeted. They’re more targeted than airline or construction or oil and gas taxes that we’ve certainly seen in the past.

And I think it’s a really important conversation because, like I said, the digital economy is not just about a particular sector, it’s going to be all sectors. We get into the internet of things and we see it in consumer, we’re going to see it in, obviously, manufacturing. And I think digital, it’s going to impact all sectors.

And it’s a really important conversation in how our economy, how our advanced world, is ultimately moving forward. And I think it’s a really important one. I think it’s going to require a lot of conversation, a lot of understanding, and I think it needs to take place.

And we sent a comment letter — EY sent a comment letter in really stressing the elimination of DSTs and other similar measures as a core objective of pillar 1, and that really a full implementation of the countries’ commitments in this area from our perspective is essential.

David D. Stewart: Now, part of this conversation, you alluded to a survey that EY has performed recently. Could you tell me about that and what things you learned?

Marna Ricker: Absolutely. Each year we do a tax and finance operate survey, and it’s really to get a good understanding of the direction of travel of what finance and tax departments are taking advantage of and what they’re ultimately struggling with. And there’s some really interesting trends that we see in that survey, and it’s interesting to compare it, frankly, year over year.

And we have almost 2,000 C-suite and director-level people participate in the finance and tax area. And what we found this year, about 95 percent say that they are likely to co-source their tax and finance activities. That’s about a 22 percent increase since 2020. Again, I think that’s really unsurprising.

First, the pace of legislative change, how do you keep up with that pace globally? Again, 160-plus countries changing their legislation. Number two, we’re certainly finding that the shortage of talent — tax talent — in this area is really important.

And then I mentioned earlier this point about data and how are tax departments spending their time on data and technology? And what we found was 72 percent of people are spending their time on really routine compliance-type things. And what they really want to be spending their time on, and what they need to be spending their time on, obviously, is really the tax technical, advising the business ultimately.

And really what we’re finding is the tax departments, and certainly the CFOs, want them to be spending their time on the high value added. That’s what they want to be spending their time on, too. And yet they’re obviously in this fact pattern where they’re spending, 72 percent are spending their time on routine compliance and data-type work.

And that’s what they’re looking to outsource. They’re really focused on how do we turn that over to experts like EY to track all the legislative change globally and to obviously wrangle with the data, get the data into a great format to use platform-type technology? We have our global tax platform and obviously use that data in a really constructive way for modeling and advising the business.

That was really what we’re seeing as outcomes in that survey. Again, 95 percent — if you think about surveying 2,000 people, that means 1,900 are looking to co-source or outsource in some way, and only a hundred are not. That’s pretty staggering data.

David D. Stewart: Is there a trend line on that? Is there an earlier survey that shows that this is a growing thing?

Marna Ricker: If you look over the last five years to your point, I think it’s increased almost — I think it was threefold that we saw an increase in that in just five years of really significant uptake in that co-sourcing piece. Again, I think that’s a result of this pace of legislative change, and again, I think really [the] pace of data and technology being at the heart of what it takes to get the analytics done at this point to advise the business in a really strategic way.

David D. Stewart: Now are you seeing, in addition to these co-sourcing outsourcing arrangements, are tax departments getting bigger — internal tax departments — or is this entirely a matter of moving it outside the walls of the business?

Marna Ricker: I wouldn’t say necessarily bigger; all of us are under budget constraints. I don’t think anyone’s getting bigger these days. And I think it’s more of a reshaping that we’re seeing, Dave — and a reshaping of the department towards things like controversy, things like ESG [environmental, social, and governance], things like data and technology.

We’re seeing a lot more departments have data and technology experts inside their department. We’re seeing many departments put an ESG person in place, and we’re seeing people shift more towards having people focus on obviously controversy, that’s certainly rising, too. We have some great stats from our tax controversy survey, as well.

Again, seeing a significant rise in expectation of an increase in controversy, particularly around BEPS, that was the number one — transfer pricing and BEPS were the number one areas that people expect to see a rise in controversy, as well.

David D. Stewart: Now, when you are discussing these major concepts in international tax, I would assume you’re oftentimes talking to people who may not be versed in the international world. How do you communicate what these clients need to be prepared for? Because we live in this — we’ve been watching this stuff for a long time, but if you’re coming to somebody fresh on this, how do you communicate this to them?

Marna Ricker: At the C-suite level, I think they really understand, I’ll call it the macroeconomics that are happening at a global level. And you can certainly tell them that, “There is $37 trillion on the world’s balance sheet, and how that gets paid for typically is via tax policy.”

And that they understand. They can understand that macroeconomic landscape and that the funding for that $37 trillion of debt on the world balance sheet typically comes through tax collection. And then they understand the pace of change and why tax policy is moving and why different legislation is being put into place.

And that’s really ultimately what serves you well when you’re talking to the C-suite and then obviously putting it in that context. I think that piece they get.

They also understand the digital economy, and when you put BEPS into the context, pillar 1 obviously, which is all about the taxing rights in a particular jurisdiction for the consumers and the customers that lie in that jurisdiction. And then pillar 2, just explaining that in simple terms like a minimum tax. And really a 15 percent minimum tax is an easy concept for them to grasp. They may or may not like it, but certainly explaining that really simply, I think, is one of the things that we all need to do, as opposed to getting into the tax technical with the board and C-suite executives.

And they understand the basic concepts on an effective tax rate. And basically it’s just taxing where assets, people, and services sit. I think keeping it simple is the best way to handle that fact pattern.

David D. Stewart: And I guess the other side of that is, what concerns are you hearing most from them about the current world?

Marna Ricker: I think what they’re really focused on — and understandably so, ultimately — a board or the C-suite, is consistency. They’re really trying to understand ultimately what they’ve got from a cash perspective and what they have from P&L [profit and loss statement] perspective. And I think what they’re asking for and what they’re looking for ultimately from legislators and from governments is consistency.

What is the statutory rate going to be? Where is it that they can and should put their investments? They’re making really big capital decisions, ultimately — where can they put a plant, and where can they count on consistency in these capital expenditures?

And I think that’s what they understandably want to have from legislators, and ultimately from different countries. And they’re looking for that certainty, ultimately: Where can they consistently hold and have a consistent tax rate, and where can they ultimately count on consistent cash flows?

That’s ultimately what shareholders expect from them. I think that’s fair. And then I think ultimately that’s what they’re looking for.

David D. Stewart: Now, looking ahead a bit, we are coming into a period where the TCJA, a bunch of provisions will be expiring, which — that’s a big moment to reopen the U.S. tax code. Are you expecting any major changes to corporate taxation when that happens?

Marna Ricker: I won’t predict that, Dave; I’ve given up predicting. But look, I think 2025 onward is going to be a really, really interesting window of time. That’s what I’m saying. I don’t think we’re going to be bored anytime soon when it comes to what the tax landscape is going to look like. And I think I would say “Look, 2025 is going to be a really, really interesting year, certainly here in the U.S., but I think it’s going to be interesting globally as well.”

Like I said, we’ll be in the middle of likely digesting, still digesting BEPS, as well. And I think there’s obviously three big provisions that are expiring, obviously. In TCJA, I think we’ll see some previews around that here from the Republicans in Congress, we obviously have [research and development] expensing, we have 163(j) in calculation of that, and we have bonus depreciation.

We also have the corporate rate, as well. That’s obviously a lever that you can pull on where you want the corporate rate to be. And I think we’re going to see a lot going on in that space. And I’d be surprised, frankly, if we don’t see some signaling on at least what the Republicans want to do with that, those three big provisions, here over the next several months. I think we’ll see signaling from a lot of places.

David D. Stewart: You’re saying that we will continue to see change for the foreseeable future. With pillar 1 and pillar 2 potentially getting finished up, with the TCJA changes happening, is there a way to get back to a tax equilibrium, or is that just a dream? Is it just something that will never happen?

Marna Ricker: I’m not going to say it’s never going to happen, but I’m not sure it’ll happen in the rest of my career. How about that? Maybe I’m dating myself, but I just think data and technology is going to continue to have a really big impact on tax, as well. And just to use a really simple example, I’d look to the area of e-invoicing, what’s happening on the indirect side in how data collection is happening, how e-invoicing is moving with pace.

You just only would need to look, I think, to Mexico, or look to what’s happening in India, and [see] that the pace of e-invoicing is happening at lightning speed. And I just think that change is on the horizon in how tax collection will happen and how ultimately tax payment will happen.

And I just think it’s going to be a really exciting time in tax for a decade, at least a foreseeable decade. I’m not seeing equilibrium soon. That’s the way I’d say it.

David D. Stewart: Well, into the chaos, let me also ask you about, we have these international rules [that] are being developed at the OECD level, and to a certain extent also the EU does its own thing. Is there a concern that another body might insert itself into the international rulemaking? I know a lot of people proposed a U.N. tax body. Are you concerned that there could be additional competing regimes out there?

Marna Ricker: I don’t know. Again, I don’t want to predict on that, but I think at a minimum close cooperation amongst the countries has to happen. I think we just discussed, I don’t think there’s any way you, I’ll call it, transform the global tax code without really, really close cooperation.

And I think to the extent another body, like the U.N., as you mentioned, would come into the fold, and I think the same thing would be required: really, really close collaboration. I don’t yet have a point of view about that. Certainly other venues could play a role, including the U.N., but I think the bottom line is that there must be a real meeting of the minds for this ambitious of a global reform to work. And that’s what I’d be looking for.

I think for, ultimately, taxpayers who want to apply the law as it’s intended, I think they certainly are looking for certainty and consistency, as I said. And I think they absolutely recognize the need for a shift in advancing to a digital economy.

Taxpayers and tax administrations alike are looking for that. And if to the extent another body were to come forward, I think they’d have to think hard about what that looked like in terms of that collaboration and that consistency. I certainly wouldn’t want to be predicting it, but I certainly would be hopeful for that same collaboration.

David D. Stewart: All right. Recognizing your reluctance to predict —

Marna Ricker: Are you getting my trend?

David D. Stewart: My next question is for you to predict. No, it’s more of, is there anything out there that you are watching for on the horizon in international that’s something that we should all keep an eye out for?

Marna Ricker: It’s a great question. Like I said, probably the big thing I’ve got my eye on, when you asked me what am I really focused on, it really is this disruption [of] technology, and probably in particular AI.

And I’ve got my eye on e-invoicing in particular. As I said, I think that trend is picking up with pace, and I think it’s really interesting to watch what I would call the emerging economies and how I think they’re really, really smart and really clever in how they’re thinking about tax collection. And like I said, I would put India and Mexico at the forefront of doing some really interesting work, I think some really smart work in how they’ve gotten that collection and controversy. Again, I think we’ll see that emerge and rise in particular, and I’m really proud of the work that I think they’ve done.

I think keep your eye on that trend. My next thing that we’re watching really closely is controversy in the way that governments are going to come at controversy because, again, they have technology and tools that are extraordinarily advanced [relative] to the way that we’ve come at in the past. And certainly we have our eye very, very focused on that direction and how that might unfold, as well.

And then again, I am an optimist by heart and by mindset, and I really have a strong point of view. I certainly have a wish that we get great policy ultimately on the transformation to a digital world that we live in. I’m hoping for that consistency and that collaboration ultimately from whoever the players [are that] emerge in the BEPS environment and pillar 1 and pillar 2.

Those will be the things we certainly have our eye on. And like I said, I think the indirect space is going to be really, really interesting, and it seems to be the place that we’re picking up on technology the most. We certainly have our eye towards the indirect space.

David D. Stewart: Now, speaking of technology, and you alluded to AI, my last question for you is, we’ve heard a lot about AI, it’s the big buzzword out there right now. Is this hype, or is there a role for AI in the tax field? Is it really going to disrupt the way that people seem to be proposing it as a disruptive technology?

Marna Ricker: There’s a huge role, and you think about it, and I won’t presume that you and I are close to the same age, Dave, but I will — you just think about being a staff and being two times more productive. I really think that’s its power. When you think about it, the cognitive capability and having the ability to be two times smarter because you have a copilot sitting right next to you. I think its capabilities right now are just being tapped. And that’s what I’m really excited about.

I certainly am doing a lot of exploration myself, personally, around it. And we are certainly doing the exact same inside of our own business. We have lots of use cases running, and I’m really excited about the power of its learning. And controlled data sets, obviously — really simple uses from a tax code perspective, and its power is proving to be really extraordinary.

Again, you have to use it very responsibly. We have lots of, obviously, policies, and very controlled data, controlled settings, but I’m really excited about what the outcomes are and what that means for our people and for me personally. And that’s pretty exciting.

David D. Stewart: Marna, it’s been great talking to you. Thank you so much for joining me.

Marna Ricker: It’s been my pleasure. Anytime. I’m happy to talk tax.