In the long, tense days leading up to the OECD inclusive framework’s global tax deal, ministers from around the world took to many different pulpits in final bids to influence the negotiations or convey a narrative about why their countries were, or were not, signing the deal.
Ireland’s deputy prime minister Leo Varadkar was one of them.
After Ireland was cajoled into endorsing the deal’s 15 percent global minimum corporate tax rate, Varadkar owed a few answers to Irish lawmakers. Once the news broke that Ireland would back the deal, he visited the country’s House of Representatives, where he defiantly explained Ireland’s previously obstructionist approach. Ireland, Varadkar said, was only trying to defend its national interest against larger countries like the United States and the United Kingdom, which objected to Ireland’s low 12.5 percent corporate tax rate.
Estonian Prime Minister Kaja Kallas also put out a message. Shortly before the final deal, she assembled an 11th hour closed-door cabinet meeting and emerged with a public statement that Estonia would join the deal only because it received last-minute assurances that the package would include provisions for which the country had lobbied.
A similar scenario played out in Hungary, where Finance Minister Mihály Varga assembled reporters right after the OECD finalized the deal and cast the agreement as a victory for his country, largely because Hungary had scored a few key concessions.
Meanwhile, Nigerian Finance Minister Zainab Ahmed took to an audience of her peers at the West African Tax Administration Forum explaining why Nigeria regretfully could not agree to the package. Nigeria was concerned that it could lose tax revenue under the deal and wasn’t willing to replace some of its tax rules with the OECD’s new regime.
Martin Kreienbaum, who chaired the OECD’s inclusive framework steering group, intentionally was not part of this public-facing onslaught. Rather, he stepped back and let the politicians do the talking.
“As a chair it is important to be in a certain way neutral, although that doesn’t necessarily mean not visible,” Kreienbaum told Tax Notes in a November 29 interview. “Not aggressively selling things — that can be counterproductive sometimes if you’re too loud and can get in the way of a productive and constructive process.”
Instead, Kreienbaum, a staunch believer in multilateralism, let the process do the work. Yes, there was a lot of political bravado, and ministers almost universally framed the international agreement as a national victory. But in the rush of ministerial statements, a larger underlying message emerged: The inclusive framework’s multilateralism, which was at times disjointed and occasionally frustrated over two years of negotiations, had worked.
After leading nearly 140 countries to a new, two-pillar global tax deal, Kreienbaum, who also chaired the OECD’s Committee on Fiscal Affairs (CFA), is leaving both posts at the end of this year. He is leaving behind a significantly different international tax architecture than the one he found when he took both positions five years ago in January 2017. Yet, as Kreienbaum departs his posts, he does so without any diplomatic controversies and without conveying an impression that he controlled the global deal any more than the tax technicians and ministers around the world who engaged heavily with the negotiations.
This is no small feat, considering that Kreienbaum, who is also director general of international tax at Germany’s Federal Ministry of Finance, also represented his country in the international negotiations. But his neutrality is by design: A tax lawyer by training and civil servant by profession, Kreienbaum built a career based on discretion in Germany — a country that often takes a subtle approach to international negotiations.
“Martin has the political sense,” Itai Grinberg, U.S. Treasury deputy assistant secretary for multilateral tax, told Tax Notes. “Martin thinks about where people come from and tries to put himself in their shoes. That’s an important trait in a chair, as is the ability to be neutral and still have a north star or clear sense of direction. And that’s a fine balance.”
The Art of Political Persuasion
When Kreienbaum speaks about the importance of restraint, he speaks from experience. Twelve years ago he was the spokesman for former German Finance Minister Wolfgang Schäuble during a politically delicate time: the European debt crisis.
Greece suffered the most during that period, and for a time seemed destined to default and destabilize the entire eurozone. This happened despite it receiving large infusions of cash from German banks, the IMF, and other lenders. Germany and other interested parties needed to devise a solution and devise one fast.
Germany championed austerity, and in the fraught months that followed, Kreienbaum, as the ministry’s spokesman, made that vision clear to the press. When Ireland sought aid in the crisis, Kreienbaum communicated on behalf of the ministry that strict conditions would apply. He also assuaged fears that Germany’s AAA credit rating might slip. During Kreienbaum’s tenure, the message that emerged from Germany’s finance ministry was one of careful, exacting control, not dissimilar from Kreienbaum’s handling of the inclusive framework years later during some of its most turbulent negotiations.
E-Commerce to the Inclusive Framework
But Kreienbaum’s road to the inclusive framework began a decade before the eurozone crisis, at a watershed OECD conference on e-commerce taxation in the late 1990s. At the time, Kreienbaum was a young lawyer, a recent graduate of the University of Freiburg and the University of Münster, working in the domestic tax section of Germany’s Federal Ministry of Finance.
The OECD’s 1998 Ottawa Ministerial Conference was the first of its kind to deal with the nascent e-commerce economy. It was there that the OECD created the first set of framework conditions for electronic commerce taxation. Those concepts still apply today and set the stage for the organization’s later work on the taxation of the digital economy. Kreienbaum also walked away from the conference with a newfound appreciation for international tax.
“I really liked the international atmosphere, the colleagues, hearing different perspectives and finding compromises,” Kreienbaum said. “So I decided to move to the international taxation department here at the ministry.”
In 2002, a few months after his switch, Kreienbaum was sent to Washington to serve four years as tax attaché with the German Embassy. Kreinbaum, who said he’d always been interested in politics, entered Washington at a particularly unique time. The Bush administration had recently enacted major tax cuts and was mulling a significant bipartisan federal tax reform deal in the shadow of 9/11. The project never came to fruition despite the bipartisan unity. Nonetheless, the atmosphere was charged, and Kreienbaum found Washington’s mix of tax policy and tax politics particularly fascinating. When he returned to Germany in 2006, he decided to take a leave from the ministry and pivot to political work, in which he served for three years as a press spokesman for the Christian Democratic Union of Germany/Christian Social Union in Bavaria parliamentary group in the German Bundestag, followed by two years as press spokesman for Schäuble.
Then in 2011 Schäuble gave Kreienbaum an appointment that he couldn’t pass up: heading the ministry’s international tax department as director general of international taxation. That job also came with the responsibility of serving as Germany’s representative to the bureau of the OECD’s CFA.
There, he quickly got into a close working relationship with Pascal Saint-Amans, who was just cutting his teeth as the new director of the OECD’s Centre for Tax Policy and Administration.
“I think one of the first trips he took was to visit me in Berlin,” Kreienbaum said. “We both basically started in the new positions at almost the same time.”
By that time Germany and several other OECD members had a significant issue on their hands: the Obama administration’s Foreign Account Tax Compliance Act. The law, which took effect in 2010, requires foreign financial institutions to turn over to the U.S. Treasury Department information about U.S. account holders and U.S.-held foreign entity accounts. In turn, those account holders must annually report their assets to the IRS.
European financial institutions were concerned about compliance and implementation costs and asked their home governments to work with the U.S. Treasury on a potential solution. Germany, the United States, and four other countries — France, Italy, Spain, and the United Kingdom — developed a model intergovernmental agreement for the exchange of financial account information to ease FATCA’s rollout. That agreement later became the model for the OECD’s common reporting standard.
Meanwhile, the negotiation process helped establish Kreienbaum’s reputation within the CFA. Most of his counterparts around the FATCA negotiation table represented their home countries in the CFA and were members of the CFA bureau. That trust helped catapult Kreienbaum to the top of the OECD’s shortlist in 2016 when the organization started to search for someone to replace outgoing chair Masatsugu Asakawa of Japan.
“We, this group of five, demonstrated that we were in a position to deliver something: a concrete instrument like the [intergovernmental agreement],” Kreienbaum said. “And I think that this was also visible for other colleagues.” Beyond that, Germany’s political profile may have played a role in his selection, he said.
“Germany is not a country that would be known as an aggressive country in terms of tax competition,” Kreienbaum said. “In the composition of the CFA, you find many countries of different types — small jurisdictions, some more than others aggressive in terms of international tax competition.” Germany, in contrast, has long tried to find compromises in different positions, he said.
“You can also see that here in Europe,” Kreienbaum added. “If you think of the EU directive on digital services taxes in 2017, Italy, France, and others were very keen to push this and show the U.S. they were able to act, that they were a bit challenging. We in Germany decided to pursue a less confrontative path.”
For Kreienbaum personally, he saw the role as an extension of the work he’d done over much of his career in the Federal Ministry of Finance and German Bundestag moderating processes both at home and abroad.
“We do that here internally. All legislative steps here need to be coordinated between the 16 federal states. As a country, we are at the center of Europe as we have neighboring countries of different size and different economies, and that always requires the willingness to compromise,” Kreienbaum said.
That neutrality was important because in 2016 the OECD had just embarked on its latest big experiment under Asakawa’s tenure: the inclusive framework on base erosion and profit shifting. The inclusive framework, which has now grown to 141 countries, was designed to be a multilateral body for countries to implement the BEPS project and set new, related standards. It was, and still is, the only decision-making group of its kind on international corporate tax issues.
Kreienbaum’s Opening Bid
When Kreienbaum became head of the CFA and inclusive framework steering group in 2017, he took the reins at a pivotal time. Asakawa, who led the CFA through the OECD’s BEPS project, had finalized most parts of the program, and Kreienbaum believed his job was to maintain that momentum rather than embark on something different.
“The mandate at that time was pretty clear. The inclusive framework had just held its first meeting in summer 2016, and the ongoing work there was to implement the BEPS standards and to finalize some remaining work,” Kreienbaum said. “I really thought that was my plan: to follow Masa’s example and continue his work.”
“But what I also thought, and still do, was that there’s an overarching objective in the inclusive framework, and that is to restore stability in the international tax architecture and international tax relations,” Kreienbaum said.
“This is what we really need, and it was missing at that time. There was no one body that could produce concrete instruments in terms of international taxation and concrete standards. Now, the inclusive framework is the only body that includes almost all countries in the world and, in combination with the OECD secretariat, is the only body in a position to produce concrete outcomes on a global scale.”
It is worth noting that Kreienbaum started his leadership with a strong German mandate as well. His first year coincided with Germany’s G-20 presidency, and Germany at that time had flagged the digital economy as well as harmful tax competition and aggressive tax policies adopted by multinationals as policy priorities. In the years that followed, the proliferation of unilateral DSTs and the U.S. desire to protect Silicon Valley helped expedite this standard-setting process. But in many ways, the German presidency set the opening bid and continued to shape the discussion in ways both subtle and overt. This was perhaps clearest in Germany’s strong support for a global minimum corporate tax — an idea that Kreienbaum backed at the inclusive framework.
“I’m a strong believer in international cooperation. That is what we need, it’s what governments need: international coordination on tax standards — material law, but also procedural standards,” Kreienbaum explained. “It’s simply a consequence of globalization. We see business activities have globalized in a globalized world, cross-border activities are increasing or have increased over the decades. Tax administrations need to do the same. It’s a necessary consequence that administrative procedures and international standards will be developed. I was always convinced this is the case, and therefore I think that is the ultimate goal: to establish the inclusive framework as an international standard setter.”
Reflecting on the Deal
In the wake of the two-pillar deal, it is safe to say that the inclusive framework has achieved a standard-setting role. The larger question is whether that role will be permanent. But for now, the world has BEPS 2.0 and its two pillars: a new corporate taxing right (amount A) under pillar 1, and anti-base-erosion rules under pillar 2 that create a new 15 percent global minimum tax applicable to large multinationals with over €750 million in annual global revenue. Plus, there’s a new treaty-based subject-to-tax rule for developing countries, among other features. This final package, although complex, is considerably more streamlined than proposals the OECD shared in 2019 and 2020.
That said, it’s no secret that the path to simplification and agreement was turbulent at times, especially when individual countries started to object to components of the process. The United States, under the Trump administration, nearly halted the project when it insisted that the new taxing right under pillar 1 be turned into a safe harbor and disengaged from pillar 1 negotiations. Ireland, Estonia, and Hungary all objected to the idea of a global minimum corporate tax. Meanwhile, developing countries argued that the scope of the subject-to-tax rule was too small to be meaningful. Finally, the COVID-19 pandemic threatened to upend the entire decision-making process.
Reflecting on Kreienbaum’s stewardship of the negotiations, Grinberg, who sits on the inclusive framework steering group, called his leadership “indispensable” in successfully bringing the inclusive framework’s October 8 statement to fruition and keeping the large, complex multilateral negotiation process from dissolving.
“It’s a difficult task that requires a very careful and yet insistent demeanor, with that insistence based on a spirit of compromise,” Grinberg said.
Now that the deal has been finalized, some of the struggles and difficulties that the inclusive framework endured are already fading into the background as the group ramps up for the next big challenge: implementation. But the survival of the inclusive framework, let alone the two-pillar package, was never guaranteed, and those trials are still very fresh for Kreienbaum, who sees them as lessons for the future. As governments and stakeholders break down who got what in the deal, Kreienbaum points out that it was not possible to address every single concern, given all the voices in the process. He specifically highlighted criticisms from the business community, which came to the forefront in late November when the OECD’s business advisory group wrote a letter criticizing the OECD approach.
In that letter, the Business at OECD (BIAC) group took the OECD to task for allegedly failing to consult the body while it composed pillars 1 and 2. It further lamented that it is still being ignored as the OECD drafts model rules. BIAC warned that the two-pillar package may ultimately become unwieldy and unworkable without input from the business community.
Kreienbaum, who noted BIAC’s concerns, explained that time pressures have prevented the OECD from conducting the sort of full-scale consultations and hearings that BIAC was expecting.
“We are constantly evolving this whole process — we are still working on model rules for pillar 1. We just finalized the model rules for pillar 2 last week on Monday [November 29]. So this is constantly ongoing work. And then it is extremely difficult to meet the expectations of businesses because they expect that we present a ready solution to them and ask them, ‘what do you think?’ But this is still in the process of development, and sometimes until the very, very last minute,” Kreienbaum said.
“In a way, the timetable is the biggest challenge. At the same time, it’s maybe the biggest opportunity, because sometimes you need the time pressure,” Kreienbaum added. He pointed out that the implementation timeline is scheduled at a rather breakneck pace that leaves little room for equivocating. The plan is that inclusive framework countries will incorporate pillar 2 into domestic law in 2022. Meanwhile, the EU is planning a bloc-wide directive for pillar 2 that will have to wend its way through the EU’s occasionally unpredictable legislative process. All-inclusive framework member states will also need to sign and ratify an upcoming multilateral convention on pillar 1’s amount A before it goes live in 2023.
“If we didn’t have that time pressure, I think we could discuss technical issues for decades, and to the extent the time pressure helps, it simply forces countries to make decisions, and that is quite important,” Kreienbaum said. “So it’s a challenge, in a way. Maybe it’s a hurdle. It’s also an opportunity at the same time.”
It’s also become the new way of operating for an inclusive framework that was forced to navigate a new set of time pressures during the pandemic.
Historically, inclusive framework delegates vote in person during the group’s large plenary meetings, where there is a finite amount of time for negotiations.
Transitioning to virtual communications during the pandemic meant that the decision-making process became much lengthier in some respects, as delegates operated in their own time zones. In other respects, it became shorter. There’s a limited number of hours in the day where a global call for all delegates is possible, Grinberg pointed out.
A New Multilateral Future
As the inclusive framework embarks on its next phase, Kreienbaum believes the group can maintain its momentum if it makes a good effort to continually convince members of the benefits of international cooperation. “It’s like free trade,” he said. “Everybody somehow thinks free trade is good, but then countries start to think about protectionism, and you always need to convince countries of the overarching goal. In this case, it is international coordination, and we also need to demonstrate that there are benefits for members of the inclusive framework in international coordination.”
“And I think this year has really impressively shown that a very high number of member states — 137 out of 141 — support the agreement,” Kreienbaum added. “Everybody has made concessions, and some countries are complaining, but the high adoption shows that almost all members believe in the benefits of international coordination, and that I think sends a very strong signal.”
Kreienbaum also praised the work of the inclusive framework’s steering group members, who represent an almost equal mix of developed and developing countries. In the final months leading up to October, they played a pivotal role in the deal’s adoption, reaching out to reluctant countries in the face of what Kreienbaum described as extreme pressure. “They did a fantastic job facilitating the whole process, and I think that is the most important point,” he said.
“We can say politically, we have stabilized the situation, but I have a different perspective when it comes to implementation,” Kreienbaum said. “This is still a task we need to do over the next years. This is, I think, the most important point for the inclusive framework to continue to demonstrate that we are in the position to jointly implement everything and continue this cooperation on this multilateral basis.”
On that point, Kreienbaum said the inclusive framework can only survive if it benefits all member states, from the most sophisticated to the least developed, the largest to the smallest.
“I think it’s not only in theory that all members of the inclusive framework participate on an equal footing; we need to live up to that promise, and I think we have done so,” Kreienbaum said, mentioning how smaller economies and developing economies shaped the final package by negotiating lowered thresholds and simplified rules so they could access more benefits.
“Ensuring that all countries benefit from the outcome of our discussions is the main point. Only then, the inclusive framework survives,” Kreienbaum said. “Otherwise, if developing countries get the feeling that they are dominated by the large economies, it won’t work in the long run.”