Menu
Tax Notes logo

Companies Navigate Global Relief Packages Amid Tax Policy Fears

Posted on May 26, 2020

Corporate tax leaders of multinational companies who have been assessing the applicability of myriad coronavirus stimulus relief packages offer perspectives on tax policy considerations and how governments might recoup their spending.

The global COVID-19 pandemic is unprecedented, with 130 countries having taken decisive action and “passed immediate laws from both a fiscal and monetary stimulus perspective,” Kate Barton of EY said during her firm’s May 21 webcast that featured the corporate tax leaders.

“So far, almost $18 trillion . . . [has] been issued in stimulus, and so just trying to work through what you should take, what you can take, is like working through a labyrinth,” Barton said.

Mark Weisz, senior vice president of global tax at Walgreens Boots Alliance Inc., agreed, saying firms are trying to navigate the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) and understand opportunities worldwide as they focus on “how to preserve cash and liquidity for as long as possible.”

“We just got done with [the Tax Cuts and Jobs Act] not too long ago and trying to understand the impacts of that, and then the CARES Act comes out,” Weisz said.

With all the legislation, the tax department must determine which opportunities to take advantage of and map out the benefits so it they can predict cash inflows and outflows while minimizing the effective tax rate and cash taxes in the middle of compliance, Weisz said, noting that Walgreens’s tax return is due June 15.

Weisz noted different stimulus approaches that countries have taken, pointing to the United Kingdom as an example, which has suspended business rates — property taxes on commercial property — for an entire year for some industry sectors.

That was “incredibly impactful for high street stores or retailers that were really being crunched and affected, particularly in London,” Weisz said.

“We’re also seeing very different attitudes from tax authorities around the world,” said Janine Juggins, executive vice president of global tax and treasury at Unilever.

Some countries have stepped up their tax audit activity, perhaps driven by their desire to generate tax revenue for increases in public spending, according to Juggins. In contrast, other countries’ tax authorities have been sympathetic and accommodating, “listening to whether the taxpayer can actually cope with an ongoing audit [and] whether there needs to be workarounds,” Juggins said.

What’s Most Helpful?

After analyzing which elements of the stimulus relief packages the company qualifies for and needs, the focus turns to determining the types of stimulus relief that would be most beneficial, Weisz said.

“We spend a lot of time with various organizations — talking to other retailers as to what would be helpful or what would not be helpful,” Weisz said.

Not all companies qualify for some provisions, and there is concern, for example, that the stimulus packages might not be reaching those that need them the most, according to Weisz.

Weisz said Walgreens has been urging the leadership of the taxwriting committees and other lawmakers to consider different and broader stimulus packages. “Not only do we have to help individuals that are struggling, we want to make sure in a few months down the road that they are able to come back to jobs and to companies that have a viable chance of going forward.”

Assessing Appropriateness

Daniel Goff, Microsoft’s corporate vice president of worldwide tax and trade, said his company is trying to implement a consistent global strategy for determining the types of stimulus relief it would consider accepting. It has been assessing the offerings of different countries and in several instances determined that a specific stimulus wasn’t appropriate for it.

Microsoft has been “active in the stimulus discussions in terms of what will help,” not just from the company’s or industry’s perspective, but also focused on what’s needed for its customers to succeed in the future, Goff said.

Relief that enables businesses to preserve jobs and continue operating during this challenging time is critical, said Louise Weingrod, vice president of global taxation at Johnson & Johnson Inc.

 Weingrod said that because Johnson & Johnson has a strong balance sheet and recently increased its dividends paid to shareholders, the company is “mindful that we are not the appropriate beneficiary of every short-term stimulus measure.”

Thus, looking globally, it considers what might be “appropriate for a company with monetary constraints versus a company with a strong balance sheet,” Weingrod said.

At the same time, an important discussion is underway in many countries, including the United States, on how to be more competitive in locally supplying medicines, medical devices, and other products critical to health and well-being, according to Weingrod. How that develops through the current crisis is something to watch, she added.

Think Broadly

The speakers also offered their concerns about how the stimulus packages will be paid for as governments rack up debt, and whether that might mean tax increases, a carbon tax, or a VAT.

“There’s this old saying, isn’t there, that you shouldn’t waste a crisis, and out of crisis does sometimes come opportunity,” Juggins said.

“It would be very easy for governments around the world to rush to raise taxes across the board. But I think there is an opportunity to take stock and think about this [through] a tax policy lens and whether you can put some keystones in the tax system which help to move it onto a more sustainable path,” Juggins said.

Juggins said she hoped that “the debate in the media and by policymakers will move away from the rhetoric into thinking about things in a more fundamental way.” That means tackling broad questions such as “the burden of taxation and how it falls on labor versus capital,” and whether the tax system can be used to encourage companies “to operate in a more sustainable way by pricing externalities more correctly,” she said.

A significant opportunity is available here, but it’s “difficult to implement change of this magnitude in the political dynamic which so very often focuses more on the short term than the long term,” Juggins said.

Targeting Considered ‘Bad Policy’

Other speakers said that targeting specific industries isn’t the right solution.

Any approach for paying for the pandemic stimulus relief must be broad-based and not be “just one industry that [carries] . . . the water for everyone else,” Goff said.

The technology sector is obviously under the spotlight, and “we hear whispers all the time that countries should go after tech because it’s the only industry that is making money,” Goff said. But that ignores the fact that the success of the global economy has been driven by the investments that tech companies have made, he argued.

Goff noted that OECD discussions about pillar 1 of the organization’s proposal to address the tax challenges of the digital economy have suggested that amount A be targeted to automated digital services. But he argued that that discriminates against the United States because it’s mostly U.S. tech companies that have those services.

Automated digital services include search engines, social media platforms, and consumer-facing businesses that sell goods and services to customers for personal use.

Targeting digital companies now — when investment is required to create the work environment that's needed today — is “just really bad policy,” according to Goff.

The OECD inclusive framework on base erosion and profit shifting includes a two-pillar solution: Pillar 1 calls for a unified approach to revising profit allocation and nexus rules, and pillar 2 consists of a global anti-base-erosion proposal that would introduce global minimum taxation. Amount A in pillar 1 would represent a new taxing right for markets, based on a new nexus linked to sales and allocation of an affected company’s non-routine profits, also known as residual profits.

Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said May 21 during a virtual conference that taxing digital services companies remains a focus for many countries, and that governments are looking to that source during their economic recovery efforts. (For more coverage, see our article in Tax Notes Today International.)

New Revenue Source?

Weisz agreed that tax policy shouldn’t target specific industries, saying that would inhibit necessary innovation. Policymakers should instead consider a broad-based solution and tapping a new revenue source, Weisz said. “Politically speaking, I don’t think they would want to raise corporate and individual taxes, [which is] a very easy way to go, obviously,” he added.

“A VAT might be a way the government starts to think about that on a very broad scale,” Weisz said, noting that the United States is one of the few countries without one.

Weingrod concurred that a VAT represents an important revenue source worthy of consideration because without it, the United States is hamstrung, and maintaining leadership in innovation, new investment, and new employment could be more difficult.

Governments will strive to recoup the tremendous investments they are making amid the pandemic, Weingrod said. However, that shouldn’t be done “by simply tapping into multinationals, especially multinationals based in other countries than the country imposing the tax,” she argued, adding that it wouldn’t promote “employment, innovation, or human progress, so we are hoping that sound tax policy will carry the day.”

“Once we get [past] stimulating the economy and [through] the crisis, we think this could be a terrific period for tax policy to really carry the world into a new future,” Weingrod added.

There could be a retreat from multilateralism, with “more countries looking within their own borders,” but the hope is that world leaders resist that, according to Weingrod. The best prospect for continuing to encourage innovation and trade is “a globally acceptable arrangement for how we handle international taxation, not a series of unilateral measures.”

The work of the OECD is “starting to show that the world is becoming a small place,” Weisz said. That suggests the need to push for future tax policies that are “fair and equitable across the lines,” he said.

Copy RID