Francois Chadwick, Uber’s vice president of finance, tax, and accounting, details the ride-sharing company’s proposal on international tax rules for the digital economy.
Read the podcast episode's transcript below. The post has been edited for length and clarity.
David Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week your tax proposal will arrive in 3 minutes. As the OECD and policymakers around the world grapple with the question of how to update tax rules to address the challenges of the digital economy, Uber, the San Francisco company known for its ridesharing platform, has offered its own proposal on taxing digital companies. Joining me now by phone is Uber's vice president of finance, tax, and accounting, Francois Chadwick. Francois, welcome to the podcast.
Francois Chadwick: Great to be with you. Hope you're having a good day.
David Stewart: Thank you. Now actually before we get started, could you tell me a little bit about yourself? How long have you been with Uber?
Francois Chadwick: So actually, I've been doing tax for over 25 years and I've been with Uber for nearly four years. But prior to actually being a FTE, I was one of their advisors, so I've actually been with Uber in some shape or capacity since May 2011. I've seen a lot of change and I've seen a lot of growth here at Uber.
David Stewart: Now we're going to get into this proposal that you've written about, but before we get there, I'd like to discuss for background purposes a little bit about how Uber itself is structured using the current international tax rules.
Francois Chadwick: Absolutely. We are actually in over 63 different countries right now. In every country that we operate in we have some form of physical presence. We have offices there and people there, so we do have an actual presence in every single country. We file tax returns in every single country. We have a principal holding company in the Netherlands that actually is fully operational, which owns our intellectual property for the rest of world. There's over 1,000 employees in the Netherlands, so it's a fully functioning principal global holding company, operating company, and subsidiaries around the world. Those subsidiaries are compensated in various different ways depending on their operations. Some of them are compensated on sort of a standard cost-plus markup with others also being compensated on some form of operating margin, so we have a bit of a mixed bag across the world.
David Stewart: Now, the concerns about how companies in the digital economy are being taxed are widespread and varied. What do you see as the main concerns that need to be addressed by the OECD and other policymakers?
Francois Chadwick: Well, I think the main concern stems from the notion that a business is able to operate in a country without any form of physical presence and the whole way of doing business has become much more digitized. And the current tax framework -- which, you know, is based on principles but has some catching up to do with the way digital businesses and digitized businesses work -- I think the current framework doesn't address the notion that you can enter a market without having some form of physical presence in that and there is a belief that that leads to some form of maybe non-taxation for having market access rights to get to individuals in a particular jurisdiction. I think that is what the OECD is looking to address, to maybe placate some of those political concerns about having access to a market with no taxing rights attached to it.
David Stewart: Now, the OECD is due to produce its final report in 2020. Are you seeing any ideas from the OECD’s proposal that might improve upon the status quo?
Francois Chadwick: I actually do. I think the OECD is pushing along at a steady pace and bringing in numerous policies to talk about it. You have roughly 130 member countries that are actively involved in this and they're all coming to the table, but you're also starting to see a lot of commentary and input from various different companies, ourselves included. I do believe there is enough of a momentum to at least push forward the discussion and hoping that we get to some global consensus within 2020 on a path forward.
David Stewart: Do you see any chance that the ultimate path of the OECD might create more issues than it's solving? Or do you think that this will get to an improvement overall?
Francois Chadwick: Well, I think there's going to be multiple issues that are going to need to be addressed along the way. As you look at any of the proposals that are out there, including our own, there's numerous design features that are going to have to be addressed, both in the calculation and also looking at the double tax treaties and things like that. In my mind, we cannot avoid a situation where the design details are going to have to be addressed, but at the same time, the hope is and the need is to come up with a solution that can stand the test of time going forward and doesn't just create another round of issues such that we can avoid a BEPS 3.0 as we work through this BEPS 2.0.
David Stewart: I guess another sort of issue that's out there while the OECD is trying to come up with a consensus solution is that countries are moving forward with unilateral measures. France's turnover tax of 3 percent has been widely discussed. Are these unilateral measures from member countries helping or hurting the efforts of trying to find a consensus?
Francois Chadwick: I would say with respect to the unilateral measures, I do believe that they actually create a lot of uncertainty and a lot of complexity for the various companies around the world that get caught by these rules. That can create some level of confusion or frustration. Our belief is that countries should continue to work closely with the OECD to find a global consensus approach.
David Stewart: Let's say this proposal was adopted. Are you concerned that if it doesn't shift enough taxable profit to market jurisdictions, we'll be right back to talking about this again in a couple of years?
Francois Chadwick: I think that is a question that could be asked of any proposal and that is one where I believe we've got to have the policy and the political will to come to the table and understand that when you do need a principle-based approach, you do need something with a point to that has underlying grounded principles. This should be a step in the right direction. What we want to avoid is a BEPS 3.0 where we're just using arbitrary figures to address something in BEPS 2.0 and countries decide that they don't like that and then we'll fall in and start to make additional changes. I think grounding something in principle in this round of discussions it is the most important thing.
David Stewart: Now is there any assistance to developing countries who currently already have some difficulty administering transfer pricing rules, since this seems to lay on top of existing transfer pricing rules?
Francois Chadwick: Understandably, it does. I think one of the things that we've been able to do with our proposal is run it through and capture it all in an Excel spreadsheet. Once you've actually digested this a little bit more and go through it, it is pretty simple to undertake. It is formulaic. It should be somewhat easy to adopt companies and countries to be able to comply with.
David Stewart: As a proposal coming from a digital company, how would you respond to people who might say that your structuring of this proposal could be self-serving to Uber's arrangements?
Francois Chadwick: This proposal and what we've put forward reflects the company's desire to lean in and to work constructively with stakeholders, and that's governments and the business community alike. What we're looking to do is modernize the current system for the realities of business in the 21st century. Understandably, we know our business very well and we understand from all the discussions we've had with policymakers and politicians what they're looking to address. We believe that this does address those concerns at the same time as sticking with a number of current principles around transfer pricing and the arms-length standard and is formulaic. We have spent a lot of time looking to thread a needle to address all input and concerns from the various constituents around the globe.
David Stewart: Well, Francois, this has been a fascinating discussion. I thank you very much for being here.
Francois Chadwick: Very much appreciated, thank you.
Check out more Tax Notes Talk podcast episodes at https://www.taxnotes.com/tax-notes-talk/podcasts.