Updates On The OECD Tax Reform Plan

Manal Corwin, the new director of the OECD’s Centre for Tax Policy and Administration, discusses her vision for the organization and the latest updates on the inclusive framework and two-pillar project.

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

The OECD has been undertaking some big changes in the last couple of years. As we’ve covered here many times, they’re working on remaking the landscape of international tax through the inclusive framework and its two-pillar project.

On top of this massive undertaking, the organization has also seen changes in leadership with Pascal Saint-Amans’s departure last year, Grace Perez-Navarro’s interim leadership, and now Manal Corwin’s appointment to the director role at the OECD Centre for Tax Policy and Administration (Centre for Tax Policy and Administration).

Tax Notes chief correspondent Stephanie Soong caught up with Manal remotely to discuss her plans for this new position and finalizing the two pillars.

Stephanie, welcome back to the podcast.

Stephanie Soong: Thanks for having me again.

David D. Stewart: Now, your guest needs very little by way of introduction, but could you give us some background on what she did before she took on the OECD role?

Stephanie Soong: Yes, before she took on the role, she was at KPMG, and before that, she had worked at Treasury. I think it’s, as far as I know, her first all-encompassing interview with us, so [I] was really happy to have her.

David D. Stewart: I believe it’s one of her first interviews since taking on this position. So it was great that you had a chance to sit down with her. What sort of things did you discuss?

Stephanie Soong: Well, we talked about her priorities as CTPA director, and of course, we talked about the two pillars, the two-pillar solution to address the tax challenges of the digital and globalized economy, and life beyond the pillars: What’s next for the OECD?

David D. Stewart: All right. Let’s go to that interview.

Stephanie Soong: Thanks so much, Manal, for being on the podcast with me today.

Manal Corwin: Well, thank you, Stephanie. Thank you for having me.

Stephanie Soong: Of course. I just wanted to get a sense of how you got the call to become the director of CTPA. How did it happen?

Manal Corwin: Well, I received a call from the secretary-general of the OECD asking whether I’d be willing to consider succeeding Pascal Saint-Amans in the job. He was then director of the CTPA and he had announced his departure after more than 10 years in the role.

So it was very unexpected and at first did not seem possible or feasible. But after giving it some thought and with the encouragement of a very supportive husband and my four awesome children, enthusiastic children, and a wise friend and board colleague, I made the decision to take a leap of faith and take it on.

But ultimately, I’ve always been deeply interested and passionate about policy and very committed to public service. So while it was unexpected and logistically challenging, it just made sense to go for it.

Stephanie Soong: Well, congratulations and it’s a little late, but congratulations anyway. You officially took up the post on April 1 after Grace Perez-Navarro retired. How are things going and what kind of advice did she give you before she left?

Manal Corwin: I mean, Grace was terrific, and of course, Grace did immediately succeed Pascal after serving as deputy director for many, many years with just incredible institutional knowledge and many contributions in her own right. She took the helm for five months. Look, I mean Grace, her insights, her practical advice, and so many other things were invaluable to me and my ability to step in and do my best to take on the role.

When you think about [it] both Pascal and Grace had many years at the OECD, so stepping in as a brand-new director and simultaneously losing their experience and institutional knowledge was certainly hard, but they’ve both been very available and provided lots and lots of insights, and continue to support with the practical questions associated with taking on a new role and entering a new institution.

Stephanie Soong: Well, you’re certainly no stranger to being on the international tax stage, given your past experience at Treasury and at the CFA [the OECD’s Committee on Fiscal Affairs]. How has your past experience prepared you for this job and what has been the biggest adjustment so far?

Manal Corwin: Yeah, I’ve definitely been at this for a long time, over 30 years now. Look, I have a lot of varying levels of experience. I’m a lawyer. I’ve served as international tax specialist both in the private sector as well as in the public sector in the U.S. Treasury Department, where I also served twice as the U.S. delegate to the OECD and also headed up the U.S. tax treaty program. So I have a lot of different perspectives and seen international tax policy from various vantage points.

I think all of that experience certainly has given me a strong technical grounding in the international tax rules. But I think more importantly, the experience in government and at the OECD have really just, I guess, heightened my awareness of the policy drivers of international tax rules, as well as some of the practical impacts and behavioral consequences of these rules.

So it’s all quite relevant. I think also just being the former U.S. delegate to the OECD, I gained a pretty solid understanding of both the value of the OECD platform as well as the challenges and rewards of achieving consensus on these complex international frameworks.

So I’d say overall, it’s been helpful, but without regard to how many experiences that I think are relevant and are helping me and have been enormously valuable so far, you can never be fully prepared for a role like this. Ultimately and I think importantly, I’m still learning every day and I continue to seek out and listen to stakeholders to be able to do the job as best I can.

Stephanie Soong: You were at KPMG for a very long time as well. How do you handle situations in which you’re interacting with former clients?

Manal Corwin: Well, when I accepted the role, I felt very strongly about making sure that I incorporated guardrails to avoid any actual or perceived conflicts. So once it was clear that I was likely to take the job, for example, I recused myself from any discussions about OECD matters, including with the media.

I also incorporated into my contract a cooling-off period, a one-year cooling-off period with respect to engaging with any former clients on OECD tax matters and tried to follow the best practices in other institutions, including the U.S. government, for that.

Stephanie Soong: OK, great. You’ve had a few months now settling into your new role. What are your priorities as CTPA director?

Manal Corwin: Yeah, so look, one of the reasons I accepted this role is that I really believe in the critical importance of collaboration and coordination on tax matters to both support growth, but to also protect and enable sovereign domestic and global policies and to maintain fairness and stability in the system. I also believe that the OECD, especially now with a greater focus on inclusivity, is the right platform for that collaboration.

So with that in mind, my organizational priorities are really to continue to look for ways to maximize the effectiveness of the OECD as a platform for collaboration and coordination amongst countries, but also to raise awareness of the role of the organization. I’ve noticed there’s a fair amount of confusion as to the role the organization plays and where the decisions are ultimately made. So raising that awareness, including to shine a light on the achievements to date and the benefits to stakeholders, but also the potential for the future.

I also want to increase engagement with stakeholders so that we can facilitate consideration of the various interests that come into play in the negotiations, and finally, to continue, I think, to promote inclusivity by continuing our efforts to provide technical assistance.

We do a significant amount of work to support providing technical assistance to developing countries and enabling capacity not just for implementing standards, but also to enable engagement on the policy discussion and the standard setting. So that’s kind of the big-picture organizational side.

Then just more granularly, obviously, I’m keenly interested in finishing the work on the two-pillar solution and trying to refine it, make sure that the guidance is clear, and trying to realize its potential in terms of stability and certainty. So plenty of work there, but just organizationally, I’m focused on the purpose of the organization as well.

Stephanie Soong: Great, thank you so much. It’s a really good segue to talking about the two pillars. The inclusive framework recently delivered a major package of measures covering both of the pillars. Let’s just talk about pillar 1 for a little bit.

So much has been said about the amount A multilateral convention (MLC), which would be open for signature by the end of the year. When might we see the text of the MLC? Was it going to be before the signing ceremony or the day of? What are you thinking?

Manal Corwin: Well, it’ll certainly be before. Well, so as you said, a couple of weeks ago, we published an outcome statement that was supported by 138 members of the inclusive framework. That outcome statement summarized a package of deliverables covering both pillars and that was really an important milestone to move the work forward.

As you noted, among the deliverables, the outcome statement referenced a text of a multilateral convention which was delivered to the full inclusive framework with a few open technical issues.

So we are now working to resolve those discrete technical points with a few jurisdictions so that we can then finish preparing the text of the convention and to prepare it to open for signature.

Just what that means, it involves a fair amount of cleanup, addressing cross-references, and some technical aspects, but just making sure there are not remaining technical issues to be resolved.

I think consistent with typical treaty practice, we will publish that text once that preparation has been finished. So it’s prepared for signature at that point. The text will be published when it’s prepared and open for signature, which we expect to be in the fall and certainly before a signing ceremony, which likely will be slightly later, closer to the end of the year.

Stephanie Soong: OK, great. The MLC contains this rollback and standstill provision. What can you tell us at this point about the kinds of relevant similar measures that will be included in that provision? We’re looking for more details about the tax certainty processes. I think that’s something our readers are interested in. Is there anything you can tell us about those two points at this stage?

Manal Corwin: Yeah, sure. The MLC will include a definition of DSTs (digital services taxes) and relevant similar measures. Consistent with what we’ve seen in the consultations prior, the measures will meet three cumulative criteria.

They are market-based, meaning they’re going to be applied on the basis of the location of customers or users. They’re going to be the ring-fence to nonresident or foreign-owned companies, and they are out of scope of tax treaties. So those are the three cumulative criteria that apply. There’s going to be a conference of the parties that are referenced that will decide whether a measure meets this definition.

Then, if it is the case that a measure meets the definition as determined by the conference of the parties, the country then loses its ability to participate in the amount A allocation. So there’ll be more detail in the MLC on that, but that’s roughly the outline of what a DST or other relevant similar measure is.

Then with respect to what you asked about tax certainty, and again here the processes will be quite similar to what’s been presented previously in public consultations, but also taking into account the feedback that we had during those consultations from stakeholders.

So just big picture in particular, multinational groups will have the ability to request scope certainty, so to check whether they’re in scope of amount A; advanced certainty on the application of revenue sourcing rules; and then comprehensive certainty on overall application of the convention. The certainty outcomes, it’s intended, will be binding on all the countries that are parties to the MLC.

Stephanie Soong: I think we’re all looking forward to seeing more details when that comes out. I have to ask, the EU Tax Observatory came out recently with research saying that the United States must sign and ratify the MLC in order for amount A to work. What do you think of those findings?

Manal Corwin: So there’s a threshold that’s cited. Actually, there’s a threshold cited in both the outcome statement and then there’s one that’s relevant to the entry into force of the MLC itself, and it’s the same threshold.

That threshold references the need to have 30 jurisdictions signing that represent at least 60 percent of the scope entities that are covered. Based on the current numbers and the current revenue associated with corporations, that does indicate that the U.S. needs to be a signatory as well as a country that ratifies in order for the thresholds to be met.

Just to also elaborate on the relevance of those thresholds: So the outcome statement had an extension of the standstill agreement for one year, and in order for that standstill extension to be recognized that it’s conditioned upon the ability to secure signature of the MLC by at least 30 jurisdictions, representing at least 60 percent of UPEs [ultimate parent entities].

Then the second circumstance in which that threshold is relevant is with respect to the entry into force of the MLC. So you would need that same composition or that same critical mass in order for the MLC to be entered into force. You need ratification by 30 jurisdictions that represent 60 percent of UPEs.

Stephanie Soong: I assume conversations are ongoing among the inclusive framework about who’s going to sign and who’s not going to sign. What is happening? What are you all doing, I guess, to get people on board?

Manal Corwin: Yeah, I mean I think the goal is certainly to get to signature and ultimately to get to ratification. I think the focus here is, it’s a little bit that you can’t run before you walk kind of thing. So I think that the notion is there’s several milestones that have to be achieved and we’re trying to make sure that we get to each milestone.

The first is to get to a text that memorializes an agreed architecture. It was very, very important to reach that first milestone. As the outcome statement reflects, that milestone has almost been achieved so that we have a text that provides the details and it’s a big, big step from the October 2021 statement, which was more of a conceptual agreement.

Now you’ve got, what does that look like from a design and, more specific, technical, perspective? So that’s the first milestone and the hope is you’ll see that text of the MLC shortly.

The next milestone is to get to signature and to get a critical mass of jurisdictions to sign. Here again, given the support for the outcome statement to get 138 jurisdictions signing on was a significant achievement.

I think the view is if we can get that text done and the final technical issues resolved that we should be able to get the necessary signatures by the end of the year based on the reflection of support within the room. Ratification then is now the province of parliaments and legislatures and that’s the third milestone for this now to enter into force.

I think that requires reflection by the legislative bodies across jurisdictions and the normal consultation processes. There’s varying time and different time spans for that, as well as different consultation processes and considerations.

So I think that the goal is to also meet the threshold there, but we recognize that will take more time and needs the first two milestones to have been surpassed before you can even consider the third.

Stephanie Soong: Let’s switch gears a little bit here. We can talk a little bit about amount B. Recently, there was a constitution document published and that closes on the first of September, I believe. Will there be a consultation meeting [as] in the past for this one?

Manal Corwin: Yeah, there’s not a physical meeting plan for this consultation. So we’re hoping that stakeholders will submit comments, and as you said, the consultation period is open through September 1. From there, the goal then is to publish a report by January 2024, as well as to simultaneously update the transfer pricing guidelines to reflect the appropriate parts of what is agreed in those guidelines.

Stephanie Soong: OK, good. That actually clarifies my next question about timelines. So it would be simultaneous publication of the report plus the transfer pricing guidelines being updated?

Manal Corwin: Correct.

Stephanie Soong: That’ll be very exciting. OK, great. Could you tell us more about this interdependence of amount B and the signing and entry into force of the MLC? There’s always been a bit of a confusion about the link between amount A and amount B. I mean besides the fact that they’re part of pillar 1, could you tell me a little bit more about that interdependence?

Manal Corwin: Sure. I mean, I think you hear a lot of countries who are at the table and since the beginning of the two-pillar solution have said that this is a package. You have some countries more interested in pillar 1, some countries more interested in pillar 2, but view the moving forward here as a package.

Within pillar 1, which as you’ve noted, includes two components, amount A and amount B that aren’t directly related, but I think countries again view them as a package. You have some jurisdictions that care very much about amount B and care less about amount A and other jurisdictions where their priority is amount A and have less interest in amount B.

So with that in mind, I think the aspects of amount B that I think all the delegates agree on is that this notion of making sure that with respect to low-capacity jurisdictions where there are little, a few, or no comparables, that having the amount B simplified methodology is going to be an important piece of the agreement and that the interdependence is not really linked to that aspect of amount B.

There is in the next few months the continuation of the conversation about amount B and the refinement of what is a baseline distribution activity. In that regard, you have some jurisdictions who feel very strongly that they want the application of the simplified methodology to apply in broader circumstances that are appropriate and that their willingness to sign the MLC will be dependent on satisfaction around that slightly broader scope of application of the amount B methodology that will be worked out in the next couple of months.

Then on the flip side, you have jurisdictions who feel strongly to the extent that amount B does apply in those broader circumstances, that that should be dependent and interdependent on the availability of that simplified approach, be dependent on countries actually ratifying the MLC that would bring amount A into existence.

So that is the interdependence. Depending on which side you’re on, the notion here is it’s a placeholder that recognizes that countries have different interests in the different sides of this, but they are intended to be a package in order to memorialize the deal.

Stephanie Soong: Got it. OK. Thank you. Let’s now talk a little bit about pillar 2. So the OECD recently published a package of additional pillar 2 guidance, including the global information return, guidance on the transitional UTPR, safe harbor, permanent QDMTT [qualified domestic minimum top-up tax] safe harbor, transferable credits. What other guidance is in the pipeline that our readers should look out for next?

Manal Corwin: Yeah, sure. So we’re working on a handbook to support the implementation of the GLOBE [global anti-base-erosion] rules. I think the goal is to deliver that at the next G-20 finance ministers and central bank governors meeting in October, this coming October.

That handbook will provide a step-by-step approach to the implementation or the application of the rules, including illustrations on specific examples to facilitate understanding of the application and hopefully with a view towards making the technical content much more accessible.

There will also be a chapter in that handbook on just capacity building. It sets out the support that we’ll be providing to developing countries to support implementation of the rules. We’re already in conversations about that and setting up programs to support implementation of the minimum tax in particular in developing countries.

We will also be working on developing a peer review process to allow jurisdictions as well as stakeholders to identify the qualified rules and ensure coordination among implementing jurisdictions as to when particular aspects of the rules are qualified.

Then finally, we will continue to support the coordinated implementation to ensure that implementation is coordinated by releasing further administrative guidance as needed. So a number of things to look for in the coming months.

Stephanie Soong: Yeah, it seems to me that just recently there’s a flood of different things coming out and really, it’s a lot. I can’t imagine what it’s like on your side to getting all these things out.

Manal Corwin: It’s a lot. It for sure is a lot.

Stephanie Soong: Well, so Business at OECD has said there is not enough consultation with business on this latest batch of pillar 2 guidance and they called for more consultation to ensure the rules are workable. How do you respond to this?

Manal Corwin: Yeah, I mean, I think I read the note. I think that they’re seeking continued engagement and we certainly are very, very supportive of doing that. We have been consulting and I think a lot of the input has been helpful in improving on guidance and some of the simplification, but it’s something that we will certainly continue to do and improve upon so that we can get the input necessary to make the rules more administrable and easier to comply with, but the conversations will continue. I think there was a conversation today with the business advisory group and we will continue to engage and look for opportunities to get input.

Stephanie Soong: Just going beyond the pillars, I know we always talk about the pillars, pillars, pillars, but yeah. Beyond the pillars, one thing that caught my interest was this message that countries must declutter their corporate systems in light of pillar 2. Can you just talk a little bit more about this and how the CTPA plans to take this kind of work forward?

Manal Corwin: Yeah, sure. Look, the focus that countries have had on addressing concerns about profit shifting or putting in measures to protect their tax base and coordinate with other countries, it’s been a long journey and has its roots even well beyond there was the word “BEPS” [base erosion and profit shifting], and so forth.

So I think as you watch that, particularly over the last 10 years, there were a number of things that were put in place to address concerns that when you look back, especially once the minimum tax has been broadly implemented, some of those other measures will become less relevant or less necessary.

So we have an opportunity to reflect on to what extent there can be some streamlining and greater simplification taking into account that the minimum tax maybe obviates the needs for other rules. So looking, for example, at measures like the hybrid mismatch rules that were part of the BEPS action plan early on, evaluating to what extent those can be either simplified, or aspects of them are no longer necessary, when you’ve got a minimum tax. Similarly, approaches to CFC [controlled foreign corporation] rules, model CFC rules, or the limitations on interest deductions, mandatory disclosure rules, approaches to aggressive planning, or harmful tax practices.

I think there’s an opportunity to just reflect on either whether certain things are necessary or whether there’s more simplified approaches, again in light of more recent developments. So I think we’re eager to reflect on that and work with countries on taking steps to further simplification as well as promote stability and, frankly, free up administrative resources to focus on the aspects of the system that really make a difference and aren’t duplicative.

Stephanie Soong: What are the areas of the OECD’s work should practitioners be paying attention to and why?

Manal Corwin: Yeah. No, I think this is part of this notion of beyond the pillars, is there’s obviously a lot of work that’s been focused on the two pillars, but simultaneously significant amount of work continuing in many other areas.

I know an example of that is in the transparency area. So we’ve recently released the Crypto Asset Reporting Framework, which has now been adopted as an international transparency standard alongside some amendments to the common reporting standard. Together they’re updates to transparency standards, but in particular taking into account virtual currencies and other cryptoassets, other form of digital assets that needed to be accounted for in the transparency packages that we’ve worked on in the past. So that’s an area of new development.

With respect to tax administration, there’s been a focus of work providing a blueprint for integrating tax processes into the systems that businesses and taxpayers use in their daily work to reduce burdens for businesses in terms of compliance and hopefully promote compliance, but also improve tax administration.

So that work is being picked up now. The Forum on Tax Administration has been driving it, and we’ve got 41 tax administrations plus business and academic representatives who are going to be meeting again to discuss some new projects in this area in October in Singapore when the Forum on Tax Administration meets again.

So there’s some really important work there. Staying with the Forum on Tax Administration, their MAP [mutual agreement procedure] Forum has also recently released two important manuals to increase tax certainty. Notably, there’s a bilateral advanced pricing agreement manual and then a manual on the handling of multilateral MAPs and the APAs.

Then finally, the OECD international VAT guidelines continue to go from strength to strength. We’ve got over 90 countries that have now implemented these internationally agreed standards and guidance for addressing the challenges of collecting value added taxes on digital trade.

So we’re continuing to in that area also develop detailed regional toolkits for Africa, Asia-Pacific, and Latin America and the Caribbean. We’re working with regional partners on this, including the World Bank, to provide guidelines for the implementation of these VAT standards, which are really game changers for a number of countries.

So I guess beyond these areas, we’ve got a very vibrant work program on tax policy and tax statistics, tax and crime, as well as capacity building and implementation support for developing countries. So I think I would keep an eye on all of those things.

But then more broadly, looking ahead, we had in our inclusive framework meeting [in July], we had a side event, a stakeholder event, and had input on other areas that are top of mind for various stakeholders, including not just governments but civil society, business, and other organizations that are looking at various issues that would benefit from coordination.

Among the areas that emerged and were discussed are taking a look at global mobility, the tax aspects of global mobility, both at the individual and corporate side, especially post-pandemic; taking a deeper dive into tax and inequality; as well as looking at other areas of transparency that need to be addressed as things have get modernized, and various other issues.

So we’ll continue to get input, stakeholder input on areas of focus and start building up a future agenda from the bottom up.

Stephanie Soong: Well, it sounds like you have a full plate, more than full plate, ahead of you. Well, thank you so much. I know you’re super busy, so we really appreciate you coming in and speaking with us today. I look forward to seeing what the CTPA does next.

Manal Corwin: Well, thank you again. I appreciate your having me and look forward to talking again in the future.