Enforcing higher tax burdens on tech giants

Manal Corwin - Head of Washington National Tax at KPMG joins Yahoo Finance’s On The Move panel to discuss how taxation of the digital economy is impacting Big Tech.

Video Transcript

ADAM SHAPIRO: Welcome back to "On the Move." Let's talk about tax plans from the different candidates but also the way digital taxation may be evolving. Who better to do that with than Manal Corwin, the KPMG Head of Washington National Tax. Good to have you here.

And this is really an issue that for some people might be on the back burner, but it's front and center for governments worldwide which are trying to raise revenue, and it's taxing digital companies. What should we as investors consider as this is unfolding?

MANAL CORWIN: Well, first, thank you for having me. I think there's two things going on. It's helpful to back up and see what's happening. There is a public debate right now, a public perception that digital companies aren't paying their fair share of taxes. And that is putting a lot of political pressure on changing tax rules and acting quickly.

The second thing that's going on is that there has become a common agreement, a widespread agreement among policymakers that tax rules that have existed for a long time now are just no longer fit for purpose in the modern digitalized economy.

So both pressures are coming together, and I think as investors, I think it's important to know that things are going to change. The only question is whether the change happens in a coordinated global fashion where the rules, through the OECD process, you get to an agreement on new reforms to tax the digitalized economy or what we see is the political pressure is so significant to act quickly, we see countries acting unilaterally, which will likely spur reactions in terms of tariffs, trade tariffs, and eventually a trade war.

RICK NEWMAN: Hey, Manal, Rick Newman here. I'm trying to think-- I'm not an expert on this. I'm trying to think if countries have ever acted in coordination with regard to tax policy because we just saw so much tax arbitrage during the last 20 or 30 years. So that might be too long of a question.

MANAL CORWIN: [INAUDIBLE]

RICK NEWMAN: What I'm really wondering about, Joe Biden has this plan for an alternative minimum tax on companies. You know about this. So if you report a profit to shareholders but use tax breaks to lower your tax bill, he wants to make bigger companies pay this extra tax. Does that make sense, and do you think that has any chance of becoming law if Biden wins?

MANAL CORWIN: Yeah, I mean, I think it's difficult to predict where that goes. I think that there's been a conversation about the need to have a minimum tax on corporations for a long time, and arguably the tax reforms that we saw in this administration have approached global taxation in that way by adopting what is viewed in some ways as a global minimum tax.

There is a connection between, you know, the first question of what's happening at the OECD on the digital economy. You know, part of the proposals that the OECD is looking at is to adopt a global minimum tax on corporations. That would be enforced through, you know, various measures that make sure that every company pays a minimum tax across their-- across all the places in which they operate.

So I don't think it's a new idea Frankly, the seeds have been planted in the tax reforms we've seen in this administration, and it's a conversation that's continuing globally as well.

ADAM SHAPIRO: You brought up the tax-- it was the Tax Cuts and Jobs Act of 2017. I wanted to ask you something because just a couple of days ago Larry Summers along with a professor from-- I think it's the University of Pennsylvania-- published an op-ed in the "Washington Post" where they said-- and forgive me for turning away from the camera, but nearly 20% of large corporations that reported profits to shareholders of $100 million or more paid zero or even negative federal income taxes in 2019.

I realize I'm just reading to you from this article. Is that accurate? What does that say to us?

MANAL CORWIN: Well, I think there's a lot of statistics out there. There's a lot of data, and you'll see different think tanks coming at it in different ways. So it's difficult to tell specifically, you know, with respect to that study what they were looking, whether they were looking at effective rates and the approach they were taking.

I think more broadly, I think the question is whether or not in a modernized economy where there's a lot more intangible activity, where companies are doing business virtually rather than through physical presence, do the tax rules that are currently available the amount of tax that's collected or the revenue as well as the sharing of revenues among jurisdictions?

And I think that is an issue that policymakers are grappling with. And, you know, in terms of what the impacts of current rules are relative to what new rules are, I think the economic-impact studies are trying to get at that now. But I think there is a general dissatisfaction among governments in particular that current rules aren't quite cutting it.

RICK NEWMAN: Manal, you mentioned the Trump tax cut which lowered the US corporate rate from 35% to 21%, and you mentioned how that is closer to global norms. So we know that Biden wants to raise that, not back to 35% but maybe back to 28%. Would that create an efficiency problem or any kind of problem? Would that renew an incentive for US companies to try to, you know, park revenue and profit overseas? Like what's the right number there, if you know what I mean?

MANAL CORWIN: Yeah. That is the big question. I don't know that there is a right number. I think, first of all, we don't have a lot of information about the Biden tax plans. As you know, we only have sort of very general directional points at this point. They have signaled a plan to increase rates, but interestingly they are-- a lot of the, again, signals in the plan continue to keep a difference between the domestic headline rate and the offshore rate. That's not different than what we saw in the Tax Reform Act, nor is it that different from what we saw signaled in the Obama-era proposals for reforms.

You know, the tax code's complicated. There's a lot of provisions that intersect, and then there are behavioral responses to those provisions. And I think the focus should not be just on the rate but should be on the impact of that rate on growth and jobs, and that fundamentally is what really matters.

ADAM SHAPIRO: Manal Corwin is KPMG head of Washington national tax. Good to have you here. We appreciate you joining us.