Itai Grinberg: The Pillar Two origin story (part 2)

[MUSIC] Welcome to Cross-Border Tax Talks, where we discuss the latest trends in international taxation. From US tax policy to the OECD's latest developments. I'm Doug McConey, PwC's International Tax Services Global Leader. PwC's Pillar 2-inch, powered by Beacon, is a game changer for Pillar 2 modeling, provision, and compliance calculations. Built on a graph system utilizing over 20 years of international tax technology. This cloud-based centralized rules engine is developed by a team of Pillar 2 tax experts from around the globe. PwC's Pillar 2 engine is currently available as a service and is now available to license. On this week's episode of Cross-Border Tax Talks, we're in PwC's policy on demand studio in Washington, D.C. where I'm thrilled to have Professor A. Tai Grinberg on the podcast. ETAI is a professor at Georgetown University Law Center and served as Deputy Assistant Secretary of the United States Treasury Department during the Biden administration, where he served as lead US negotiator for the global corporate minimum tax. ETAI, welcome back, sort of, to the podcast. Thanks for having me, Doug. Glad we're doing this again. Yes, and we'll explain that. But before we begin, an important caveat. All of the views expressed by Professor Grinberg do not necessarily reflect the views of PwC. All views are his own. Agreed. All right. I also wanted to mention for the audience, ETAI, that we attempted to record this a couple months back in front of your students. And I think we had a fantastic discussion, your perspective of the Pillar 2 origin story. The discussion was great. The audio was not. So I very much appreciate you coming in to re-record this episode in this studio. And I think this is important. What we're talking about is you know we had Pascal, Senteman. I had Pascal Senteman on the podcast a couple years back. And I really think that your perspective is a crucial piece to the Pillar 2 origin story, particularly as the primary representative from the Biden administration. So thank you for coming back for this second recording. All right. So before we dive in, I'm going to ask you the same question that I did in front of your students. It's going to lose a little bit of its lustre here. But what is your elevator speechy diet as to why students should consider international tax as a profession? I mean what I tell them is if you want an incredibly complicated puzzle that'll give you a marketable skill that also touches every cross-border transaction, then maybe this is the subject for you. Yeah. And that's my story. So I recently did drinks with one of my best friends from law school and we were kind of reflecting on 25 plus years in our careers. And he practices in a much more narrow area. He does litigation and he's a true expert in his field. But it's not very dynamic. You know, it's just like, you know, rarely do they get a case that would change the law or there's something new that comes out. And it really made me appreciate the fact of just, and he was a little envious of just like, how dynamic it is. And it's just constantly changing. You're having to stay up to date. Obviously I've been able to have a chance to travel the world and work with people from all their cultures. But it really made me appreciate like how much I still love my job, how dynamic it is, how I'm challenged every day, how there's never a shortage of new things. And there's everything from non-technical problems to big geo economic questions. And so it's great. Absolutely. Yeah. Okay. So we're going to dive into pillar two. But what I want to start with the timeline, just to provide a little bit of context for the listeners and so that they can understand sort of where you came in in the process. We're going to go all the way back to 2013. The G20 and the OECD base erosion and profit shifting, otherwise known as BEPS initiative, was formally initiated by the OECD's Committee of Fiscal Affairs. Over the next two years, 15 action items were developed, including action three strengthening the CFC regime. The inclusive framework was established in 2016, recruiting additional countries into what became the pillar one and pillar two project. In October 2020, near the end of the first Trump administration, the OECD released its report on pillar two blueprint. And then in February of 2021, so a few months later, you joined US Treasury for the Biden administration as deputy assistant secretary. And then in December of 2021, so later that year, the pillar two model rules were released. So let's start with, how did you get this gig? Right. I like, how did you get the job? I know. And you have to rewind all the way to November 2020 to understand that. Okay. So Joe Biden has won the presidency. Democrats control the House and the Senate, barely. President Biden's campaign platform, importantly included moving guilty to a country-back country system, and raising the guilty rate and raising the corporate rate. Meanwhile, I'm historically someone that Republicans call as a witness. So how did I end up with this job? Right. I've said going to worldwide by ourselves is not wise when other countries are in a dividend exemption. But the thing is, I'm also like a never-trumper. I'd called the right people in the Biden campaign in the summer of 2020. And I tried to explain to them that if the US were to go country-back country on guilty, then clearly as a competitive-ness matter, we really want the rest of the world to come along with us. And that something like that was already being negotiated at the OECD. So I go off my marry way. But it turns out the Biden campaign policy team didn't know that much about the OECD process. They appreciated my calls and briefing. And then in November, Donald Trump does something unusual, which is he disputes the results of the 2020 election. And as part of that, he refuses to give security clearances to the Biden team to let the winning side go talk to the civil service, go talk to the treasury to start transition. And amazingly, the Biden team has a contingency plan for this. And they had actually decided in advance that if Trump blocked their access to the civil service, they'd call a list of like a couple hundred people they had who weren't necessarily democratic bluebloods, but who they thought were experts on like specific issues where they thought they needed immediate input. And they would ask those people to join the transition. Turns out I'm on that list. So I get a phone call like a week after the election. And like almost everyone who gets this call that says the country needs you, literally because Trump won't let us go talk to the government. I say yes. >> And you were a professor of Georgetown. >> I was a professor of Georgetown at the time, yeah. And I start working in mid-November with a mandate to think about all the international tax, but to develop policy focused on how the Biden administration should deal with the two pillars with the clear understanding that Biden campaign positions, including like the idea that you know, you should go country by country and corporate rates should go up. Those obviously are like those are decided. That's done. So that's the story. That's how I got the gig. And so when you started then, what was your role in the Biden administration and really interested in when and how you started focusing on the pillars and specifically pillar two? And we're not going to spend a lot of time on pillar one. I think that's dead for-- >> Basically dead. >> Yeah, I don't even know that it's basically. >> Yeah. >> People are still talking about it. But you know, pillar two is here and we're going to get your thoughts as to what the future of it is. But we've got companies and practitioners that are getting ready, compliance is around the corner. So what was your role in the Biden administration and when did you start focusing on pillar two? >> Right. So I'm focusing on it from late November after the election. And it starts out with me intensively briefing the global minimum tax and pillar one. And ultimately I'm briefing Secretary Yalen. But then importantly, she decides that I start have to start briefing other parts of the government. And so I end up briefing national security advisor Sullivan, director of any C Brian Deese, director or sorry, Commerce Secretary, Ramondo, USTR, Secretary Tye, the State Department in Udaro, all of those people before inauguration, which to be clear is like unheard of for a tax policy project. And so we really should figure out why that happened and why it happens and it becomes clear to me. Because I start out with this level playing field perspective, right? Which I've come to from 20 years of basically believing in that and having the private sector tell me that's a good thing. But as we start walking through it, it turns out that for Jake Sullivan, for the State Department, for Secretary Yalen, the OEC negotiations are attractive for reasons well beyond international tax. A basic problem the Biden team has is that Donald Trump and his first team has seriously compromised economic relationships with our allies. Often by treating them no better than sometimes worse than our adversaries. And that's created blowback. And so the administration wants an international economic policy to rebuild relationships, including with Europe and with Japan and with Canada. But the thing is the administration is split internally between those who, you know, setting aside China or pro free and open trade and those who have a more protectionist ban. So the administration, they can't commit to new free trade agreements or greater market access or even actually green internally to drop all the first term Trump tariffs or restore the functioning of the WTO. None of that. And remember, this is like before the Ukraine war. So the day-to-day cooperation internationally is mostly around economics, right? That's how people think about it. And so I'm articulating that the global minimum tax is a policy that's consistent with Biden campaign proposals. Everyone's on board with that. It's supposed to reduce tax avoidance and inversion risk and level the playing field for USM and E's. And remember, the Biden team wants and thinks it will soon have its way that amines will soon face country by country guilty. So that argument, you know, is meaningful. But, you know, meanwhile, from the perspective of all these other people, actually pillar two goes well beyond that. It's a path to help rebuild and revitalize our economic relationships with allies while sidestepping the internal fight about protectionism versus free trade. So, you know, I'm sitting here saying, okay, I was an associate at Scadden in the policy shop in part, right? And for, literally, I wrote reports about the level playing field. I mean, I came to these beliefs, honestly, right? And a friend of T.C. for T.C.P.I. for the Chamber for the predecessors of Act, like the level playing field. That was basically the number one private sector talking point for 20 years. Like, literally, all the way until it was delivered. We saw a lot of the like the inversions, and then we had, you know, the Tax Cuts and Jobs Act came out. And obviously, there were a series of regulations that sort of ended some of the inversions. That's where U.S. parented groups would become parented by another territory. And then we obviously, we had the Tax Cuts and Jobs Act, which, you know, Pascal even admitted or commented that guilty, it was the first income inclusion rule of its type, right? That the income inclusion rule was really designed around guilty, but it was not country by country, right? And then the rate was 21. And so I do think it's an important point for listeners to understand that sort of the premise when you took the job was that we're going to move to a 28% corporate rate, right? And then guilty is going to be country by country. And one could argue that that was a reasonable thought because Biden had both had Democrats in both the House and the Senate. And so the thought was that there were two years that they could get those legislative changes. And even if you believed that 28 wasn't a reasonable, 25 was like very serious. People were taking it very seriously, you know, all the way through September when the House Bill doesn't have it, right? But I think, you know, the other thing to recognize, right, is, I mean, like the OEC thing is a foreign initiative that can help build support for this domestic legislative proposal. So any see likes it, okay? And it even turns out that it solves USTR Catherine Ties predicament, which is basically that Bob Lighthizer left her with a report that said digital services taxes or discriminatory, but she didn't actually put on the related tariffs, right? She threatened them but didn't put them on. And the truth is Catherine Ties doesn't mind tariffs at all, but it turns out she had no real interest in leving tariffs to defend big tech. And now this project says, oh, I can talk about this pillar one thing. I don't have to levy tariffs to defend big tech. And I can still say I'm doing something, okay? And Secretary Yellen, like she sees all the pieces. She sees the corporate international tax story, right? She sees the domestic legislative story, she sees the trade story, she sees the economic relationship story. And so she ultimately asks me to like go around briefing, I mean, I ended up briefing six cabinet level designees, pre-noguration. And that's eventually why I end up with this like, we end up with an all of government mandate for pillar two, not just a treasury mandate. And sort of unique role for me in truth. Oh yeah, I mean, and it's fascinating. I mean, I think that really probably was some of the start of it of just how big like international tax now is in the news. We used to hide in our little corner of tax and specialty and obviously with the most recent Trump, day one executive order on international tax were really front and center. Maybe you can tell me about, I know you took an overseas trip with Secretary Yellen and had the opportunity, I think to debrief and meet with a number of foreign ministers over in Europe. Tell me a little bit if you can, you know, tell me a little bit about that anecdote. And I'm interested in sort of your relationship as you were working with other members of the inclusive framework and specifically Europe. And how did we kind of move like because we ultimately at the end of December, we got the model rules came out. I'm interested kind of how we got from the Biden administration coming into those model rules coming out in the end of 2020. Yeah, and it's important to think about it in terms of period, right? So you've got the pre-nauguration period which we already talked about and then you've got this period from January till the G7 Finance Ministers Meeting in June, which is what you're asking about, right? And so, you know, that meeting is really interesting because it's the first time that I go abroad with Secretary Yellen. I don't know at the time that I'll be going with her abroad every time she goes abroad for the next 18 months. Like, I don't know that's happening. This is the first trip. Yeah, this is the first trip and basically, you know, first on the trip, like, understand we've been negotiating now for pillar two for a while. Okay, so there is a term sheet. Okay, and the briefing on the plane is like going line by line through a term sheet. I got to tell you like, Janet Yellen, I mean, you can't ask for more for a boss. Like, the way she prepares, the way she asks questions. Like, it's a lot, it was on her my life to work for her just because she's so smart and she just keeps probing, right? She asked about the U.T.P.R. She asked about pillar one. She asked about all of these dynamics, right? But the reality is that where we are at that point is that she's been talking about the Lohmanum tax. And meanwhile, what happens is that in the United States, the American Rescue Plan passes. So the Biden administration gets its big infrastructure and child tax credit and all that policy through. That was the first big bill. That's the first big bill. And so we've been having these internal negotiations inside the administration. And NEC, which is quite progressive, has come back, right? And they're now really engaged and they're pretty sure we're going to pass another bill with everything the administration wants, right? The tax bill? A tax bill, a tax bill. Bill back better, which in the end doesn't pass, right? We'll come back better. We'll get there. But and so, and so like, at some point along the line, we've had a discussion internally with the White House. Where basically they say, well, okay, I mean, there's a fight about it. Well, you guys can keep pursuing this, but it has to be at least 15%. Okay? And at this point, then the Secretary starts saying, and I start saying it in April and in May, because we end up with an agreement with the White House. That's what we're going to do. And we get the French Finance Minister to say it before the G7 meeting. And we get the German Finance Minister to say it. They're even saying 21 at one point. And Canada is on the minimum tax. As the minimum tax, they're asking for 21. They know what we want. And Canada's on board and Japan's on board, but Sunax is not. Okay? And you have Mike Williams, who has been, who's the head of the UK's international tax function. And he's been throwing cold water on pillar two pretty much the whole time, right? And he's doing that for a reason, right? Which is, first of all, he's afraid that the US won't pass a bill. And the second of all, you've got to realize the period we're in is a period where everyone is thinking about Brexit. Because Brexit's just happened. Brexit's still totally fresh. And we're still in the period where then Prime Minister Johnson is saying, well, what we want is to have the lowest corporate tax rate in the G7. And we want to get companies basically to relocate here. It's been avert here. Right. And we, I mean, what people call Singapore on Thames, right? That was the buzz word for it. Okay. And so that's really focused a lot of minds, especially in Europe. And meanwhile, Mike Williams, what does he think? Well, he kind of thinks, look, I mean, I was against Brexit. But now that we've done Brexit, I sort of think that our best chance is actually to get all this redeveloped on the solution. So I'm sort of against pillar two. But meanwhile, my chancellor, he's not totally there. So what am I doing? I'm saying things like, okay, well, we can agree to pillar, I'm getting the chance. I mean, literally, I'm getting Chancellor Suneck to go on British TV and say things like we support pillar two, but only if it's with pillar one. And almost this Mike's perspective or your first-- This is Mike's perspective. And he literally gets, I mean, the week before we go to this G7 meeting, he gets Chancellor Suneck to go on British TV and say we support the global minimum tax, but only in tandem with a pillar one deal, which also is a treaty for everything, for both of them. Now, let me ask you, Doug, would you get a treaty for both pillar one and pillar two through the Senate with two thirds? I know you're a magician, right? Yeah. No. So you can understand Mike knows that that's impossible. Suneck might not. Okay. We have to have a meeting with Suneck. And that's the meeting we prep for. We have to have a multi hour. The first meeting I have, we show up in London, is basically a multi hour meeting with chancellor Suneck in which we debate all this stuff. And at the end, like, Suneck comes on board. Okay. And so now, you know, we have agreement for the first time. Right? And meanwhile, of course, at the OECD meetings, there's been all this stuff that Mike has been saying in the prior before this, right? Things with Mike saying things like, okay, how confident are you that the US will go guilty country by country? Right? And what do you think my job is? My job is to say all the things, right? Well, what did you say? What was the answer to this? The answer is the Biden administration is committed to country by country and confident. It's reform efforts. What are you supposed to say? And let's be clear. I mean, it's not like you could say something else, right? Because those meetings, they're not confidential. Like, it's not like you can say something there and it doesn't leak, right? Like, it doesn't matter what you believe. Like if you say anything else, it's going to affect the domestic legislative process and you're going to get fired. Like, just to be clear, right? It's 100% clear what I need to say, right? And so I say it. And Mike, of course, he doesn't say that I'm a-- he's against the William Tax. Well, he doesn't say that. He says there should be a treaty that links the two. You see what I'm saying? Yeah. Like, it's a-- which is just a way of fighting it without saying, I'm against it because my chancellor is not so against it. So I'm going to come up with something meaty, right? Like he-- Yeah. Politics complicated. But anyway, basically-- So you're able to get this deal. And now that we have the deal at the London G7, which is, I mean, basically we spend most of that meeting. Like, the primary subject that the G7 finance ministers and their tax leads spend that two-day meeting on is pillar one and pillar two. That is the-- that is the only subject of discussion where the finance ministers have one meeting. And then they send all their negotiators out. And they have the negotiators come back in and brief the ministers. And they have another discussion. And then they're fighting about the paragraphs and the communicate to the very end of the meeting. Like, it's the final thing to be finalized. It is the subject of the meeting, OK? Which is remarkable. Which is amazing. It's an international tax. It was like this important. This important. And this is like, exactly why I want to have this kind of-- And importantly, when it's over, OK, it's really interesting. Like, what do we get? Well, we get a community that can manage the G7 to push for pillar two to 15% rate. We never had that with all G7 countries are agreeing on a country-by-country basis. OK, it says, look, there's no timetable for pillar one. That's the same as pillar two. It doesn't agree that DST's are kosher if we missed the deadline, which the UK wanted. It doesn't link pillar two and pillar one. It includes a commitment to get rid of all the STs if pillar one gets done. And then the press conference, what does Yellen come out and say? She talks about rebuilding international economic cooperation via international tax after the Trump years, as well as stopping tax avoidance and all of that. And Sunaki basically says the same thing. OK? But now we've made front page news. And now we have a G7 agreement. And so there's two things going on. First of all, from, you know, I think that the private sector was shocked that we've gone this far. The Biden administration was shocked too. OK? I like, I remember being shocked. Yeah. It was a practitioner. So it's important to realize, like from Jake Sullivan's perspective originally, right? From the NSC's perspective originally, the whole point was, I mean, it was great if you got it. But the most important thing was just to be leading the discussion, trying to lead a discussion about international economic cooperation was the most important thing. But now we've gotten it. Now it looks like it could be like this big victory for the president at the G20 meeting in November. It's like his big international economic relations accomplishment, right? And so all of a sudden, everyone is supporting. OK? Everyone is supporting inside the administration and hoping that it'll give us leverage to talk to allies about other economic issues and all of that. But at the same time, now something is really live, which I know we want to talk about, which is until then, like there's a background conversation about whether the old, undertax payments rule works and how to enforce this agreement so that there are no defectors. But it's not live to decide exactly how all of that should work. Once you have G7 agreement, now it's June and now it's live. And that's an important thing to talk about. Yeah. The original framework, right, the original document that came out, the blueprint, discussed, talked about the undertax payments rule, right? And then it was changed. We've talked about this on the podcast at length. And it was changed to the undertax profits rule. How did that happen and maybe give a little bit of context or at least your perspective? Right. So I think a couple things to say. First of all, it's important to remember. Everyone talks about the undertax payments rule as if it was radically different than the undertax profits rule. It's important to remember, the undertax payments rule measured the amount of the undertax amount by reference to country by country profits. What changed was how you enforced that being collected. What was being measured did not change. And that's really important and people forget that. Okay. Now then, but it's also a really meaningful difference. It's a really meaningful difference. How is it collected? It's really meaningful in terms of whether the rule works. It's not meaningful in terms of what the rule measures. And I think that's really important. So what was going on in the background? Like remember, I've said that Brexit was really important to foreign sovereigns. So bubbling in the background, right? Is this idea, especially among EU member states and also some others, right? Like if the UK defects, that's like the real problem. And this is the point where they're still saying that their prime minister is basically saying that's what I want. I mean, that's what his rhetoric was just up until then, right? And meanwhile, you know, there's the fact that we're now talking about staking president level credibility on this deal. And so if tax planners are easily able to plan around this supposed global accomplishment of the president, that's going to be pretty embarrassing, right? And meanwhile, the Treasury is aware, and I have been aware for some time, that in services, not so much in goods, but in services, the old rule is pretty darn easy to plan around. Okay. Like it's not hard, especially if you can invert, but not only if you can invert. Okay. Making it on payments, if it's on payments. Because you can make sure that you're basically booking into the jurisdiction that's under tax, then not saying it came its out. We could talk about that for a while. But that means, and we've made that point, and we've shared it with our counterparts, right? And so there's been this quiet discussion going on, basically among the G6 in India about what we would do if we got agreement. But we haven't finalized what to do. Like we know that we're not that happy with the under tax payments rules, but there's just like a softer option and a tougher option. Okay. Now how did we get to the tougher option? Yeah. Because that's what we got to. Right. How do we get to that? There were two possible changes, and we got to the tougher one. Okay. And the interesting thing is what happens in the private sector? Because the private sector tax rule is surprised. They're a little bit paralyzed. But people don't like this idea of a global minimum tax all of a sudden. And so people start to mashing it, and via the BRT, they're ends up being the story that pillar 2 is bad because it could help China. And here's the thing. It's like right when we're trying to sort out the new UTPR rule, and we need to go brief the White House on where we are about all of this. And until then, I'm just getting from NSC and state things like how can we support you? But this China thing, is it true? They start asking, is it true that this is pro-China because all the Chinese subsidies are in the ultimate parent? And so this won't hit China. And so in some sense, the BRT and the Chamber, by saying that this policy was pro-China, put a thumb on the scale to have it hit the UPE jurisdiction. And the idea of being a parent-China parent-to-group is getting a bunch of incentives, and China does an odd-and-act pillar too, that this would allow a foreign subsidiary of China to collect the top-up tax related to those incentives. Well, it would be China. It would be China. And basically, Chinese would get their incentives, and no one would be collecting on them. And other countries don't give as many incentives. And so we should go after the Chinese. Now meanwhile, understand, it's not so long after the American Rescue Plan passed. So any C is sitting there saying, oh, we're going to get a bill through with a 25% or 28% corporate rate, and we're going to repeal FDII. And so if you think about the way that US incentives work, especially the R&D incentive, well, if you start, if you do, the estimates from a 25% or 28% corporate rate, and without FDII, I can tell you the impact of UTPR on USM and USM is not zero, but it is a minuscule. It barely hits, right? And that was one of the questions I had for you. Was there a focus on the R&D credit? Because obviously the UK has as refundable, ours is not. There's been a lot written that did the US sort of get penalized because ours is below the line. The UK is above the line, and the answer is, well, if the rate was at 25% or 28%, it just wouldn't have made a meaningful difference. Well, so I mean, the first thing to realize is a lot of tax practitioners are really focused on the R&D question. You have to understand it from the perspective of the policy makers. This is almost a third order question, right? And the reason for that is, number one, we're trying to move a bill to pass a bill back better and widen and kneel or both telling us this will really help, right, to get this deal. Number two, there's a sense that this is a way to restore international economic cooperation, and there are a lot of other things we want to get allies to do that they don't necessarily want to do, and they're really happy that we're on board with this, right? So this stuff is sort of in the weeds, but then separately, we do actually have to go brief on UTPR. UTPR requires a White House meeting. I go to Intekon on this, okay? And it's NSC, well, it's not, it's not, it wasn't full in it, it was NSC, NEC, and the Treasury, okay, on this issue. And it's interesting, I mean, first of all, recognize, I have a problem, right, which is, I don't control the estimates. So let's make an important point, which is, I don't control the Office of Tax Analysis, okay? And so there's an important question about how much income shifts back to the United States, depending on whether or not you keep FDII, and whether FD, keeping FDII is really important to having income shift back to the United States, I believe it was, not everyone did. But the other question is, which estimates do you show, right? And meanwhile, NEC is saying, we're going to pass a bill, it's going to have either 28% rate or 25% rate, and we're going to repeal FDII. And so if you show those estimates and you show the impact, it's pretty small, okay? And then separately, you have this China issue, which seems really big, and which I don't believe in. I actually think it's not an issue, for reasons we could talk about, because I don't think anyone's redomestiling to China is the main point. >> Not everyone knows China is not that. >> Yeah, right, it's just different, right? Like, China's not going to Ireland, China's not going to the UK. But people take the China issue really seriously, and so between the China issue, and this impact that doesn't look very big, if you succeed, the decision is, okay, well, we need the tougher rule. And I'm sent to go choose the tougher rule. My way in, then afterwards, are quiet discussions. Behind the scene discussions, they exclude the UK for the reason that one of the reasons we need a tougher rule is because people are afraid of the UK, right? And say, well, we want the tougher rule. And then everybody else comes along. And that's how we got there. One of the interesting things is that the way that rule was initially designed was to deny deductions and a particular jurisdiction, right, to the extent that they needed to collect a half of tax from a parent company or a brother's sister. What's going to interesting in practice, that a number of countries that have implemented the U.T.P.R. have not limited it to a denial of deductions, which could theoretically bankrupt a subsidiary without the ability to be able to pay the top up tax. When you were having those discussions, was there questions about whether the lawfulness generally of the under tax profit rule and whether it was consistent with tax treaties? Were those discussions, or are you part of this? I mean, I think it's important to recognize that in the entire Anglo-World, right, so the United States, the UK, all the former Commonwealth countries, treaty overrides are possible under domestic law, and that in the EU, directive overrides national level member state treaties. So I think that most people in the discussion understood that as a practical matter, it did not matter, okay, because all, you had enough enforcement power that if all the countries that were able to do treaty overrides, in effect did a treaty override, then the U.T.P.R. would have enough enforcement umph to work, okay? Now at the same time, you were completely correct, right? If we saw this thing happen where, you know, the documents said that U.T.P.R. was, you know, supposed to turn on, you know, starting, you know, this year, not next, right? And South Korea, like, didn't, I just think to be honest, the negotiator's English wasn't as good, and so they didn't understand the world's discussions. Yeah, there was this concern that they were on a dot U.T.P.R. one year earlier than the rest of the world and all of a sudden, Korea would collect the top up tax for the whole world. For the whole world. Which of course is impossible because it zeroed that. It's made a lot of us very nervous, but what happened? It couldn't happen, obviously. But remember from an accounting standard, an acted law needs to be recorded in public companies financial statements and that was a big concern. And I think that's an important point for when we look into the crystal ball, right? So let's come back to that. Yeah. Because I'm very worried that we will not reach resolution on any of this until financial statements need to reflect things. So we'll get there. Okay. We only have so much time. Yeah, I know. I know. I want to go from there. Yeah. TIE is the build back better, right? I mean, I think many people thought that this was a foregone conclusion with the Democratic Control of Congress. Talk a little bit about that experience and we know with when build back better failed and we were not the U.S. did not move to a 28% corporate rate, wasn't country by country or guilty, talk a little bit of that experience and then how did that impact the discussions and negotiations on pillar two? Well, just like remember, I mean, it's a roller coaster, right? And by September, it's passed the House, right? But with a 21% rate and a 15% guilty country by country rate, right? And so things look really good. And remember that it only fails by one vote, right? Like it's not like it's. So, you know, at the leaders meeting, okay, the G20 presence in finance ministers meeting, like, I'd go with the president, okay? And it is like the International Economic Policy accomplishment. It has already passed the House. Now you're agreeing in global level and the next step is to pass the Senate, right? So it seems like really positive, okay? And then of course it all crashes. And by one vote and that's really complicated. And now the problem is that we're not done with the legislative process. You'll remember the inflation reduction act passes, I mean, like August of 2022. And the Biden administration still thinks we can pass a bill, right? So we need to keep pushing for a bill. We need to keep pushing for other countries to enact, especially because Manchin literally says, "Well, I don't want us to go first. I want to see other countries go." So now what's the pressure? The pressure is to get other countries to go. So we'll go. Because that's what Manchin's telling us the story is, right? And so it's a roller coaster, but there we are, right? And meanwhile, of course, now we have to keep the pillar one thing going longer and not get hardcore about our pillar one positions because some countries care more about pillar one and pillar two, which was also complicated for us. Yeah, it extended that problem. So at what point did you all start thinking that about, well, once you knew that country by country guilty wasn't happening, we didn't have a qualifying income inclusion rule in the U.S. And I think it was July of 2023 when we ended up with a U.T. PR safe harbor for the U.S. that has much now talked about. Well, look, I mean, it's complicated, right? So just to be clear, I mean, for a while, right, we thought what we were doing was, you know, producing a common level of tax where we were going to go to guilty country by country. And thereby delivering on the level playing field that USM needs have been asking for forever, right? And meanwhile, we were getting four years of DST rope adobe. Basically, is the truth, right? Now of a sudden, we can see that we don't have a bill and we don't have the legislative requirement of being trying to help support a bill. So now we need to defend the US legislation as it is, right? And so we go out and we start saying, like, look, we need time to make this happen. And it's pretty clear, right, because of how Congress was, right, that Congress, that nothing was going to happen in the 23, 24 Congress, right? And meanwhile, as we know that TCJA, you know, is just expiring it, end of 25. And that's an action-forcing event. And everyone knows it's an action-forcing event. And it's not hard to explain the rest of the world that that's an action-forcing event, okay? I mean, we don't have a crystal ball. So we don't know who's, we don't know the outcome of the 2024 election, right? Let's be clear. Now you do, but we didn't back then, okay? And it's a reasonable assumption, although it turns out to be wrong, for Democrats and for us to be saying, well, we don't know exactly where it'll be, but Dems will have some power. We don't know if they'll hold the presidency, we don't know if they'll hold the one chamber, but they'll hold something, right? And so we're saying we'll get a bill done. And any situation where, if you guys go forward, we'll get a bill done in the end of 2025. Meanwhile, the rest of the world's position is, because remember, as part of this whole discussion, Michael Adams has been reminding everyone that in the Trump years, they did these analyses about guilty on a blended basis versus country by country. And the OECD basically came to this conclusion that said, look, like, a blended tax at 15% is sort of equivalent, roughly, kind of, to 11% on a country by country basis. It's like a 4% each point difference, okay? So everyone knows that, and therefore, no one wants to exempt the US forever, and no one wants to exempt the US UPE forever either, because they're taking on the responsibility of raising their own rates in their own UPEs, right? So we want an extension. They don't want the extension to go forever, right? We want to protect current law, they don't, and so what's the compromise? The compromise, and we don't have that much, like, realize, like, we don't have that much leverage anymore, right? Is, okay, we'll extend this UPE safe harbor until when you guys say that you will next have an opportunity to realistically pass a bill, which means the end of 2025. And that's how we get to that result. >> And you say extend the UPE safe harbor, are you talking just about- >> Or create the UPE safe harbor. >> Or create it, or not extend it. >> Or create it. >> Create the UPE safe harbor, sorry. Now we're already into the comment, you know, like, you get, even I, right, get a little turned around about the chronology, and it's easy for listeners to have that. >> Well, and I get to be credit like, Frank, the UPR is a year later than the income inclusion of rules. >> Exactly. >> So it was already a year later. >> It was already a year later. >> And now we're just delaying it. >> We're pushing it further. >> Exactly. >> Right, we're pushing it further and trying to create space for the U.S. to act. But we're doing it before we know the results of the U.S. political election, right? Because we need to get it done, right? We need to get it done. Yeah? >> So I want to get to the crystal ball, but maybe before we do that, can you, I would love your views on the inclusive framework process, how that works, sort of in retrospect. And maybe where that's heading. And so far as obviously a lot of uncertainty, I'm going to ask you to look into your crystal ball. But really just interested, and I know you spoke about this at the Vogue lecture in Vienna. And maybe just a couple of minutes on sort of the process and how the globe can work together and really try to pick up the pieces from pillar two, sort of where it sits today. >> Well, I mean, let me just back up from that, because I think, I mean, look, I've been saying, like, pillar two, can level the playing field and gets as close to level playing field than ever before. And there's truth to that, right? But on the much more important point, the one about helping stabilize the international economic order, the one that, you know, in my view is that order underpins USM&E success, having it be easy to engage in cross-border trade and cross-border business, having an assumption that we're supposed to behave non-discriminatorially towards companies, headquartered in different jurisdictions. All of that's like really important to USM&E growth, right? And, you know, the goal of pillar two from the non-tax peoples perspective was to, like, help sustain that. Well, that's all gone, right? Like, the Trump administration, I mean, we said before, when we talked in February, I said, like, I think they're in the process of shredding the order. Now I think I can say they've shredded the order. Okay, it's gone. So that's important, because, like, look, I mean, if you were opposed to pillar two, what did you think would happen if Republicans won across the board? Would you think we'd go back to 2007? Like, no, guys, that's not where we are, right? Instead, what we have is a lot of the features of the post-World War II order being eviscerated, starting with a divorce with Europe and Canada and not just China in trade and beyond. And eventually, there's going to be a real price for USM&E's in connection with that, but the original price is sort of paid by the OECD, right? So, I mean, that's why I say this, right? Because for the OECD, look, I mean, you saw this statement come out of the inclusive framework just, like, a few days ago, I don't remember. But it basically said, look, after the meeting inside Africa, you know what it says, it says, we agree to talk. That's what it says. It says, we agree to keep talking. What does that mean? What does that mean? What does that mean? It means we agree on nothing else, right? And it's true that I used to say, right, that what should happen, because we've proven that the, you know, the pillar two is now effectively an OECD member state project, XUS, right? In other words, most non-US OECD member states have adopted pillar two, okay? But most non-USD member states have at most adopted a QDMTT. They have done almost nothing else. So what I had been saying before is, look, the OECD should go back to its origins as a member state organization and they should solve this pillar two thing by themselves. And they should let the UN talk about pillar one and just ignore that. And they should try to do the developed economies again together and get them to all get along. Well, it's really hard to keep that message once you have a 10% across the board tariff and no differentiation between OECD member states and non-OECD member states. And frankly, I just imagine the position of my counterparts, my former counterparts. And I was really lucky in my job. I had a really tight relationship with my secretary of the Treasury. I knew that what I could say and couldn't say, and that I spoke for her when I spoke. And I had a lot of confidence that I could bring her along. These people, even if they had a mandate to negotiate some deal on pillar two before April 2nd, there's no way they believed when they went to South Africa that they had a mandate anymore. Because Donald Trump did something so aggressive with respect to their countries that they didn't know where their finance ministers were. And there was huge uncertainty and they probably had no authority to talk about anything. And my own view is that they won't have any authority to talk about anything until the trade tensions are resolved. Because it's just such a much bigger issue than this pillar two stuff and the pillar two stuff to the extent that we have retaliatory threats in the Smith bill. Right, we'll just get thrown into the pot with the trade stuff. Okay, and separately, I also think from the perspective of the OECD, it's very hard to understand why when you have this kind of posture towards the historic, I don't know, just of the OECD, which actually in some sense was about open trade and cross-border investment at least among the developed countries. Why do you focus on getting the US and the developed countries? You sort of start thinking, well, the US is kind of like an outlier now. We got to keep this inclusive framework thing going. So I had a view, which I felt very strongly about until April 2nd. Now I sort of understand why the OECD people would say to me a tie. That's a lovely view in a different world that we don't have. So I think that's what they'd say. So what is your view of the prospect of the OECD granting the US sort of a permanent U.T.P.R. safe harbor? And then the other thing that was in that first Trump executive order was, you know, he made the comment about the U.T.P.R. shouldn't apply to foreign subsidiaries of U.S. multinationals, which sort of begs the question of, well, could the OECD find guilty in its current form to be qualifying, to effectively turn off the U.T.P.R.? I think there are two alternative worlds, right? I mean, I think there's this world that I wanted to believe in until April 2, where like international act on relationships are calm enough that tax could be dealt with in a silent. Okay. And there you had Commissioner Hextra and some finance ministers indicate that the UPE exception for USM and EES in the form of a multi-year extension, probably not like permanent, but like an extension, right? To get us pretty far down the road, right, was on offer. But that was dependent on two things, right? One was the Congress not taking a maximum position about pillar two. And what I mean by that is if you look at $8.99, right? It basically says that even if you exempted USM and EES completely from pillar two, as long as other countries kept the rule just to worry about whether or not, you know, Singapore is cheating on the global minimum tax or Switzerland is or whomever else, right? But retaliation would still apply. And that's just like a non-starter for these countries. Like Europe needs an enforcement rule for U.T. PR, even if they don't have to worry primarily about the US because they're not so worried that people want to invert here. Okay. I mean, that was a lot of-- I mean, that was a state of text is just proposed, right? Yeah. It was very much intended to go after the U.T. PRs of DST. So I will acknowledge that that language is a bit soft and so far. That language is really broad, right? It says if there is any DST and just to be clear, like Commissioner of Underline, literally just said, like, if you don't give us an equal deal on tariffs, so if you want 10%, we impose 10%. If you want zero, then we'll do zero is basically what she was saying, not quite. It wasn't that detailed. Then the next thing we should look at is like, you know, a European-wide DST. Like, let's be clear. That's where our biggest trading partner is, okay? And the EU as a whole is our-- China, China, Canada, and Mexico, sure. But do the EU as a whole and see what the numbers come out to, right? So that's a big problem. And then separately, you've got the issue that, you know, you've got $8.99 and you've got a trade fight. And so until all those things are resolved, I don't know how this settlement that was-- it seemed on offer when we spoke in February. I mean, I really believe there was a deal that was on offer that in some sense gave USM an ease the best of all possible worlds. Like, they'd wanted a level playing field. And they'd want to get an even better than a level playing field. To give them a U.T. PR safe harbor. A U.T. PR safe harbor that other countries can't have. Like, wow, that's like unbelievable, right? Like, what a boondoggle. You got a level playing field and more, okay? But now I actually think that's kind of gone. And I think you should have seen that coming, in some sense. In other words, you know, it's not as if the Trump campaign wasn't clear. I mean, it's just doing what it said it was going to do. There's nothing about what's happening that is not consistent with what the president said he wanted to do in international economics. And the problem with it, as I've said in multiple forums, is for multinational enterprises that have double digit year-on-year revenue growth, having an environment that's conducive to international economic growth is just much more important than a couple points on an effective tax rate. And that's where we are. And so, you know, there are a bunch of people who wanted this result. They wanted, you know, Republicans to be in power so they could kill pillar two. And now they're getting what they wanted. And it's going to be bad for them and ease. So we're at about a time here. Sad about it. And uncertainty is the enemy of MNEs, right? And we're certainly in an uncertain point. But maybe just as a final question, anything else that you want to, what would like to add or I do have maybe one last question and I'll also let you add anything that you haven't. Like now looking back at your time in this role, would you do anything different? Is there anything part of that experience that you would go back or you thought to yourself and said, man, I'd like to have another at bad at some. Everybody looking. In terms of me, I mean, you got to understand for a year there was a period where it was so. I mean, I talked to every country in the world, literally. I got emails from state and like treasury from around the world, like all the US, like all the treasury reps, all over all the embassies. Like I basically slept three hours at a time and no more than three hours of time every weekday. So there are plenty of things I regret. Because there was no. So there I have regrets, of course, because you can't be perfect, right? But am I proud of what we did given what we knew at the various times that we knew it? Yes, I am. In terms of things I still wanted to say, I mean, I just. I honestly wish people could understand like how hard I and dozens of other people worked, okay, to try to fix the lack of trust that had existed after the first Trump term and how much effort that took. And I think people need to understand how hard it will be to make that happen again. And then I honestly, when you know at the end of this term, and I honestly want to warn heads of tax and above, you know, to sink seriously at this point about, you know, letting their trade groups trade strong anti-UTPR positions in the context of this trade fight where there are just so many bigger issues, I'm not sure it's going to help that much. I think you want like a settlement that is like a calm. Everyone can live with it settlement. That's the best opportunity. And separately, I think the companies should try to get good advice about how to message to places like DG tax and trade in the EU and key foreign sovereigns if they think that they are not the problem, but they could be viewed as leverage because I think that's coming. But again, that's like a worst case. Like I can't express how sad I am about where we may be headed. I'm devastated by it because I believe in USM and EZ and I believe that they provide better jobs for future generations of Americans than either more of them than either foreign headquartered M&E's or, you know, other industries in the country. And so I'm really sad about where we're going. I do not think like this is great. I think that the markets are telling us at some level lately, hey, we trust USM and EZ more than we trust the US government. That's why stocks are going up and treasuries are going down and that's good in one sense, but only relatively good, right? Like it can't be good for growth if people aren't trusting the US or don't feel like the US is their friend. Like I'm worried about that. I'm afraid. Well, Utah, I'm sorry to leave on a sad note and afraid note, but I first of all, I mean, I really appreciate you coming in. I think this will hopefully be very insightful for listeners to understand your perspective and sort of relive that experience and sort of how I really do think it adds some color to the discussion of how we got here, how the US got to where it is in the current discussions and position with we are with respect to pillar two. So, and I also really appreciate you coming back here into the studio and re-recording this. So thank you very much. So thank you, Doug. I'm sorry we had to do it twice. I hope, you know, for anybody who wants, we'll find you the old one and you can decide which one is better. The sound is good. It sounds terrible. But again, thank you very much. Thank you. I appreciate a joy. All right. Thanks everybody. Thanks for tuning in to this week's episode of Cross Border Tax Talks. Thank you, Professor Ty Grinberg, Georgetown University Law Center Professor. Stay tuned for another exciting edition of the Cross Border Tax Talks podcast. This podcast is brought to you by PwC, all rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors.