Robert Stack served as deputy assistant secretary for international tax affairs in the Office of Policy at the U.S. Department of the Treasury for almost four years before deciding to leave government service. During his tenure, Stack responded to numerous questions from TEI members and recently granted Tax Executive an exclusive interview shortly after stepping down from his position. Here’s what he had to say about the challenges he faced, the state of international tax today, and the role of TEI in the international tax community. The Q&A was conducted by Tax Executive Senior Editor Michael Levin-Epstein.
Michael Levin-Epstein: What was the most rewarding part of being deputy assistant secretary for international tax affairs?
Robert Stack: The biggest reward for me was being able to work with the bright, dedicated professionals, both career and the political appointees at Treasury and IRS, including my boss Mark Mazur, the assistant secretary for tax policy, and IRS Commissioner [John] Koskinen. This was extraordinarily rewarding, because the people at IRS and Treasury show up every day thinking about doing the right thing and how to protect the U.S. fisc within the bounds of our authority and the remit that Congress has given us. Taxpayers are extremely fortunate that both IRS and Treasury can attract such great people, and we need to ensure going forward that the resources are made available to sustain this very strong tradition that we have in the United States government of being able to attract, really, the best and the brightest to work on both tax policy at Treasury and tax administration at IRS.
“I think clearly for me among my biggest challenges was working with other countries, particularly the EU member states, at the OECD and elsewhere in a highly politicized atmosphere around issues of multinational tax avoidance.” —Robert Stack
Levin-Epstein: What were some of the more challenging aspects of the job?
Stack: I think clearly for me among my biggest challenges was working with other countries, particularly the EU member states, at the OECD [Organisation for Economic Cooperation and Development] and elsewhere in a highly politicized atmosphere around issues of multinational tax avoidance. The U.S. goal was to keep the focus on working together in a principled way to establish clear, administrable rules to tackle tax avoidance. We were also of the view that defending and upholding the rule of law is the best guarantor over the long term of good tax administration and global economic growth. Unfortunately, some countries pursued narrow self-interest, and the political environment often pushed toward more politicized outcomes that I fear will bring more instability to the system. The EU member states exacerbated these problems through things like state aid investigations and proposing rules that depart from the international consensus reached at the OECD, basically threatening the constructive role that can be played by the OECD. I think this will continue to be an issue for my successor.
BEPS and OECD
Levin-Epstein: Where do you think we’re headed in terms of BEPS [base erosion and profit shifting] and OECD?
Stack: First of all, I think we’re headed into a period of relative stasis as the OECD and the new “inclusive framework” of non-OECD and non-G20 countries focus on implementing the BEPS minimum standards, including country-by-country reporting and improvement of MAP [mutual agreement procedure] and working towards the implementation of the multilateral instrument. I think that multinationals are probably in for a certain interim period of uncertainty and potential new conflicts as these rules are applied around the world and as there is a continued political focus on multinational tax avoidance. You know, my advice to multinationals would be to be very careful and thoughtful about aggressive strategies that are going to attract the attention of foreign governments and perhaps not only result in a cost in dollar terms but also a cost in global reputational terms.
Levin-Epstein: When do you think multinational taxpayers will feel comfortable pursuing more aggressive strategies in this area?
Stack: I think the first and biggest event for the multinationals will be the sharing, government to government, of the country-by-country reports, because countries are going to use them to examine the risks to those countries of a particular company’s global tax profile, and I also think that implementation of the new transfer pricing guidance is going to also make it very, very difficult to ascribe profits to zero-tax countries. When everything will calm down is a very fair question, but I think we are a couple of years out from that, and the timing depends to some degree on what countries themselves do to make their own rules leaner and on whether BEPS and similar efforts are successful in minimizing the role of tax havens in multinational tax planning. But I cannot predict the date when the waters will calm again.
Changing International Tax Scene
Levin-Epstein: Looking back at when you first started out at Ivins, Phillips & Barker and became involved in international tax issues, what have been the biggest changes?
Stack: Probably the biggest change in international tax that we’re living through right now is the extreme political focus outside the United States on issues of multinational tax avoidance with the result that transactions and structures and approaches that were taken even just ten or so years ago as a matter of course now receive greater scrutiny from tax authorities. In the international arena, you are seeing a greater demand for more transparency, so that there can be public scrutiny on all sorts of arrangements that previously did not receive such scrutiny. As a lifelong tax professional, there are a lot of things that we do as tax lawyers that will just automatically look strange to non–tax professionals as they’re translated into the public. I would call that out as probably one huge change. Of course, the second change we’ve seen in my career has been the extraordinarily rapid globalization of businesses so that there are more and more cross-border transactions for virtually every business. Finally, there’s no doubt that the digitalization of the economy and the related extraordinary increase in the importance of intellectual property as a profit driver has put pressure on the mobility of income, because it’s relatively easy to move the intellectual property and its associated capital around the world to tax-favored jurisdictions. This was far less so in the old bricks-and-mortar era. So, those are three huge changes during my career that come to mind.
Levin-Epstein: What did you learn from your experience in the private bar that was helpful in your government service?
Stack: Other countries do it differently, where they have these career government people who have never worked in or represented businesses, and as you point out in your question, it’s not only my case but very often the case that in the U.S. people in the positions I held work in the private sector and then come into government. I think the greatest advantage that that path had for me was the fact that I had a very good understanding of how large multinationals are governed, how they are structured, what sort of constraints they operate under, what type of internal processes they’re capable of or not capable of, what is a standard type of arrangement, what might move beyond the pale. I think that when businesses would meet with me in my capacity as deputy assistant secretary, they had some confidence that I wasn’t learning about international business and their businesses on the fly, that I had an understanding. Now, my job was different when I was in the government, because I represented the fisc, the U.S. taxpayers writ large, but having a core understanding of the basics of business tax and the way they are done in big businesses, I think, was an asset in the position.
Levin-Epstein: You also served as the U.S. delegate on the Global Forum on Transparency. What is the importance of that organization?
Stack: Sure. I’m happy to have this question. The Global Forum on Transparency and Exchange of Information for Tax Purposes really struck me very early on as one of the extraordinary successes of multinational tax cooperation. Let me explain why. Back in the late nineties, there was a move to kind of figure out, and it’s something that’s still in the air today, how to deal with tax havens, and one approach that took root in the early 2000s was based on the recognition that a real problem with tax havens was the fact that other governments struggled to get information from them when a taxpayer’s resident country needed information in order to look for people trying to evade or avoid taxes in their own jurisdictions. And hence was born the Global Forum, which really does two things. First, it established a set of rules that governments need to follow in order to exchange information between governments on request, and then, as importantly, it does peer reviews of all the member countries to determine that they are actually applying the rules effectively and efficiently for their partners. The Global Forum has well over 120 members that participate in this process, and I would add that countries around the world have become extraordinarily concerned that they be viewed as compliant with the standards set and that they receive a good peer review. So, I think the net effect of this for tax administrators has been to increase their ability to enforce their own tax laws, which, of course, takes pressure off of ordinary taxpayers if those governments are able to collect amounts that should otherwise have been owing to them. So, bottom line, the Global Forum is a remarkable collaborative process and a very successful one in drawing countries together to exchange information so they can efficiently carry out their tax laws. I would add that with the globalization of FATCA [the Foreign Account Tax Compliance Act] now to the Common Reporting Standard, we’re into another phase of global information exchange built around the “automatic” exchange of information, and that work is ongoing, as well, also through the Global Forum.
“In the international arena, you are seeing a greater demand for more transparency, so that there can be public scrutiny on all sorts of arrangements that previously did not receive such scrutiny.” —Robert Stack
Levin-Epstein: Where are we with FATCA right now?
Stack: From the United States’ perspective—and I’m out of government, I don’t have all the numbers—we have well over 100 intergovernmental agreements. The IRS has begun to exchange information, both receive it and send it out; and I think in those respects, from the U.S. perspective, the teams at IRS and Treasury have been extraordinarily successful in getting FATCA implemented. The more important outgrowth of FATCA, of course, was that the world adopted something called the “Common Reporting Standard,” which has effectively globalized FATCA, so that each jurisdiction can learn from the other participating jurisdictions about accounts and financial assets that their residents have in other jurisdictions. The Obama administration made legislative proposals to make the United States fully compliant with the Common Reporting Standard with respect to information we give to other countries about their residents with accounts here, and they have yet to be enacted. Having said that, we still exchange a great deal of information under FATCA with many of our treaty and TIEA partners (that’s the Tax Information Exchange Agreement partners), so that the United States is adding greatly to the exchange of such information around the world so tax administrations can enforce their laws.
Levin-Epstein: Is there a message you would like to leave for TEI members?
Stack: TEI serves an extraordinarily important function of bringing together tax executives on a regular basis not only in the United States, but, as I’ve learned in talking to my TEI friends, globally. In the United States, to draw people together as tax executives and keep them not only up to date but also shaping the U.S. debate and dialogue on tax issues is extremely important. I also think that the contribution TEI can make outside the United States in a similar vein is maybe even more important, simply because it was my experience in my job that outside the United States, this type of organization, that both on the one hand collects the tax executives to help explain the rules and the policy but also gives feedback to the government in constructive ways, is not as prevalent. So, there’s a need for that, and I am happy to learn that TEI is moving thoughtfully to expand its geographic footprint. The only last point I would leave to members is, I think that tax people and companies have tended, and this was true in my practice as well, to view tax issues through a narrow prism of the technical tax rules. I think what BEPS has taught me is there’s a much broader political and even reputational prism through which tax issues need to be viewed, and that U.S. businesses are going to have to pay more and more attention to those perspectives as we navigate the future. I think TEI is helping to play a role in making companies aware of that. And it’s a very important role, and a helpful one.
Levin-Epstein: What are you going to do next?
Stack: I am taking time off and traveling. I am really exploring a broad range of opportunities. As you may know, while you’re in Treasury you can’t really interview or talk to folks for conflicts reasons, so really, literally, I just began talking and thinking about a broad range of things, from law firms to policy work to company work. But whatever I do, I hope I’ll be able to be back at TEI in one way or another and staying in the dialogue with the company and the members.