Bloomberg Tax sat down with Rebecca Anavim, vice president of global tax reporting and planning at WW International Inc., formerly known as Weight Watchers, to chat about the 2017 tax law’s new category of foreign income—global intangible low-taxed income, or GILTI—and how developments in global tax have changed WW’s tax department.
Bloomberg Tax: We’re more than two years out from when the 2017 tax law passed. What aspects of the overhaul are still raising questions for WW?
Anavim: One big question that we still have is on the high-tax exclusion for GILTI and from when it will be effective. In theory, GILTI was supposed to tax high-return intangible income that was parked in low-tax jurisdictions. GILTI isn’t working correctly due to its interaction with the old law, so U.S. multinationals’ high-taxed foreign earnings can still be subject to the GILTI tax.
We were excited about the proposed regs that first put forth the high-tax exclusion to GILTI and think it’s absolutely the right result, given the legislative history. And the high-tax exclusion is also just the right answer to me because U.S. multinationals shouldn’t be subject to U.S. tax on foreign earnings that have already been subjected to a high foreign tax. There is just no bad or “guilty” behavior that essentially justifies a double tax on that those high-taxed foreign earnings.
So WW operates and is profitable in high-tax jurisdictions and has a high foreign effective tax rate. So even as the proposed high-tax exclusion is written, which I understand doesn’t go far enough for many companies, it will be extremely helpful to WW when it’s finally effective.
We’re definitely anxiously looking to see when the exclusion will be in effective form and what it will look like in this effective form. We’re hoping that it comes out soon since we cannot rely on the proposed rules now.
So WW is really hopeful that the high-tax exclusion will be effective back to the start of 2018, and we’ve submitted comments on the proposed regs advocating as such. The preamble to the proposed regulations references the congressional intent to exclude high-taxed income from gross tested income so I think everyone is in agreement that GILTI was never intended to tax this high-taxed income. It makes zero sense and is faulty logic to have an elective fix to unintended consequences but then to say, oh no, we’re not going to provide this fix from the start of the bad result, you know, from when the 2017 tax law went into effect.
I think it’s important to keep in mind that this bad, unintended consequence is from lawmakers not fully appreciating all the ways old law would interact with the 2017 tax law. And when you think about it, why should the taxpayer have the burden of covering the cost for this, even for a year or two, when significant dollars are at stake?
And it’s interesting, I’ve actually seen it suggested that the GILTI high-tax exclusion is an interpretation of current law, which obviously again seems supported by the legislative history. So maybe taxpayers can get there already under current law but it would be nice to have it cleared up in regulations that you can rely upon.
Bloomberg Tax: You joined WW in the spring of 2016. How has WW’s tax department and your role changed since then?
Anavim: There has been an enormous change over the last few years. Just a few months before I started, Jim MacNeill took over from the old head of tax that was with the company for 30 years. The team was older and got things done, but with old systems and processes. There was just a ton to do to modernize the tax department when Jim and I got to WW.
The department’s focus on technology and automation has definitely increased exponentially in the last few years. But I think that’s true for most tax departments, and probably a lot of corporate departments. It’s just this watershed moment where the old ways just don’t cut it anymore. I imagine it’s probably similar to when email took over for faxing and snail mail.
Personally, I had always been an international tax planner prior to WW and that was what I was hired as. I got involved in all material transactions and projects, whether they were SALT, federal, or international so my role changed pretty quickly in that sense. I really enjoyed getting involved in U.S. domestic projects.
I found tax is tax. There is an overlap in a lot of thinking, like state apportionment, nexus issues versus OECD digital tax plan. As such, I think it makes one a better tax practitioner to generally understand the big concepts and current issues in both SALT and international and transfer pricing. And I really encourage the team to take opportunities to cross-train in this way.
So after U.S. tax reform, I started getting more involved in the provision, making sure the impact of all new rules were being reflected in real-time in the provision. That really has been a whirlwind and truly exciting experience, to keep up with all the regulations coming out. It’s pretty intense when you step back and think about the thousands of pages of TCJA regulations that have come out in the last two years that we needed to analyze and then reflect the relevant ones in the provision.
At the same time that the provision work ramped up, transactions slowed a bit while we waited to see where certain regulations would land, and we are still waiting to a certain extent.
For instance, as we just discussed, we’re waiting for the GILTI high-tax exclusion. As we know, a lot of companies are looking to plan into subpart F so either to blend the pools or elect high-tax exclusion from subpart F. But it may be hard to pull the trigger on that type of planning where you’re changing structure, because depending on your facts, the high-tax exclusion to GILTI could come out to solve your pains. That’s just an example of why I experience international planning to be more modeling than execution in 2019.
But this actually turned into a great opportunity for me personally, as I’ve enjoyed getting into the provision work. I read some books and then took an intermediate ASC 740 and then an advanced ASC 740 class to further my education, as I had originally been credentialed as a tax lawyer. Now my role is VP, Global Tax Reporting and Planning, so I really try to split my time between the provision and planning.
I said “trying” to split time between reporting and planning. It’s because unfortunately compliance has taken a lot more of my time and the team’s time than what is ideal. And this is in part because of all the new forms and details required to be provided. I really don’t see the logic in that tax reform was “suppose to” simplify U.S. tax but now, for instance, foreign subsidiaries’ informational returns have grown enormously.
Bloomberg Tax: What challenges do you deal with on a day-to-day basis in your role?
Anavim: Challenges with compliance software have been a major time killer for us. I would say it was a so-so system to start with that just buckled under the pressure of tax reform. And as a customer of such software, that is incredibly frustrating. We’re a small team, so we can’t be wrapped up in the tax return for so long because the technology is not doing what you paid for it to do. We’re definitely looking at what to do there because it’s just simply not sustainable.
Another challenge in today’s tax world is there’s so much to do, so little time. It can be a challenge to find time to properly tease out planning opportunities when so much of the calendar is taken up with the provision and compliance work. And that’s in addition to being a service provider within the organization for company initiatives and other departments that have tax questions.
Every once in a while, I really miss being a planner that can just focus on research and white-boarding ideas. But I know the multitasking and being a full service tax practitioner is what personally makes me better at my job and allows me to see the full picture better.
Bloomberg Tax: How do you manage C-Suite expectations when the tax landscape is becoming more complex yet uncertain at the same time?
Anavim: I mean we’re lucky at WW because we have a very tax-friendly, tax-interested CFO and general counsel. I think that was true before Jim and I ever came to WW, but certainly the goodwill that we specifically built with them has only made the C-Suite value tax so much more. Our tax department has really earned the reputation as a value-add, high-performing team. And as a result, tax is a regular participant in all audit committees. We’re absolutely given the floor to educate the C-Suite and the audit committee about the changing and uncertain tax landscape, and we consistently find that we have an attentive audience.
And to the extent that the tax line in the P&L could potentially be impacted by uncertainty, that really is one of our most important responsibilities, to identify that uncertainty as soon as possible and then to articulate it in a concise manner to get the message out.
Again, take what we were talking about earlier with GILTI. When the 2017 tax act initially came out, at first blush people weren’t thinking that GILTI would apply to high-tax income, it took some time—I can’t recall was it weeks?—to digest the expense allocation interaction. And because it wasn’t a logical answer, we took time to educate the C-Suite and the audit committee about the how and why it was looking like GILTI could have quite a bite for us even if WW isn’t “guilty” of low-taxed intangible foreign income. Then the GILTI high-tax exclusion came out in the proposed regs but you can’t rely on it yet, so we needed to go back to the same players with cautious optimism to explain this positive update and to educate on when the rule could go into effect and the likelihood of a retroactive effect.
Bottom line: I think it comes down to having a strong relationship with the C-Suite, proving your worth, which gets you more credibility when you walk in to explain the most recent wild thing happening in tax, because it really has been such a wild ride the last few years.
Bloomberg Tax: Last question—the OECD is trying to reach global consensus on a digital tax plan with nearly 140 countries by the end of 2020. What are your thoughts about the plan and how it might impact the future?
Anavim: Well, I have a concern about unnecessary headaches for companies that have foreign subsidiaries that are entrepreneurial. I don’t think the OECD had them in mind at all when coming up with this plan.
Obviously, in international tax, what was in vogue during a good chunk of time during my career was everyone setting up or moving to the low return distributor, cost plus sales, principal hub structures. And I think that’s what the OECD’s plan was meant to address, so it would no longer be acceptable to have a low-risk, low-return—and therefore not a lot of income—in the country where the consumers are.
But what about companies that have the entrepreneurial activities that already match up with where the consumers are? There should be some type of exception so those companies don’t need to deal with a new way to allocate income. I don’t know. Am I dreaming to hope that in the future, the OECD will give some acknowledgment that not every consumer-facing company needs to be subject to the digital tax plan? Or maybe the apportionment calculations just need to work out in a way that gives such companies a pass of apportioning income to A, B, C.
Right now, I’m just concerned that these companies with entrepreneurial subsidiaries will get stuck dealing with the digital plan when really I don’t think there should be disagreement about the arm’s length standard still working where there are entrepreneurial subsidiaries where the consumers are located.
Listen, I understand this is the minority of big companies today but I think it’s still worth getting a little attention here because, to me, these companies have entirely been overlooked in the discussion thus far.