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Corporate Tax Chat With Louise Weingrod of Johnson & Johnson

June 10, 2020, 8:45 AM

Bloomberg Tax recently had a conversation with Louise Weingrod, vice president of global taxation at Johnson & Johnson, about working during a global pandemic and the aftermath of the 2017 U.S. federal tax law. Weingrod also shared her thoughts about the Organization for Economic Development and Cooperation’s plan to tax the digital economy.

Weingrod leads the pharmaceutical giant’s tax team, focusing on U.S. and international tax policy. The company has been shortlisted by the Trump administration as one of the most likely to produce a vaccine.

Bloomberg Tax: How has the coronavirus pandemic changed the way you do your job? What has been the biggest challenge in your role during these trying times?

Weingrod: In February, I would have never guessed that the Johnson & Johnson global tax organization could suddenly move to remote work, and meet all deadlines, continue to achieve all goals. Just move along, you know, as though nothing had changed.

It’s not easy. We’ve done very well; we’ve met every deadline. It’s challenging.

There’s a lot to be gained, in that geographic distance melts through these technologies. We can connect as easily with people in remote locations, people who we used to sit next to. On the other hand, it is a very challenging situation to be working remotely, especially for many associates around the world with young children, or other significant day-to-day family responsibility when the kids are not in school or daycare.

How we work has changed because of these technologies and because of this demonstration that working remotely can work very well, and it calls for new types of leadership and new opportunities for inclusiveness. And that’s a huge focus for us also, so that the intention is that when we do get past Covid-19, we will be working differently, and we will be leading more effectively. And so I think we’re going to see all that play out.

Bloomberg Tax: What are your tax expectations and hopes from the U.S. government and Congress for the next two years, given that the playing field has been altered so drastically?

Weingrod: We’ve been very focused on policy that helps businesses most affected by the pandemic while not materially increasing the deficit.

Now, Johnson & Johnson has a very strong balance sheet. But we are very interested in policy that will help the economy generally, that will help our suppliers, that will help our stakeholders around the world. We’ve been supporting that even when it’s not particularly relevant to us.

We’ve also been very focused on a temporary fix for tax code provisions that are pro-cyclical. Pro-cyclical means that we’re looking at something that, in the case of tax, increases tax liability during an economic downturn, which is counter to what you would want from a stimulus perspective.

So a prime example of that is the base erosion and anti-abuse tax, or BEAT. When BEAT was enacted in 2017 as part of tax reform, Congress could not have foreseen the possibility of today’s Covid economy. And without congressional action, we’re going to see a steep increase in BEAT taxes owed by companies, because they’re experiencing a steep drop in U.S. taxable income and while they’re making contractual payments to affiliates around the world. Because the company owns IP in the U.S., and invests in R&D performed outside the U.S., that would be one of many examples. And this could easily be fixed for the temporary period of the crisis by changing the formula. So that’s an example of the sort of additional policy we’re hoping to see in the U.S. to address the crisis.

We know that medium term, and I think that I don’t know if that’s within the two years, but it might be that there will be a need for an increase in government revenues. And our goal will be that whatever tax increases take place are structured so they don’t harm innovation or employment.

We do manufacture in the United States, and we would love to see the U.S. even more competitive for manufacturing. I’d also like to mention Puerto Rico, which prior to a change in U.S. tax policy in the ‘90s was a very significant manufacturing hub for the U.S. We’d love to see U.S. manufacturing policy that includes Puerto Rico, as well as the rest of the country. That would help stimulate the economy on the island, which as we all know has suffered many setbacks in recent years.

Bloomberg Tax: We are more than two years out from the 2017 tax law. What aspects of the overall law are still raising questions for Johnson & Johnson?

Weingrod: It would have been unrealistic to expect that there wasn’t a need for significant subsequent legislation and very significant regulations interpreting TCJA to accomplish all of its purposes.

We strongly advocated for a bipartisan process while it was being developed. That did not play out as we know. And as a result, the legislative front to address much needed technical fixes, just like in ’86, it’s a very difficult path.

On the regulatory side, we’ve seen a small, very dedicated, very smart team at Treasury doing excellent work, but there’s an awful lot to do.

And as I mentioned, our main focus has been on preserving incentives for R&D in the United States, which get very complicated with expense allocation and GILTI. And the attempt to fix one issue creates others because of the interactivity between FDII and GILTI and BEAT. So that’s where our main focus has been. Our Treasury team is extremely thoughtful and very good progress was being made. And then everything came to a screeching halt, at least from what we see, as it became terribly necessary to focus on the pandemic.

Bloomberg Tax: The OECD is trying to reach global consensus on a plan to tax the digital economy. How closely are you monitoring those talks and how might they impact Johnson & Johnson’s future?

Weingrod: We’ve been very publicly engaged in trying to develop and help shape proposals for the OECD. Let me say that getting our products and services to doctors and nurses, parents, and other people who need them around the world, works best when tax is not a barrier to cross-border shared trade. For that reason, we fully support the OECD as the best hope for sound multilateral tax policy that promotes—and we’re on very public record for this—that promotes certainty for governments and companies, reduces administrative burdens, and fosters ecosystems for innovation. And so we’ve been very actively engaged throughout this latest process.

We see the OECD as the best hope for multilateral collaboration. We recognize that the economic downturn relating to Covid is challenging to multilateral collaboration, and we are hoping that strong leadership at the OECD, and among the countries, will prevail. Because the alternative is unilateralism, and that’s counter to the interest of people around the world, whose lives improve with access to innovative products and services. So, we are big supporters of the OECD process, as it hits toward reasonable multilateral approaches.

Bloomberg Tax: Are there any special tax incentives that would help the pharmaceutical sector during these challenging times?

Weingrod: I can speak for Johnson & Johnson only. We have a strong balance sheet, and we are not seeking special tax incentives during this time. We think that is very appropriate for industries in crisis due to Covid. But what we are very interested in on behalf of our suppliers and all of our stakeholders is good tax policy, so that employment, and the economy, and the entire ecosystem for innovation, which includes not only large companies with strong balance sheets, but also universities and think-tanks and small companies, and a whole network that leads to strong innovation, so that all of that continues.

On that note, we’re most interested in preserving what already exists—these sort of incentives for innovation, whether they’re incentives for doing R&D, or in half of the European Union and a number of other countries have innovation boxes, which provide lower tax rates on commercialized innovative products. We’re most interested in preserving that rather than creating new.

Bloomberg Tax: What would be some examples of lasting change that would help people?

Weingrod: For example, if, as the OECD process progresses, there is recognition that transformational innovation flows cross borders. It helps people, not only in a country that incentivizes it.

For example, if we, or another company, develops a vaccine for Covid, or treatment for Covid anywhere in the world, it will benefit people everywhere in the world. That warrants protection. And that would be a positive because I’m not sure that that was as clear pre-Covid.

Bloomberg Tax: What books have you been reading while you work from home?

Weingrod: I had a long commute before the crisis, and that was my Audible time. And that’s interrupted now, but I’m still spending as much time with Audible as I can. Right now, I’m listening to the Moment of Lift by Melinda Gates. It’s a terrific book.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Sony Kassam at skassam1@bloombergtax.com

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