Talking With Paul Tang: Tax Fairness in the EU

Paul Tang, a Dutch member of the European Parliament, discusses the challenges facing the international tax community and his goals as chair of the subcommittee on tax. 

For additional coverage, read these articles in Tax Notes:

• EU Must Consider Removing VAT Exemption for Financial Services
• Paul Tang Discusses The Future of EU Tax
• EU Parliament Tax Subcommittee to Focus on New Revenue Sources
• European Parliament Names Members of Permanent Tax Subcommittee
• European Parliament Tax Subcommittee to Formalize Leadership 

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This episode is sponsored by Avalara. For more information, visit avalara.com/taxnotes.

This episode is sponsored by University of California, Irvine Law School’s Graduate Tax Program. For more information, visit law.uci.edu/gradtax.

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Credits
Host: David D. Stewart
Executive Producers: Jasper B. Smith, Janelle Julien
Showrunner: Paige Jones
Audio Engineer: Jordan Parrish
Guest Relations: Christa Goad

Transcript

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David Stewart 0:01

Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: the new face of FISC. Tax is having a moment. Policymakers and world leaders are increasingly turning to tax policy as one way of tackling today's challenges from the coronavirus pandemic to climate change. One of the new faces at the forefront of international tax is Paul Tang, a Dutch member of the European Parliament. Last September, he became chair of the subcommittee on taxation, also called FISC. Tax notes reporter Sarah Paez recently spoke with Tang about the challenges in international tax today and his hopes for the future. Sarah , welcome to the podcast.

Sarah Paez 1:38

It's good to be here.

David Stewart 1:39

Now before we get to your interview, can you tell us a bit about Paul Tang's background, who he is, and how he came to lead the FISC?

Sarah Paez 1:46

Well Paul Tang started out as an economist and he made his first foray into politics in 2006 as a member of the Dutch parliament. In 2014, he landed in the European Parliament and he started advocating for reform of the EU's tax system. Now he maintains that the EU should hold member states to the same tax standards as it holds other countries. And he hasn't shied away from naming his own home country, the Netherlands, a tax haven. For many that made him a natural choice to lead FISC.

David Stewart 2:14

All right . And can you give listeners a preview of what you talked about?

Sarah Paez 2:17

Well , we covered how Mr. Tang plans to use FISC as a tool to educate national parliaments on combating tax avoidance and tax evasion. And we also talked about the ongoing battle among EU leaders over new own resources. These are these new taxes and levies the EU wants to approve to fund its €1.8 trillion coronavirus recovery package and long-term budget, and we spent some time unpacking the issues with the EU blacklist for non-cooperative jurisdictions. It's a controversial tool that the EU uses to promote tax good governance worldwide.

David Stewart 2:50

All right, let's go to that interview.

Sarah Paez 2:53

Welcome, Mr. Tang, to the podcast. It is so good to have you here.

Paul Tang 2:58

Good to be here.

Sarah Paez 2:58

Great. So before we start, I was hoping that you could tell us a little bit about yourself. How did you first get involved in European tax policy and how did you become the chair of the European Parliament's first ever permanent subcommittee on taxation, which is otherwise known as FISC?

Paul Tang 3:15

I have a big smile on my face but that's because I'm not sure it's a short story. So my introduction into, let's say, fiscal matters is as an economist. I've done my PhD, started working for the CPB, which is called Central Planning Bureaus, which was initiated by Jan Tinbergen, a Nobel prize winner. And I had the time to do research but also to intellectually develop myself. And I was very well aware of the race to the bottom that was ongoing already then. When I moved from policy analysis to politics it was quite a change, but I started in the National Parliament in 2007. But I'd seen in my research years the marginal rates on the corporate taxes were declining at a rapid pace. That it wasn't the type of tax competition that was beneficial for investment and economic growth. And at that point that I started, of course I was not fully aware of all the complexities and details that there are, that we have for the fiscal world and the fiscal systems. And it's a good thing that you don't know all the complexities from the start. I started my political life in national parliaments, also being responsible spokesperson for financial and fiscal affairs, very much with the idea that this had to change. And at that time in 2007 I was probably a lone voice in a country which took almost pride in having a very competitive tax system and all the lobbying around it. But then already you could see there was a disconnect between the world of fiscal advisers who saw no problem in advising a zero tax rate for a corporation and politics because also in the Dutch parliament, no one would make the claim, none of the politicians, no matter what political color, would make the claim that it was good to have a fair share of zero. The fair share was something they needed to contribute. Already then you sort of had a disconnect. Of course the crisis — never waste a good crisis — and now we have two of them. First the great financial crisis and now with the COVID epidemic, and that changed very much the debate. So I may have remained a lone voice, but I think fairness has become more prominent on the agenda as a result of these two crises. And when I came back into the European Parliament in 2014, the first thing I did to say , "I want to work on this again." I did in the National Parliament. Of course I had to overcome some perception, the perception that when you are Dutch, you're in favor of the Dutch tax system. So I had first to convince my own colleagues in a social democratic group that I really wanted to work on this. And I also had to convince others in the European Parliament. But the fact that I was the leading a member of European Parliament on files like the CCTB, on the DST , I hope your listeners all know what this means, consolidated corporate tax base and digital services tax. But also I was leading in well naming and shaming. I took the initiative that European Parliament made very clear that our EU tax haven included the Netherlands. And ever since in my own country, the Netherlands, people think of them, think of the Netherlands, as a tax haven. Of course, at the same time in the European Parliament that started with LuxLeaks was followed by the Paradise Papers, the Panama Papers, so they all saw the dynamic. So it was not just the current financial crisis, but also the revelations that we had from often good journalistic work or whistleblowers that led to the subcommittee on the fiscal affairs. It took some time to establish because you need political agreements , but I was here and I was well — I'd like to think because of my track record in the earlier years elected as the chair of the FISC committee. I've been working on this issue for quite some time. It's also interesting to see the changes over time. So it's, of course it's sometimes a slow process and you can't go into politics if you're not by nature an optimist, but I have every reason to be optimistic really because I see the changes and I expect more changes to come. There will be a huge demand for fair taxation and also for more transparency. And you can say a lot about the tax world, but it's not transparent. It's not fair, so we're bound to have some changes.

Sarah Paez 7:23

Yes. It's really interesting that you bring up the public perception, how it's changed over the years. So I wanted to ask you just right off the bat, in your short time as the European Parliament's FISC chair, FISC covered so many different topics. And you know, it's only been a few months ranging from Brexit's impact on fair taxation to tax tools for countering harmful tax practices. So considering the urgency, as you said, of the coronavirus recovery effort in Europe, what are your goals for FISC this year and how do you hope to achieve them along with your colleagues?

Paul Tang 8:01

Yeah, I think we covered quite some ground , and this is also why the European Parliament can play an important role. People that are familiar with the situation with European Union know that the competences are at the level of the member states, that they make decisions on the basis of unanimity. And at the same time, the European Parliament can play a role. The reason is we are better informed, dig deeper than the national parliaments. For the national parliaments, this is a topic which is — they understand the importance, but it's far away. It's in the back rooms of Brussels or nowadays it's in the back rooms of a Zoom meeting, meaning that the national parliaments are not on top and the European Parliament is. And I think that's our great strength. And I very much like to develop the FISC committee as a European hub f or discussion of tax matters. We need to crack open the back rooms. That's what Tax Notes also does. You try to explain the world, right? And this is what we need. So it's not just country-by-country reporting that brings about transparency. It's what happens on the size of corporates. And I think transparency is a powerful tool for change because many of the current tax policies can't stand the light of day. Just shine the light on it . Just show it. See if people agree with this. Probably not, but OK. And the same is true with decision making on tax matters. I think it's very close to the heart because people have a very strong feeling, a central notion of fairness. And that is pretty simple that's brought throughout political spectrum. I just already mentioned it. Everyone has to pay a share, right? You don't have to be a loony left like I am to think that. And that's why I think we can also have broad consensus on this. But the decision making is still very much — so it's an important, but decision making is still very much behind closed doors. And what we try to do with the FISC committee is to break this open, to make the debate public. So that's one thing that we need to do. One thing that we need to bring also — what I try to do. I've been a member of national parliament. I'm now a member of European Parliament, but I want also to strengthen the position of national parliaments. They must understand the role they can play and they currently can't play because they are not as well informed, because they coordinate among each other. So we need to reinforce the democratic scrutiny of tax policy. Like I said, we want to be the European hub, but to crack open the back rooms where the dealing takes place. So that is sort of the institutional role that I would like the FISC committee to have. Then of course you do that for a purpose, transparency and support it. Now we have the country-by-country reporting on the table, but we also have a lot of, well, reforms coming up. Digital taxation is one of them. Digital taxation [is broad] because it's not confined to digital companies. Right? But it's very much linked to the OECD negotiations on pillar 1, pillar 2, with the minimum effective tax rate. The greening of the tax system will be on the agenda. So we are in a period — and I expect that to happen in let's say more at the end of the first half of this year or the second half of this year — where we can see major changes. And before I forget, what we very much hope what we, the European Parliament, is pushing for and will also push the FISC commission will push for price studying. It is coming up with the opposition is the tackling of tax avoidance. Right? I come from a country that I think is a tax haven. And I think that should change. I must say, but I already warned to the listeners, I'm a bit optimistic, but I see a change going on in the Netherlands. Right? They're changing position also. But we need the outside pressure again, to complete this change. So I very much hope that we will have measures aimed at of course tax planning that is distorting the internal market in Europe. That could be a very base for majority voting in the European Union to come forward as well. So I see a lot of changes and then I haven't touched on some, which now may seem farfetched , but I don't think are farfetched. I see the huge inequality in wealth and in t ax avoidance of wealth. The inequality is so staggering. And I think this will be an issue as well. Because remember, we're going to a time when I was still in the middle of the pandemic, where you see a huge imbalance in the public sector with high expenditure support for firms. Sometimes the same firms that avoid taxes. And on the other hand, little revenue. So we need to rebalance at one point. Now this time around, after the great financial crisis in 2010, we saw 2000 levels, we saw cutbacks, and proposals for reforms. Also the ECB raising the interest rate. I think this time will be different. We can't go back to a policy of austerity and reforms. So I very much expect that there will also be a policy that aims to raise revenue. And what better place to start with the big corporates that do not pay their fair share? The big polluters and the very wealth? So this is why expect also this will come within reach, which doesn't seem very likely now. Right? But I think we are in a very interesting period.

Sarah Paez 12:53

Yeah, absolutely. And I'm glad that you brought up tax avoidance because that is my next question. I think that's, again, that's something that you bring up a lot during FISC meetings that really gets brought up a lot in the European Parliament. And just a note for our listeners, it is true that the European Parliament is only able to consult on tax matters. Correct? You have more of a advisory role I guess you would say?

Paul Tang 13:18

Yeah, that's true. But that's why we — by being better informed and by digging deep, I still believe and I noticed through that, but by feeding information into the public debate, you will change the public debate. Besides, like I said, so public awareness is growing and this will lead to political action. That's what I have in mind. And this is why I also want to be very much in touch with national parliaments . We need to bring debate. We should not keep the debate in Brussels, but very much move to the capitals because their decisions— so this is why I like to be a European hub. If we can bring part of the work of the FISC committee to the capitals, I think there's already enrichment of the debate. But it also increased public awareness and raise public pressure for change.

Sarah Paez 14:01

Absolutely. So on that note, though, you went through a variety of topics that FISC is both focusing on and going to focus on in the next year, this overarching theme of tax avoidance keeps coming back, especially within EU member states. So I was wondering, how could FISC help the EU hold member states accountable for harmful tax practices within their own borders?

Paul Tang 14:29

The unique position of the European Parliament nowadays is that we are the only European institute that is there to criticize the individual member states so that is an important role. Like I said, I worked very hard on that in the last period mandate, we call that in Europe , so up to 2019. And now I want to go a step further and have these countries very closely considered. Of course we're discussing here apart from the Netherlands, which is obvious, but also Ireland and Luxembourg, but also Malta and Cyprus. Have them in the spotlight and see, and also come up with proposals what they can do to change and to sow what impact they have. So these are European partners, right? I always say to my compatriots , what we allow, we enable that these European partners are being robbed because the money that flows through the Netherlands comes from Germany and France. They miss the tax revenue because these are the countries with the highest marginal statutory corporate tax rates . So we steal from our neighbors. That's what we do. And once people start to be aware of that, like I said, public awareness leads also to political pressure. At the same time, you need to look into coming up with specific proposals. I think you can have as a European coordination, why not look into the patent boxes for example? Which is a form of competition, which is completely ineffective. But you can also look into very country specific measures. That's what I'm doing right now for the Netherlands. We are in a run-up of an election on March 17. So what I've done is together with many NGOs is organized a campaign that the Netherlands should no longer be a tax haven, but also put forward very specific proposals of what politics Dutch politics should do to indeed to be aligned with the international community. And this is what I would like to do as well. So you try to develop pressure from the European Parliament with the help of the national politicians and organizations to change also the national debate.

Sarah Paez 16:22

And speaking of pressure, so the European parliament has managed to keep this pressure on both the EU Council and the European Commission to enhance member state screening processes in relation to the EU blacklists for non-cooperative jurisdictions in tax. We've talked a lot about this; this has come up a lot in FISC meetings. But besides the European Parliament resolution that came about earlier this month demanding transparency from the code of conduct group and calling for new blacklisting criteria, what other efforts is the European Parliament and specifically the FISC committee planning to force more transparency and action from the Council on this topic of blacklisting countries?

Paul Tang 17:05

That's a very good point. In fact, we are as the European Parliament, like I said, this is to break open the back rooms. Right? The council has these meetings and doesn't feel the need to be held accountable so that's the problem we have as European parliament. We try to break open the situation and we need to find ways of doing that. First of all, it's public pressure. Right? Like I said, at the end of the day there are politicians responsible and they feel public pressure, but we also try to find, let's say, legal ways of doing it. I know that Sven [Geigold] is now involved, and Pascal [Saint-Amans] is in DAC7 — sorry these are files. And we tried to use this to improve our position vis-a-vis the council. I'm involved now securitization, where I try to where we have also included the black and the gray lists. And now the counsel is arguing, "Well, the gray list shouldn't be part of it." And so we have the discussion and what I tried to do is OK, if you don't want this change, that's fine. But then let's have an open discussion on how to deal with the black and gray list from now on. So trying to force them in a position they can no longer afford us. But it is of course, institutionally. And it's also an institutional fight, and I won't bore the listeners to death with that . But it's partly a institutional fight, but we will get there . I have no doubt. We will find a way.

Sarah Paez 18:22

What is something that you would like to see in the development of the blacklist? Because it's been criticized for the things that you mentioned, this lack of transparency within the code of conduct group, but also that some of the listing criteria is applied inconsistently and that the blacklist doesn't apply to countries within the EU that you would consider tax havens. So what is something that you think might be able to change that or maybe make it more fair across the board?

Paul Tang 18:51

Yeah. Well, I think it's a long list. Let's be clear: I think the blacklist is potentially a very important instrument to set the rules of the game. Right? So the EU engages with other countries' jurisdictions, but we try to set the rules of the game . So that in itself is a potentially very forceful, powerful instrument. Of course, the council f*cked up. That's a pity. Sorry, this is not what you say in Parliament. Right? But it is true. There's this very good instrument, but they throw it out of the window. So for what you would like to do is, like I said, things will change. Don't worry. It will take time and it'll take pressure, but it will change. Now we have — the criteria are insufficient. For example, the Cayman Islands doesn't even have a corporate tax system. And then you meet a minister from the Cayman Islands explaining that it's a perfect place for banks for many reasons. But I mentioned that we don't have a corporate taxes. No , of course this is the reason why Cayman Islands attracting a lot of investments on paper. So you should change the criteria. But this may also prove you need to be consistent in applying this criteria. We had the discussion. I am now involved with Australia because of the STS, the securitization file, because Australia is on the gray list. They have this offshore banking regime. This is a detail in the tax system. But they are on the gray list and we have tried to help them with this gray list in the legislation, so blocking this offshore banking regime in Australia. And of course, Australia objects to it, and it gets away with it. At least not in the European Parliament, but with the council . So they remain on the gray list whereas they have done nothing to have it changed. So you need to apply. And of course the other example in this case is Turkey . When you see, of course, the political pressure, but we now pay in terms of tax avoidance for it to Turkey. So you need to apply the criteria consistently. The criteria are political, I would say, but the follow-up that the enforcement of the list should not be political. They set the rules of the game. And of course, you would like to have defensive measures, council measures, once countries are on the black list. That should be more clear. So you can develop the instrument to a great deal, and you can in this way change the rules of the game. And I think that I will say the European Union is an economic powerhouse, but a political dwarf . We don't set rules of the game in this world, whereas we have every reason to do so, especially when we make the system more fair.

Sarah Paez 22:12

Switching gears a little bit, the EU has made commitments to introduce new own resources, these new EU-wide taxes and revenue streams to fund it's €750 billion coronavirus recovery package and also separately the multiannual financial framework, the long-term budget. So, I know this is maybe speculating a little bit, but what own resources proposals do you think that we're likely to see this year? And do you think that FISC will contribute to this debate at all? And how? And then the second part of my question: how might an agreement, an international agreement at the OECD level on a plan to reform the global tax rules affect the EU's efforts to fund the recovery?

Paul Tang 22:58

I'll just start with the latter because this last half year you can see that the European Commission is cautious and the reason is two- fold. First we have the recovery resilience funds and needs to be ratified by the national parliaments . So this is maybe not the time they think to address the tax avoidance in Luxembourg and the Netherlands. So that makes the European Commission cautious. The other reason why the European Commission is cautious because we have the OECD negotiations. And I think many people, including myself, think it's worthwhile to make sure that we complete the OECD process, not that the outcome will be perfect, but certainly there will be great steps forward. And there's also conditions the proposals you get from European Union. If the European Union does a proposal, European Parliament will come with a proposal. For example, in the European Parliament there will be a discussion on digital taxation ... where digital taxation is just a short for a more complex system. The European Parliament, the FISC committee, will be the first to come forward with a form of proposal. But it's always in mind that it should help to make the OECD process, the BEPS to success and putting pressure on the international process. So those conditions, the commission, and parliament in this age, but already the European government leaders already conceded, already mentioned the possibility of a digital levy as a form of own resource. It doesn't complete a political fight because there are at least some member states, including the Netherlands by the way, but also Sweden and Denmark, who very much dislike the idea of own resources. So there will be then of course, again , a political fight within the Union as to whether we should have the European Union should have own resources. But the digital levy is still certainly one of the candidates. The other obvious candidate is of course comes from the greening of the tax system, or the greening of our incentive system because it also includes the trade and emission allowances and the revenue from a non-carbon border adjustment that comes along with that. And that's also a very good candidate for funding the EU budget. Now, of course the European Parliament is very much in favor of having its own resources. And it's not because we want to spend money. Yes, some of my colleagues do that most definitely, but also because it helps to make the debate more democratic, I think. So you have no taxation without representation, but I also think it refers to no representation without taxation. If you have a full-fledged democratic processing, you need to have the right to tax so that you have a good debate and they need a balancing between between revenue and expenditures. So I think it very much helps to increase the legitimacy of the democratic debate in the European Parliament. So the European Parliament is generally in favor of their own resources, but it boils down, of course, to the discussion we will have among the member states. And it won't be easy. Then again, there are member states against, or you could say even dead against, own resources. But there are many, many member states that are willing to take this step and now have an extra reason because they fear that's the cost of the recovery resilience funds, will come at the expense of the ordinary budget . So they very much look forward, so they fear that let's say the burden, the interest and redemption that we have from the fund will in the end come from the ordinary budget and they are the net receivers. So you will see also a distinction between net payers and net receivers in the European Union. And this is a discussion on that. That should come. That will come.

Sarah Paez 26:31

Yeah, absolutely. And to circle back to the digital taxation in which you said is more like a blanket term for reforming the entire international tax system, the European Parliament, the Econ Committee, and FISC had a discussion about the report, the draft report on digital taxation that just occurred yesterday. So I wanted to ask what is the purpose of this report and how does the European Parliament hope to use the report to apply pressure to European governing bodies?

Paul Tang 27:05

Yeah, well that depends maybe on your political view, right? So that's also a political discussion. Personally, I think it would be good for the European Parliament. But this is why I say this is not me as chair of the FISC committee, but me as a social democrat, I think that would be good that the European Parliament also backs the national initiatives. We have seen quite a few. They will put a pressure very much just like the European Union can put a lot of pressure on the OECD negotiations. In fact, I was repertoire on the DST file and I didn't come to an agreement. So it wasn't really pushed to the end, but didn't come to agreement, but it had the effect of really bringing the U.S. back to the negotiation table and restarting BEPS, too . So when you see that a country or countries start to have this form of digital taxation, and it's like a short that will also help the international association. So I very much, for example, hope that the European Parliament will also support the nationals and make clear at the same time that if we want to have an international solution that we should be ready to have plan B. That is a European tax. And if not a European digital tax, it should be a variety of national digital taxes because this is the way to put pressure on the international negotiation . Because you know what will happen? Of course, the big tech doesn't like to pay taxes, just like any other ordinary company and corporates don't like to pay taxes. OK I understand that. But to pay different taxes in different countries makes life even more complicated. So that should certainly weaken their opposition to this type of taxation.

Sarah Paez 28:38

Yes. And that's definitely come up in the discussion. It seems at the EU level about this backup plan. Well, really it could be used as a tool to place pressure on some of these companies and the international discussion, so I'm glad you brought that up.

28:53

So I wanted to come back to something that you had mentioned before — the country-by-country reporting. Because I think you're right that that's a very exciting development. As you said, right now we're seeing movement in the council driven by the Portuguese presidency on the public country-by-country reporting proposal for the first time — really the first time in over a year, but actually more like four or five years. So what do you you make of this? How likely are we to see agreement on this CbC reporting proposal this year? And what would that mean for tax transparency and fighting tax avoidance?

Paul Tang 29:29

Well, over the years, like I said, I've been doing this for quite some time and I've started to appreciate the power of transparency. And in fact, if you think about it, much of the work in the European Parliament has been driven by, I say, accidents of transparency — LuxLeaks and so on. So transparency is very powerful. And what I hope now, but I've just seen the result. Right? So maybe I'm too optimistic on this, but I very much hope now that the council will come to a decision that we will we start negotiation between on the one hand the Council and the European Parliament, and that will lead to a result. Let's face it , the extraction industry and the banking industry already have country-by-country reporting. So the idea that it's not feasible or that it will hurt the competitiveness of companies — that has been proven wrong. We already have it. Now we can apply it. It can be crucially important. I'll give you an example. Let's say Shell, the oil company, Dutch British. I've been challenging Shell for years that they didn't pay corporate income tax in the Netherlands. While I was not successful in that, they were not sort of provoked by me, but not too long ago, they admitted in the national parliament, they don't pay taxes, corporate income taxes in the Netherlands. Immediately, there was a proposal to change the law so that also the Shell oil company would pay its taxes in the Netherlands. And this is the power that you derive from transparency. So in my mind, it's very important. I must also say that part of the corporates, it's more progressive politics, right ? So there are already some companies — Vodafone comes to mind — that apply country-by-country reporting. There's a GRI template that's available, which I studied, which I think is very good. And you see already companies embracing the GRI template. So because this is the interesting part that I also see among the corporates, they are concerned about the public debate on tax avoidance. They think it's poisonous, and it is for them. It is. So part of the corporates is willing to break from this debate . And if you want to break from this debate, you need to change your policy, but to win the trust, you also need to be transparent about what your policy is. So transparency is crucial for this change. So transparency brings change with transparency can also bring the trust back. And this is more and more corporates are starting to see that the base tax avoidance is poisonous for them. And it just hurts let's say, their working environments .

Sarah Paez 31:52

I also wanted to go back to something else that you'd brought up before this greening of the budget. So Commission President von der Leyen has said that the recovery will be green and it will be digital. And I think we've covered digital pretty well, but how do you see tax policy being utilized in achieving a green recovery?

Paul Tang 32:11

So in particular, we talked about this a little bit, but what are the chances of seeing a carbon border adjustment tax and an expanded EU emissions trading system within the next year, like the commission has said that they will propose? I told you about my research days. In those days we were already doing some — we run models to find out what the impact would be of an emission trading system and also including a carbon border adjustment mechanism, by the way. So the ideas are already modifiable . What we need to do is to come to workable systems. This especially applies to the carbon border adjustment mechanism. And I think the commission has to set them up with a way on how to do that. It could be tradable import allowance or it could be an import duty. I think the commission still has to decide. So we need to move from theory to practice. And the second thing, of course, above all, we need the political will to indeed live up to the Paris Agreement. I think that a bit to my surprise, when the COVID pandemic started, I was a bit concerned about let's say the green deal. I say, overall, I think the support is still pretty high, that it's widely accepted. That of course there are fringes in society and politics that doesn't. There was wide support for the change to make the economy and society more sustainable. But you need the political will to do it that. Without that we can have any system or instrument in place, but it won't be as effective. But like we have seen in the emission trade for the last, let's say 20 years where I think the CO2 prices are way too low. We have too many exceptions, the carbon leakage list. I t is very long, including the steel industry, frozen potatoes, and others. So we need to get rid of those exemptions. But I, in that sense, I see the commitment at European level to reduce the CO2 emissions by officially 55 percent in 2030. That's, in fact, pretty ambitious. I think European Parliament is more ambitious, but even 55 percent it's ambitious, but it requires the instrument . So yeah, it will come.

Sarah Paez 34:21

One thing I wanted to bring up and I know you mentioned there needs to be political will for these changes to happen, especially in greening the economy. And one of these things that has come up within the last year, especially on the emissions trading system was that there was a block of predominantly eastern European countries that were opposed to the ETS in its currently proposed form. And so I wondered how exactly do you kind of break through this complex difference in economies? I mean, these economies are much more reliant on coal and less green forms of energy. So is there any sort of discussion happening that can sort of break through that?

Paul Tang 35:02

You're pointing to one of the difficult issues that we have. Therefore I prefer the word sustainability because that's broader than greening. Sustainability for me means it needs to be in line with the restrictions on climate and environment, but also it should be in line with a social fair distribution and this applies to countries, but also within the countries, right? If you could look at the entity taxes that are in place, usually the households have a high burden of energy taxes, whereas industry's is much lower and agriculture is even even lower than that, just so the lobbying. But to make this transition, you need to have, again, a notion of fairness. So you can start with households. But if you start with households and do not address the big polluters like the oil refineries or the airports — or this feels uncomfortable to say the least.

35:57

Same is true for the difference between western Europe and eastern Europe. I think there are important differences. Eastern Europe is much more dependent still on the coal and fossil fuel . And this leads to heated debate, for example, the use of gas is that their transition technology or not, and the only way out is to have an open debate. We need to find a balance in this that you define sustainability broad to include both environmental and social considerations. And that's also part of negotiation. You've already seen it. There's a just transition funds which is intended to do exactly that to help countries that have a backward position in terms of sustainability to help those countries. I think it's simply not large enough really to be effective . But so this will be a continuing debate. And I think that's important, because you need to strike a balance here.

Sarah Paez 36:53

Well, my last question for you might be a difficult one, but I wanted to ask you before we go, what is your favorite ice cream flavor?

Paul Tang 37:00

I'm not such a sweet guy actually. So sorry. But when I'm in Italy, which one of my favorite holidays, when I do take ice cream on a hot day, I like very much to have two flavors— lemon and chocolate.

Sarah Paez 37:12

Well, now we found out that you're not so much of a sweets guy. Thank you. Thank you so much, Mr. Tang. I really appreciate your time today. It was a pleasure getting to talk to you about all of these very, very interesting topics.

Paul Tang 37:24

Of course. My pleasure.

David Stewart 37:27

And now, coming attractions. Each week, we highlight new and interesting commentary in our magazines. Joining me now from her home is Acquisitions and Engagement Editor in Chief Janelle Julien. What will you have for us?

Janelle Julien 37:37

Thanks, Dave. In Tax Notes Federal, three PwC practitioners emphasize that via the GILTI regime, the TCJA has elevated the importance of the foreign tax credit. Seth Entin maintains that the IRS should respect a check-the-box election for federal transfer tax purposes. In Tax Notes State, Libin Zhang examines the section 163(j) business interest deduction limitation and its exceptions. Timothy Noonan and Emma Savino explore the variety of residency and tax issues that have arisen over the past year as a result of pandemic-related moves. In Tax Notes International, Aleksandra Bal examines VAT obligations associated with electronic sales of goods into the EU and the United Kingdom. Frans Vanistendael looks back on the European Union’s response to the coronavirus pandemic, one year after it began. On the Opinions page, Marie Sapirie examines final regulations defining real property for purposes of like-kind exchanges. Robert Goulder examines recent proposals to simplify the OECD's

David Stewart 38:44

You can read all that and a lot more in the pages of Tax Notes Federal, State, and International. That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.