Navigating through short- and long-term tax changes

2021 event overview

Around the world, cash-strapped governments bankrolling massive Covid-19 relief measures are looking to implement new tax policies to generate revenue.

President Joe Biden’s Build Back Better program proposal contains many elements funded by notable changes in tax law, including reversing or updating several changes enacted in the 2017 Tax Cuts and Job Act. An increase of the corporate income tax rate for corporations, changes to GILTI provisions, new and revised tax incentives for certain industries, and an increase in the income tax for wealthy individuals are just a few of the proposals in the American Jobs Plan, Made in America Tax Plan, and American Families Plan. In addition to these changes, the Biden administration has also proposed increased funding to the IRS to enhance its audit and enforcement capabilities for corporations and high-income individuals.

Internationally, the Biden administration has signaled an openness to discussing a global minimum tax and consideration of other changes to international tax rules affecting multinational corporations, providing renewed momentum to Organisation for Economic Co-operation and Development (OECD) negotiations among 139 nations discussing a framework to tackle the challenges of taxing the digital economy. If successful, the OECD compromise would be the biggest shift in the international tax system since 1923.

This virtual forum provided the timely intelligence tax professionals need to prepare for change and optimize their tax strategies.

[Take your planning to the next level with our international tax solutions – analysis, tax rates by country, practice tools, global news coverage, and more.]

Impact of OECD Consensus on Digital Services Taxes

After discussions at the G-7 meeting in early June led to an initial agreement to establish a global minimum tax rate, questions still remain about the treatment of digital services taxes and other similar taxes.

There needs to be coordination at the technical level between the time the Pillar One solution is applied and the time the unilateral taxes are removed, keeping in mind that political and legislative constraints likely lie ahead.

“For instance, [Italian] legislation provides for the abolishment payment of the digital services tax at a moment when the international agreement is implemented. To depart from that, we would need to change the law and changing the law would mean facing political resistance of those that forcefully asked to enact digital services tax in the absence of an international agreement.”

Fabrizia Lapecorella, Director General of Finance, Ministry of Economy and Finance, Italy and Designated Chair of OECD’s Committee on Fiscal Affairs beginning January 2022

“It seems like that to make those new allocations work as intended, they need to take effect across a critical mass of countries at the same time. That is a longer and more involved process of coordination that really continues beyond implementation. This isn’t just an agreement for the countries to reach in connection with the G-7 or G-20. It’s something that the countries at the tax authority level will need to live on a day to day basis.”

Barbara Angus, Global Tax Policy Leader, EY

“It is not going to be so easy. Even after these measures are adopted by the G-20, India will have to bargain. India and China are the major countries that are going to be bargaining because they will be suffering huge losses. Therefore there will be some compromises, delays, et cetera, because when you’re talking about abolishing DSTs, you will have to think about the collection that you’re likely to make on account of this new levy, which they’re proposing under pillar one and pillar two. Our calculation shows that we will not match the total collection that we were getting earlier.”

T. P. Ostwal, Owner, T.P. Ostwal & Associates, India

[Keep up to date on potential tax changes in the digital services sphere with Bloomberg Tax Research Digital Service Taxes Roadmap.]

The future of taxing global income

More than three years after the Tax Cuts and Jobs Act, many questions linger, especially when it comes to the taxation of foreign profits of businesses. And the Biden administration has floated proposals to change the rules again.

“Our core role is to administer the law, whatever the law is, and it obviously creates some challenges when we are auditing older provisions. You know, the tax law is never static. We probably haven’t had any significant amount of time where there weren’t some changes. Obviously some changes are more significant than others. And as we work through those issues, we just try to be mindful of the landscape that we’re in.”

Nikole Flax, Commissioner of Large Business and International, IRS

“We have tried to model everything at a very high level, and that’s been difficult. We have not yet brought everything together because there are no specific proposals, but keeping on track of each of the little pieces has been key for us. … The hardest thing with all these changes has been communicating upwards as there has been too much esoteric tax information for non-tax professionals. All these proposals are going to have a really profound impact on our company and probably most companies.”

Daniel Holzer, International Tax Director, Autodesk

Polling results

With more than 300 event attendees – including an international mix of corporate tax leaders and advisers – the Bloomberg Tax Leadership Forum provides an opportunity to survey a cross-section of the industry to learn how trends and issues are impacting them. The results are detailed below.

Tax implications of domestic priorities

Since the start of the pandemic, economic relief and stimulus measures have introduced many short-term changes to the tax code for corporations. More important in the long run are the extensive revisions to the Internal Revenue Code that the Biden Administration has outlined. Panelists discussed scenarios around an increased corporate income tax, a minimum tax on book income, several sector-specific proposals, the “Made in America” tax measures, and other planned changes.

“I don’t see how anybody could be against [IRS compliance reform], because what we’re talking about here is reversing decades of disinvestment once again – this time in a key government agency, the IRS. I look at some of the defunding of the IRS enforcement division as a shadow tax cut for tax evaders, and that’s not something that I think is fair to the bulk of Americans who are paying their fair share. So the compliance piece is very important.”

Jared Bernstein, Member of the White House Council of Economic Advisers

“I think these provisions really introduce a lot of complexity and have a massive impact on U.S. multinationals. There are two things to keep in mind: both the overall cost and the additional, significant compliance complexity and burden on U.S. multinationals. If we just reference back to the revenue scoring in the green book around GILTI and compare it to just the rate change, according to the green book estimates, the corporate income tax rate increased from 21% to 28%, which is the No. 1 revenue raiser with about $860 billion over 10 years. The amendments to GILTI are coming in clearly at No. 2 at about $533 billion.”

Gretchen Horwitz, Vice President and Chief Tax Officer, Baker Hughes

“In the American Jobs Plan when they repeal FDII, they say they’ll replace it with about $180 billion in R&D spending. The question is, what is that amount? Is that an expanded R&D credit or potentially could §174 move into that? I would expect that if Democrats are moving a reconciliation bill and taking some incentives away for domestic manufacturing at home, I think that §174 has a good shot at making it in a reconciliation bill.”

Victoria Glover, Partner, Deloitte Tax