Financier Worldwide Annual Review: Global Tax 2021 – United States
Excerpt taken from the report.
Q. What do you consider to be among the key developments affecting corporate tax in your country of focus over the last year or so?
Stevens: There have been three significant developments. First, the pandemic response bill, enacted by the US Congress in March 2020, made several business-friendly changes to the US tax code. Among other things, the legislation temporarily relieved limitations on claiming net operating losses and business interest deductions. Also, planning opportunities for corporate taxpayers arose from a summer 2020 regulatory change, the introduction of an election to exclude from global intangible low-taxed income (GILTI) earnings of foreign subsidiaries that pay relatively high rates of income tax in the countries where they operate. For some companies, the election facilitated more tax-efficient management of global expense allocation. Alongside these opportunities, however, sits a third significant development – uncertainty. At the international level, the G7 leaders have agreed in principle to a worldwide minimum tax rate of at least 15 percent. Meanwhile, the OECD Inclusive Framework continues its work on a global minimum tax system, and on Pillar One, which would primarily affect US companies and subject a slice of global profits to formulary apportionment rather than the arm’s length principle. Domestically, three competing proposals would alter key building blocks of the US international tax rules, including GILTI, the deduction for foreign derived intangible income, and the base erosion and anti-abuse tax. All three proposals would also raise US corporate income tax rates. It remains unclear where the dial will stop, posing enormous challenges for corporate tax planning and the tax provisioning process.
Q. To what extent have tax authorities in your country of focus increased their monitoring and enforcement activities?
Stevens: In the corporate tax space, the Internal Revenue Service (IRS) has sought to increase the efficiency and effectiveness of its enforcement activities rather than their absolute scope or intensity. For large multinational enterprises, the IRS offers the Compliance Assurance Process (CAP), which aims to achieve tax compliance before the return is filed by employing real-time issue resolution tools and techniques, and participates in ICAP, the OECD-led international variant. These programmes seek to narrow the scope and duration of audits. In parallel, the IRS continues to announce new compliance ‘campaigns’. These campaigns target issues the IRS judges present relatively high compliance risk and enables more effective use of IRS resources. Targeting substantive areas across multiple taxpayers also allows the IRS to identify and develop cases with the ‘best’ facts for litigation, to obtain favourable court decisions on contested issues. On a more granular level, the IRS increasingly leverages sophisticated data analytics. For companies, these initiatives reaffirm the importance of an effective and appropriately resourced compliance function.