U.S. Wins International Backing for Global Minimum Tax - Paul Hannon and Kate Davidson, Wall Street Journal ($):
Officials from 130 countries that met virtually agreed Thursday to the broad outlines of what would be the most sweeping change in international taxation in a century. Among them were all of the Group of 20 major economies, including China and India, which previously had reservations about the proposed overhaul.
Those governments now will seek to pass laws ensuring that companies headquartered in their countries pay a minimum tax rate of at least 15% in each of the nations in which they operate, reducing opportunities for tax avoidance.
It's one thing for 130 sets of diplomats to make an agreement in principle. It's another for those countries to pass the legislation required for an effective tax cartel. The international minimum tax is considered key to Biden administration tax policy: "Without the international agreement, the Biden administration’s planned tax increases could lead to companies relocating their headquarters to low-tax countries."
What’s in the New Global Tax Agreement? - Daniel Bunn, Tax Policy Blog:
In recent years, countries have been debating significant changes to international tax rules that apply to multinational companies. This week there was a breakthrough in discussions, and an outline for the new rules was released by the Organisation for Economic Co-operation and Development (OECD). If today’s global tax agreement is fully implemented, large U.S. companies would pay less to the U.S. government and more to overseas governments while the foreign earnings of companies would face higher taxes.
Large companies would pay more taxes in countries where they have customers and a bit less in countries where their headquarters, employees, and operations are. Additionally, the agreement sets up the adoption of a global minimum tax of at least 15 percent, which would increase taxes on companies with earnings in low-tax jurisdictions.
Of the 139 countries engaged in the negotiations, 130 signed on to the new outline. Holdouts include Ireland with its 12.5 percent corporate tax rate and Estonia which applies tax only on distributed profits of companies.
Today’s agreement represents a major blow to tax competition, and it is unsurprising that a country like Estonia (a champion of good tax policy) was unwilling to sign up to it. Policymakers across the globe should be careful in designing measures to implement this and be aware of the various new distortions these rules will create.
Countries Advance Historic Global Tax Plan With New Details - Stephanie Soong Johnston, Tax Notes ($):
A majority of countries have reached a broad agreement on the details of a two-pillar corporate tax reform plan with implementation starting in 2022, but the road to the finish line remains long, stakeholders say.
The nine holdouts are Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Peru, Sri Lanka, and St. Vincent and the Grenadines. However, the 130 countries, including the G-7 and G-20 nations, represent more than 90 percent of global GDP, according to an OECD release.
One key develpment is the removal of the requirement of physical presence in market countries for exporters:
Countries also agreed on the allocation of 20 percent and 30 percent of in-scope MNE residual profits to market jurisdictions, with nexus based on an allocation key tied to revenues, the statement adds. In-scope MNE profits and losses will be calculated based on financial accounting income “with a small number of adjustments,” the statement says, confirming that losses would be carried forward.
This would turn accounting standard setters into tax legislators. It also may put political pressure on standard-setters to increase measured income, with implications for financial statement users.
Big Tech Says Global Tax Deal Is a Win - Sam Schechner, Wall Street Journal ($). "Big tech companies said Thursday’s breakthrough in negotiations over a global tax overhaul was a step toward avoiding a patchwork of overlapping national taxes, but executives and trade bodies said they still need to see those tax regimes disappear before calling the deal a win."
Trump Organization, CFO Charged With New York Tax Crimes - Nathan Richman, Tax Notes ($):
One example cited in the indictment described Weisselberg allegedly signing checks on behalf of the Trump Organization that covered rent on the apartment where he lived, as well as utility and garage expenses. “These payments were not booked in the Trump Corporation’s general ledger as employee compensation, but were instead labeled and deducted as ‘rent expense’ in the general ledger,” according to the indictment. The Trump Organization reduced Weisselberg’s direct compensation to account for those rent payments, the indictment said.
Weisselberg allegedly received almost $1.2 million in untaxed income via company-paid rent and other expenses from 2005 through 2017. He allegedly also received cash for his personal use that the company called “holiday entertainment.”
Don't try this at home.
The Trump Organization Indictments - Russ Fox, Taxable Talk:
Is the dollar amount involved enough to warrant criminal charges? Yes. This is over $900,000 in total tax evaded, and that’s more than enough to cause a criminal charge. But are those on the right correct that the only reason there are criminal charges is Trump? Almost certainly, yes. The Manhattan District Attorney doesn’t like the former president, so he was a target. In most tax investigations, if the business admits liability and agrees to pay the tax and penalties criminal indictments don’t happen. However, if you’re a celebrity or a politician (or worse, both), the ‘normal’ rules don’t apply and you’re a target. You need to be clean, because you will be audited.
That doesn't mean running personal expenses through business returns a good idea for non-celebrities. Just last month, for example, a Pennsylvania man was indicted for a "tax evasion scheme involved having his employer make payments to [Defendant's] wife for payment of personal expenses, including the mortgage on the house where his family resided, rent for an apartment where he resided, service for his pool, dance classes for his daughter, and a vacation for his family." That sort of thing invites criminal problems no matter how famous, or obscure, you are.
Preliminary Comments on the Trump Organization and CFO Indictment - Jack Townsend, Federal Tax Crimes:
This is a fairly common pattern in a closely held corporation except that the payments often go to the owner and the owner’s family rather than to an employee (here the CFO). In this case, the owner is Trump and the owner’s family are the Trump children and spouses. Nothing is said about Trump’s off-the-books use of corporate assets, but with the egregious conduct for Weisselberg, one has to wonder whether charges against Trump are waiting in the wings, with the prosecutor hoping Weisselberg will flip...
One of the interesting and damning aspects of the charges is that Weisselberg had set compensation and when he employed “off the books” compensation, he reduced his compensation accordingly. More importantly, he kept records to show the reduction. Who were those records for?
The Trump Organization Is in Big Trouble - Daniel Hemel, The Atlantic. "Early reports characterized the crime in question as involving 'fringe benefits.' This gives entirely the wrong impression. The Trump Organization and Weisselberg aren’t being charged with tripping over some hyper-technical provision on the margins of the tax system. They are being charged with blatantly violating basic tax-law requirements—and bilking New York State and New York City out of hundreds of thousands of dollars along the way."
Daniel Hemel is a professor at the University of Chicago Law School and a visiting professor at New York University School of Law.
U.S. Supreme Court Reverses California Donor Disclosure Decision - Jennifer McLoughlin, Tax Notes ($):
The U.S. Supreme Court handed a victory to two conservative organizations that challenged California’s charitable donor disclosure requirement on First Amendment grounds.
“We are left to conclude that the Attorney General’s disclosure requirement imposes a widespread burden on donors’ associational rights,” Chief Justice John G. Roberts Jr. wrote in the majority opinion. “And this burden cannot be justified on the ground that the regime is narrowly tailored to investigating charitable wrongdoing, or that the State’s interest in administrative convenience is sufficiently important.”
“We therefore hold that the up-front collection of Schedule Bs is facially unconstitutional, because it fails exacting scrutiny in ‘a substantial number of its applications . . . judged in relation to [its] plainly legitimate sweep,’” the majority opinion added.
Judge Blocks Treasury From Enforcing Offset Provision Against Ohio - Lauren Loricchio, Tax Notes ($):
A federal judge has blocked the U.S. Department of Treasury from enforcing against Ohio a provision in the American Rescue Plan Act that bars states from using federal funds provided by the act to offset reductions in net tax revenue.
In a July 1 opinion and order, Judge Douglas R. Cole granted Ohio’s motion for permanent injunction to prevent Treasury Secretary Janet Yellen from seeking to enforce the provision against the state.
The provision created confusion for state legislators. An appeal is expected.
What’s in Arizona’s Tax Reform Package? - Katherine Loughead, Tax Policy Blog:
After weeks of deliberations, Arizona Gov. Doug Ducey (R) this week signed into law a budget for fiscal year (FY) 2022 that reduces the state’s individual income tax rates and consolidates brackets, a plan that will help restore Arizona’s reputation as a low-tax alternative to California.
The law responds to an referendum that enacted an 8% top rate on taxpayers with over $250,000 in taxable income, or $500,000 for joint filers:
The first change adopted as part of SB 1827, which is effective retroactive to January 1, 2021, is the creation of a cap to prevent the combined top marginal tax rate from exceeding 4.5 percent when the general rates and the Prop. 208 surcharge are combined. This will significantly mitigate the negative economic impacts of the 3.5 percentage-point income tax surcharge that was narrowly adopted by voters in November 2020.
Arizona also enacted an optional entity-level tax for partnerships and S corporations to bypass the $10,000 individual limit on state and local tax deductions:
While intended as a way to provide a 2.5 percent flat rate for small businesses on par with the rate that individuals with taxable income below the surcharge threshold will be subject to, creating a separate tax system for pass-through business owners departs from the principle of neutrality. Under SB 1783, business owners could enjoy lower income tax rates than their employees, as higher-income non-business owners will still pay the top rate of 4.5 percent.
State and Local Tax Structure Has a Critical Impact on Corporate Tax Burdens - Janelle Cammenga, Tax Policy Blog. "Iowa, for example, has a high corporate income tax top rate of 9.8 percent, but the capital- and labor-intensive manufacturing firms in our study see almost all of their income exempted from corporate income taxation because of the state’s single sales factor apportionment. On the other hand, Montana has a lower top rate of 6.75 percent but employs an equally-weighted three-factor apportionment formula, creating an above-average corporate income tax burden on mature operations of the same type."