Taxing times: companies need advisors who understand the new post-Covid tax landscape

I expect we can all agree that we have all been impacted in some way as a result of Covid-19. Even prior to the pandemic there had been a pull on the global economy so strong that it’s sure to morph into something new that addresses existent inconsistencies, with a push to level the playing fields internationally. The pandemic has added fuel to that push, with countries now striving to control outbreaks as well as assist the survival of individuals and businesses.

The G20, representing the world’s largest economies, met recently and agreed on a deal that contains two pillars. Pillar
1 allows for greater taxation of multinational companies, mostly backed by European countries. Pillar 2 imposes a 15 percent global minimum tax rate, promoted by the US. Even if these two pillars fall through, European countries are set to impose a digital tax regime that will greatly impact US tech giants such as Amazon, Google and Facebook. Yet it will also likely change the way all large multinational businesses are taxed.

What are the new tax proposals?

Tax changes are surely in the near future for the US under our current administration. Proposals include:

  • Raising corporate taxes to 28%, currently 21%
  • Imposing a 15% minimum tax on worldwide book income for corporations with such income over $2 billion.
  • Increasing top individual tax rates to 39.6%, currently at 37% at the same time lowering the income threshold where the top rate applies.
  • Long term capital gains would be taxed at ordinary tax rates for incomes exceeding $1,000,000 effective for gains recognized after date of announcement (May 28,2021). Currently long term capital gains are taxed at rates between 0% and 20%.
  • Treat transfer of property by gift or death as a realization event.
  • Making permanent
    • Expansion of the Earned Income Tax Credit.
    • Expansion of the Dependent Care Credit.
    • Child Tax Credit.
  • Creating a non-refundable tax credit for homeowners and businesses for qualified disasters.
  • Cancelling student loans tax free for certain income-based repayment plans.
  • A 10% tax credit for companies in connection with onshoring a U.S. trade or business.
  • Disallowing expenditures in connection with offshoring a trade or business.
  • Extensive expansion of incentives for green energy.
  • Ending the special real estate tax break for deferral of gain on the exchange of like-kind properties for gains over $500,000, $1,000,000 for married couples.
  • Raising the GILTI tax to 21% calculated on a country-by country basis.
  • Eliminating tax incentives for FDII.
  • Repealing the high tax exemption to subpart F income.

With global powers scrambling to raise revenues, ever present in the US, opportunities still exist for those in the know.

  • Gain on the sale of Qualified Small Business Stock may be eligible for up to 100% exclusion from federal tax.
  • Tax on gain on sale of stock may be eligible for deferral if invested in a qualified Opportunity Zones.
  • Research and experimentation credits remain lucrative.
  • Incentives for retaining or increasing employee count continue to provide benefits is some states.
  • For the right global traveller incentives to immigrate to the U.S. still exist for:
    • Tax reduction
    • Investment
    • Access to:
      • One of the world’s largest markets
      • World-class health care
      • Educational opportunities
      • Family safety
      • Quality of life

With global leaders vying to shake as much revenue loose for their respective countries, it is increasingly important to work with competent trusted advisors who are aware of the navigational opportunities found in tax treaties and regulations as well as the dangers of the unchartered seas of change. At Hutchinson & Bloodgood we continue to monitor new developments through education, research and collaboration amongst ourselves, our colleagues and our clients to ensure we have a thorough understanding of the law, ensuring our clients are complying with the regulations and set up to take advantage of the opportunities created by change.

Taking an collaborative approach

We like to engage with clients, it really helps that we have that collaborative angle. We often say we don’t have all the answers and we don’t. What we do have are good questions. Through collaboration and active listening, we identify as many valid choices and options as possible, narrowing them down to what’s best. Through this process we expect to deliver our clients better answers and fewer surprises.

With our drive for doing international business, it’s critical we have trusted advisors across the world, in as many jurisdictions as is necessary, for servicing clients. So often, it’s another trusted advisor a client needs, not us. Through networks like IR Global, built on attracting top technical advisors and founded under a principle of ‘know, like, trust’, it’s super easy to make those strong connections.