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Daily Tax Report: State

Employee Relief Payments • Tax-Loss Harvesting • Business Debt

March 29, 2020, 2:00 PM

This is a weekend roundup of Bloomberg Tax Insights, which are written by practitioners featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, and Daily Tax Report: International.

This week we look at disaster relief payments to employees; claiming tax losses following market volatility; private equity and corporate debt; Chinese limited risk companies’ transfer pricing issues; “trade or business” income requirement; vertically integrated transfer pricing; country of origin planning; and climate change tax measures. We’ll hear from:

  • David Fuller of McDermott, Will & Emery on tax-efficient disaster relief to employees
  • Olga Lubomirsky of Mazars on managing taxes with the Covid-19 uncertainty
  • Christopher Hanewald of Wyatt, Tarrant & Combs on growing business debt and the shrinking interest deduction
  • Cheng Chi, Choon Beng Teoh, Tanya Tang, and Brian Cody of KPMG on Chinese limited companies’ transfer pricing issues
  • Robert Willens on whether income is required to be a “trade or business”
  • Kerem Yenner Toklu of Deloitte Tax LLP on transfer pricing in vertically integrated companies
  • Lou Abad and Donald Hok of KPMG on country of origin outcomes
  • Eva Aubry of CMS Francis Lefebvre Avocats and Carlo Gnetti of CMS Adonnino Ascoli & Cavasola Scamoni on current climate change tax incentives
Attorney Martha Lackritz-Peltier works from her living room in Oakland, Calif. on March 12 as most of the U.S. population practices social distancing.
Photographer: Julie Jammot/AFP via Getty Images

President Trump’s national emergency declaration on March 13 triggered tax code Section 139, which allows employers to exclude disaster assistance payments from employees’ income. David Fuller of McDermott, WIll & Emery explains how it works and what employee expenses are reimbursable. Read: Disaster Relief Payments—Tax-Efficient Assistance to Employees Impacted by Covid-19

The Treasury Department has extended both the filing and payment deadline for federal taxes, and lawmakers are poised to pass legislation to help employers and employees. Olga Lubomirsky of Mazars walks through the legislation and explains how to use tax-loss harvesting to further manage your taxes. Read: Tax Implications of Quarantine

Private equity has been on a debt binge for several years. Christopher Hanewald of Wyatt, Tarrant & Combs looks at the impact of the 2017 tax law’s interest expense deduction limitation and the effect on deal-making, and suggests businesses should engage in financial modeling with an eye toward 2022, when the deduction will shrink even further for most taxpayers. Read: Private Equity and Corporate Debt Binge—Impact of Disallowed Interest on Deal-Making

The large-scale outbreak of Covid-19 in China that started in January has brought tremendous pressure to the economy and businesses. Cheng Chi, Choon Beng Teoh, and Tanya Tang of KPMG China, and Brian Cody of KPMG LLP examine the Chinese limited risk manufacturing, distribution, and service companies, which are common in the supply chains of many multinational corporations, to see how these companies can address their transfer pricing arrangements in light of changed circumstances. Read: Covid-19 Puts Limited Risk Structure at Risk—Analysis from the Chinese Angle

A business operation can be a “trade or business” without actually collecting income, the IRS recently concluded. Robert Willens looks at a private letter ruling where the agency found that a business division intended to be spun off by a corporation wasn’t disqualified as a trade or business for lack of income. Read: Collection of Income Not Prerequisite to ‘Trade or Business’

U.S. regulations and OECD guidelines describe common transfer pricing analysis methods as one-sided based on the selection of a single tested party. Kerem Yener Toklu of Deloitte Tax LLP shows why this type of analysis may not always be reliable with vertically integrated companies. Read: Transfer Pricing Analysis of Vertically Integrated Companies

The U.S. has been increasingly using tariffs as a tool of trade and foreign policy. In response, companies are considering new ways to lessen the costs of tariffs with favorable changes to the “country of origin.” Lou Abad and Donald Hok of KPMG look at some key considerations companies should take into account when altering supply chains or manufacturing operations to obtain different “origin” outcomes for tariff purposes. Read: U.S. Trade Tariffs—The ‘Origin’ Story

In the first of a series of articles on climate change from a tax perspective, Eva Aubry of CMS Francis Lefebvre Avocats and Carlo Gnetti of CMS Adonnino Ascoli & Cavasola Scamoni provide an overview of current tax reforms and incentives being introduced by governments around the world. Read: Climate Change—Tax Reforms and Incentives

From the Archive

Bloomberg Tax contributors know the importance of China in the global supply chain and keep us informed of the transfer pricing issues in good times and bad.

The Unified Approach released on Oct. 9, 2019, by the OECD fundamentally changes international tax rules on the grounds that the current rules no longer ensure fairness. Glenn DeSouza of Dentons China analyzed the proposal from the perspective of China.

Retroactive transfer pricing adjustments in China are becoming increasingly feasible, and multinational corporations have the incentive to make them. Dr. James Zhao and Alina Huang of Deloitte China explained recent developments and shared their observations.

Beyond Tax

What’s happening outside the world of tax?

Corporate boards are looking to diversify and grow. Silicon Valley lawyer Louis Lehot, founder of L2 Counsel PC, recommends asking lots of questions and shares 10 tips on how to land a corporate director seat. Read: Interested in Joining a Corporate Board? Do Your Due Diligence

The Supreme Court’s decision in an ERISA case involving Intel seems detrimental to plan fiduciaries, but there may be a silver lining for them, Groom Law Group attorneys say. The ruling might make bringing class actions more difficult. Read: ERISA Defendants Get Potential Gift in Unappealing Wrapping

As the novel coronavirus continues its march across the U.S., the bottom line for all businesses and workers is that it will be some time before we return to “business as usual.” Tucker Ellis LLP attorneys say this new reality begs the question many businesses are asking: “Do I have any insurance for this?” Read: Coronavirus Raises Novel Business Insurance Issues

Attorneys with honest, clear communication not only make clients happy but also can persuade judges and juries, Blank Rome’s Jared Zola writes. He gives tips on delivering the great customer service for which he was recognized. Read: Clear Communication Connects With Clients

Basic tenets of civility and decorum in the legal profession are being drowned out by a win-at-any-cost mentality, writes Gerald Sauer, founding partner at Sauer & Wagner LLP in Los Angeles. Legal rules, ethics standards, and principles of civility were established not for the purpose of being pushed and broken, but to ensure a system of fairness, he says. Read: Attorneys Should Relearn Rules of Civility

Sixty-four percent of general counsels are giving more guidance on unfamiliar business opportunities and unfamiliar risk areas. Parley Pro CEO Olga V. Mack gives tips on how to build an environment conducive to meaningful collaboration with those who can provide the expertise, data, and resources needed. Read: General Counsel Advising in Unfamiliar Areas—Collaboration is Key

Exclusive Content for Bloomberg Tax Subscribers

(*Note: Your Bloomberg Tax login will be required to read the following content.)

In a span of two weeks this past January, the U.S. Tax Court issued an unprecedented five opinions covering a variety of issues that have arisen since deciding Graev v. Commissioner regarding the requirement for supervisory approval of penalties under tax code Section 6751(b). Larry Hill and Richard Nessler of Winston & Strawn analyze the latest round of cases in which the court attempted to clarify the meaning of Section 6751(b)(1).

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute please contact Erin McManus at emcmanus@bloombergtax.com.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com

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