WEEKEND INSIGHTS: Fairer Tax System and Small Business Credit

Feb. 21, 2021, 3:01 PM

This is a weekend roundup of Bloomberg Tax Insights, written by practitioners and 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, Daily Tax Report: International, Transfer Pricing Report, and Financial Accounting.

This week we look at: making the tax system more fair while closing the tax gap, the employee retention credit, digital service taxes, the murkiness of taxable cryptocurrency events, incentives for the European recovery, and more. We’ll hear from:

  • Former IRS commissioners Fred Goldberg and Charles Rossotti on increasing tax collection instead of raising rates
  • Jacob Dayan of Community Tax on the overlooked employee retention credit
  • Mimi Song on the OECD’s quest for a global solution for the taxation of the digital economy
  • Bird & Bird attorneys on the unilateral digital tax measures being taken by several EU member states and the U.K.
  • EY Global leaders on incentives to drive Europe’s post-Covid-19 economic recovery
  • Constantin Kogan of Wave Financial Group on the need for clarity in crypto taxable events
  • Baker McKenzie attorneys on the Hong Kong tax concession for carried interest
  • Paul Falvey of BDO on rethinking the U.K. tax system
  • Jerry Musi of RSM on tax technology for investment partnerships
IRS building in Washington.
Photographer: Andrew Harrer/Bloomberg

The Covid-19 crisis is creating a huge deficit. Two former IRS commissioners—Fred Goldberg and Charles Rossotti—who served during Democratic and Republican administrations, say the way to reduce that deficit is not by increasing tax rates, but by increasing tax collection. Read: Make Tax System Fairer, Easier for Taxpayers While Collecting $1.4 Trillion Owed But Not Paid

The employee retention credit was created in the CARES Act last March but received far less attention than the Paycheck Protection Program that was also included in that legislation. Jacob Dayan of Community Tax explains why the credit slipped under the radar and why small businesses and their advisers should be considering it now. Read: How the Expanded Employee Retention Credit Will Save Small Businesses

Finding a global solution for the taxation of the digital economy has been a primary focus of the Organization for Economic Cooperation and Development (OECD). Mimi Song of CrossBorder solutions considers the hurdles faced in creating such a solution. Read: The Corporate Tax Revolution is Coming—Are We Ready?

Giuliana Polacco, Annarita De Carne, Simon Gough, Montserrat Turrado, Lara de la Rosa, Sophie Dorin, and Willem Bongaerts of Bird & Bird review the background to the digital services tax and discuss the progress of the unilateral measures being taken by several EU member states and the U.K. Read: Digital Services Tax: Unilateral Initiatives on the Move

Many markets in Europe—and the northern hemisphere—have spent a cold winter in lockdown. As the region looks to facilitate an economic recovery, Kate Barton, EY Global Vice Chair—Tax, and other EY leaders share why tax incentives will play a pivotal role in facilitating capital and people flows and how the region will emerge transformed from the crisis at the 2021 EY aHead of Tax (virtual) conference. Read: Why Incentives Will Drive Europe’s Post-Covid-19 Economic Recovery

Constantin Kogan of Wave Financial Group explains more about how to report your cryptocurrency trading activities to the IRS. Read: The Need for Clarity in Crypto Taxable Events

The Hong Kong Inland Revenue bill on tax concessions for carried interest was gazetted on Jan. 29. Steven Sieker, Pierre Chan, Michael Olesnicky, and Carrie Lui of Baker McKenzie outline the bill’s framework for granting concessionary tax treatment to carried interest received by or accrued to fund managers and their employees. Read: An Overview of the Hong Kong Tax Concession for Carried Interest

The U.K. budget is expected to look beyond the Covid-19 pandemic to address the challenges facing the economy and boost investment. Paul Falvey of BDO looks ahead to the announcements that could feature in the U.K. chancellor’s March 3 budget speech. Read: Rethinking the U.K. Tax System: How Far Will Chancellor Rishi Sunak Go?

Investment partnerships face a complex landscape when it comes to tax compliance. Jerry Musi of RSM shows how the solution lies in partnership tax technology. Read: Tax Technology For Investment Partnerships: Keeping Pace in an Increasingly Complex Industry

From the Archive

Bloomberg Tax contributors, some with personal experience in the workings of the IRS and Congress, share their knowledge and suggest improvements.

The Internal Revenue Service audits taxpayers who claim the earned income tax credit at a higher rate than most other groups of taxpayers. Kim Bloomquist, former senior economist with the IRS’s Office of Research Operations and research analyst in the agency’s Taxpayer Advocate Service, looked at the explanations offered by the current IRS Commissioner Charles Rettig and suggested there are better ways to return income to low income taxpayers and better uses of IRS resources.

Joyce Beebe of the Center for Public Finance at Rice University’s Baker Institute for Public Policy examined those who don’t bother to file and what the IRS is and isn’t doing about them. You might be surprised at the worst offenders.

Beyond Tax

What’s happening outside the world of tax?

Despite what some may say, Silicon Valley is not on its deathbed, says Boris Feldman, head of U.S. technology at Freshfields. Some technology CEOs might move their private residences for tax purposes, but other tech site alternatives, like Texas and Florida, will find that anti-competitive labor restrictions hinder their ability to lure the critical mass of talent that values the employment freedom found in California. Read: Reports of Silicon Valley’s Death Are Premature—Here’s Why

It is still speculative as to what President Biden will put forward for promoting increased investment in renewable energy. Latham & Watkins attorneys explain how investment funds with a firm grasp of key structural considerations for investment choices in the renewables space will be well positioned to capitalize on any new opportunities. Read: Capitalizing on Renewable Energy Investments Under the Biden Administration

U.S. firms involved in international commerce will see a significant increase in international money laundering enforcement, predicts Jones Day litigation partner Chris Pace. He outlines three key differences between international and domestic money laundering general counsel need to know to best counsel their companies on avoiding risks and being investigated. Read: International Money Laundering Enforcement Will Rise—What GCs Need to Know

A federal judge’s recent preliminary ruling involving Nine West, over a doomed take-private acquisition, does not spell the end for leveraged buyouts despite risks for directors, argues Debevoise & Plimpton LLP’s Gregory V. Gooding. Read: The End of Leveraged Buy Outs as We Know Them? Hardly

For companies to create a truly diverse and inclusive workplace, they must make diversity, inclusion and equity (DI&E) an integral part of most every structure, plan, policy, and procedure, according to BarkerGilmore’s A.B. Cruz III and Taylor Powers. It’s imperative that companies dedicate the requisite time, attention, and resources over the long haul, including access to mentors, advocates, sponsors, and coaches. Read: Efforts to Retain Diverse Talent Should Permeate a Company

Exclusive Content for Bloomberg Tax Subscribers

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

On Jan. 19, the IRS released Notice 2021-10, which expands and extends previous relief granted under Notice 2020-39 to Qualified Opportunity Funds (QOFs) and their investors in response to the ongoing Covid-19 pandemic. While the pandemic has disrupted aspects of the Qualified Opportunity Zone program including capital deployment, planning and development, QOFs and interested QOF investors were able to rely on much-needed relief for the 2020 tax year based on Notice 2020-39. Andrew Lau, Orla O’Connor, and Holly Belanger of KPMG explain how Notice 2021-10 amplifies that earlier guidance.

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

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

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