Protecting Losses • Taxable Presence • California Apportionment

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 preserving net operating loss deductions; taxable presence in another country; California’s murky alternative apportionment; flexibility and tax consequences for the PPP; midyear changes to cafeteria plans; Puerto Rico investment incentives; interactions of economic relief measures; transfer pricing in the coronavirus pandemic age; tax technology in pandemic recovery; U.K. financial services and the euro-zone crisis; and hidden VAT costs in philanthropy. We’ll hear from:

• Baker McKenzie attorneys on corporate governance measures to preserve net operating loss deductions
• Venable attorneys on limiting tax exposure as travel restrictions ease
• Tim Gustafson and Justin Brown of Eversheds Sutherland on California’s complicated alternative apportionment process
• Juan F. Vasquez, Jr., Jaime Vasquez, and Victor J. Viser of Chamberlain Hrdlicka on the Paycheck Protection Program Flexibility Act
• William Carter of Eckert Seamans on how the IRS has eased restrictions to allow midyear election changes to employee benefit plans
• Jeanelle Alemar-Escabí and Paola Medina-Prieto of JACE LLC on federal and territorial tax incentives to invest in Puerto Rico
• Daniel Mayo of Withum on the interactions of the various Covid-19 economic relief measures
• Ted Keen and Andrew Cousins of Duff & Phelps on transfer pricing issues in the age of health crisis
• Ian Bowden, Ian Bacon, and Jason Land of BDO on the importance of tax technology as businesses recover from the pandemic
• Arun Srivastava and Arun Birla of Paul Hastings on the impact of Covid-19 on U.K. financial services
• Robert Marchant of Crowe on the potential VAT costs of providing goods and services free or at a reduced cost

There could be tax consequences if employees continue to work remotely outside of their employer’s home country of operation as travel restrictions ease.

Photographer: Chris Ratcliffe/Bloomberg

Covid-19 relief legislation revived the option to carry back net operating losses in an effort to provide liquidity to struggling companies. Baker McKenzie attorneys warn that corporate governance measures should be considered to avoid a change of ownership that would limit companies’ ability to use such losses. Read: An Ounce of Prevention—Plans to Protect Loss Deductions in Covid Environment

The Organization for Economic Cooperation and Development issued guidance in April to clarify that employees temporarily working outside of their employer’s home country won’t trigger new income tax obligations. Venable attorneys say the guidance is good news, but companies should take steps to limit tax exposure as travel restrictions ease and they consider adopting more telework as part of their business model. Read: Taxable Presence for Businesses With a New Remote Workforce

California’s tax statutes and regulations include a provision for alternative apportionment if a corporate taxpayer believes the state’s method doesn’t fairly represent its business activity in the state. Tim Gustafson and Justin Brown of Eversheds Sutherland describe the murky path to obtain alternative apportionment and the state Franchise Tax Board’s efforts to establish a formal procedure in a three-part series.
Read: Fair Representation—An Overview of Alternative Apportionment in California (Part 1)
Read: California’s Current Alternative Apportionment Petition Process (Part 2)
Read: California Franchise Tax Board’s Alternative Apportionment Regulation Project (Part 3)

Congress passed legislation to provide flexibility in the Paycheck Protection Program loans. The flexibility will come with tax consequences, said Juan F. Vasquez, Jr., Jaime Vasquez, and Victor J. Viser of Chamberlain Hrdlicka. Read: Congress Adds ‘Flexibility’ to Loan Forgiveness and Corresponding Tax Consequences

Employers and employees are usually stuck until the end of the year with the flexible spending arrangements offered and selected during the open enrollment period. William Carter of Eckert Seamans explains how the IRS has loosened the restrictions on midyear election changes to help employees better manage healthcare and child care expenses associated with the Covid-19 pandemic. Read: IRS Offers Relief to Cafeteria Plan Sponsors During Pandemic

The desire to reduce pharmaceutical supply chain risk and dependence on China could mean the return to Puerto Rico of many pharmaceutical and manufacturing companies. Jeanelle Alemar-Escabí and Paola Medina-Prieto of JACE LLC explain how federal and territorial tax incentives could make Puerto Rico a good investment. Read: Puerto Rico Source Income as an Opportunity to Generate Tax Efficiencies

Several pieces of legislation have been passed to help businesses through the pandemic, and Treasury and the Small Business Administration have published much guidance on how to take advantage of the available programs. Daniel Mayo of Withum outlines some of these provisions and where to find more information in the guidance. Read: Interactions Among Loan, Various Tax Credit/Deferral Provisions

Ted Keen and Andrew Cousins of Duff & Phelps consider potential transfer pricing issues on which tax administrations and businesses will need to focus in this uniquely challenging environment. Read: Challenges Facing Transfer Pricing in the Age of Covid-19

Ian Bowden, Ian Bacon, and Jason Land of BDO Tax Technology Leadership Team explore how technology will become increasingly important to tax practitioners, both in the U.K. and globally, as businesses recover from Covid-19. Read: The Changing Face of Tax Technology

Arun Srivastava and Arun Birla of Paul Hastings discuss the impact of Covid-19 on financial services in the U.K. and how the sector does business in these challenging times. Read: The Eurozone Crisis, Covid-19 and the Financial Services Sector

Many organizations have been providing goods and services free or at a reduced cost to provide help during the Covid-19 crisis. Robert Marchant of Crowe discusses the potential VAT costs associated with these arrangements and what organizations need to consider. Read: The Hidden VAT Cost of Philanthropy

From the Archive

Bloomberg Tax contributors have no qualms about looking the revived net operating loss carryback gift horse in the mouth and telling us the risks they see.

Robert Kovacev and Robert Morris of Norton Rose Fulbright highlighted the dangers of rushing to claim these NOLs that could become more of a pitfall than a benefit for the unwary taxpayer.

Covid-19 relief legislation included allowing a broader use of net operating losses and “quick refunds” to push cash in taxpayers’ hands as soon as possible, but didn’t change the statutory period for seeking quick refunds. Mayer Brown attorneys explained how the IRS extended the deadline for seeking quick refunds and how the IRS reviews quick refund claims.

Beyond Tax

What’s happening outside the world of tax?

Stay-at-home orders during the pandemic have left many law offices empty, leading many firm leaders to ask whether they must pay rent for spaces they are unable to use. Crowell & Moring attorneys examine law firm leases and rent abatement during Covid-19 and whether landlords’ claims of force majeure are the last words on the issue. Read: Law Firm Leases and Rent Abatement During Covid-19

During the Covid-19 pandemic, cybercriminals are increasingly targeting the financial services sector. Paul Hastings attorneys examine the rise of cybercrime and give best practices for regulatory oversight applicable to the financial advisory community. Read: Cybercrime Is Rising—How to Protect Your Financial Firm

Transparency from public companies is more important than ever during the pandemic, and accounting practices are remaining an enforcement priority for the SEC. In Part 2 of a two-part series on public company disclosures, Ballard Spahr attorneys explore accounting judgments and compliance with generally accepted accounting principles. Read: Accounting Compliance Is Key During SEC Pandemic Scrutiny

The marijuana industry hasn’t escaped the economic impacts of the coronavirus pandemic, and contract issues are a particular concern. Perkins Coie attorneys say these firms should include provisions that will limit arguments where contracts are void against public policy and review contracts for particular clauses, such as force majeure or MAC provisions. Read: Contract Considerations for Marijuana Companies During Coronavirus

This summer’s virtual law firm associates face challenges never experienced before. Hogan Lovells partner Sean Marotta offers some tips to help them make the most of their experience and rtual Summer Associate

Exclusive Content for Bloomberg Tax Subscribers

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

Non-U.S. persons investing in private equity funds and other partnerships that are engaged in trade or business in the U.S. are subject to U.S. federal income tax on their share of the partnership’s effectively connected income (ECI). To ensure tax is paid, partnerships are required to withhold tax on the non-U.S. investor’s share of ECI. The 2017 Tax Cuts and Jobs Act expanded upon that concept by providing that a non-U.S. person’s sale of an interest in a partnership that generates ECI will also be subject to tax. Michael Hirschfeld of Andersen Tax and Philip R. Hirschfeld of Cole Schotz PC explain actions that the parties need to take to avoid liability.

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.