WEEKEND INSIGHTS: Year-End Planning and Digital Transfer Pricing

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 year-end planning in an unusual year, digital company transfer pricing, the Cum-Ex tax heist, driving tangible personal property out of an opportunity zone, and more. We’ll hear from:

• Alvina Lo of Wilmington Trust on year-end planning for estate tax, income tax, and charitable gifting
• Alok Khare and Sreevidhya Devarajan of FTI on taxing digital companies
• James Siswick and Alexandra Will of Guidehouse on the multibillion-euro Cum-Ex tax “heist”
• Alan Lederman of Gunster, Yoakley & Stewart, P.A. on driving qualified tangible property out of an opportunity zone
• KPMG professionals on the use of AI in the tax process and the application of AI in transfer pricing benchmarking processes
• Jeffrey Levin of Squire Patton Boggs on a trust protector for the family trust
• Lloyed Lobo of Boast.AI on the lack of R&D tax benefits for startups
• Matt Waters of CoStar on new lease disclosure requirements
• Alan Kenigsberg, Roger Smith, and Alain Fournier of Osler, Hoskin & Harcourt LLP on changes to Canada’s provincial sales taxes
• Rashmi Deshpande and Anjali Krishnan of Khaitan & Co. on indirect tax implications for M&A in India
• Mukul Chawla QC and Kate Ison of Bryan Cave Leighton Paisner LLP on the U.K. cracking down on tax evasion

Although you may have just finished filing your clients’ 2019 tax returns, it’s time to consider year-end planning.

Photographer: Daniel Acker/Bloomberg

This year will stand out in the record books for its uncertainty and upending personal financial planning. Alvina Lo of Wilmington Trust outlines some year-end planning considerations for estate tax, income tax, and charitable gifting. Read: Year-end Planning Amid a Year of Uncertainty

The Organization for Economic Cooperation and Development (OECD) is working on a plan to best tax the digital economy. Alok Khare and Sreevidhya Devarajan of FTI Consulting describe the OECD’s approach to taxing the digital economy, the unique transfer pricing challenges faced by digital companies, and what multinational enterprises could consider in the interim until the OCED recommendations are finalized and generally accepted. Read: Covid-19 and Transfer Pricing Implications for Digital Companies

Between 2002 and at least 2012, European tax authorities were defrauded of an estimated 55 billion euros in a securities trading scheme known as “Cum-Ex.” James Siswick and Alexandra Will of Guidehouse introduce Cum-Ex and highlight the complexity and magnitude of the issue and the associated risks for financial services firms in the first installment of a series. Read: Cum-Ex—An Introduction to the 55 Billion Euro Heist

Qualification of vehicles often driven outside opportunity zones depends on how utilization will be measured, and whether the vehicles have been placed under a service contract or a lease. Alan Lederman of Gunster, Yoakley & Stewart, P.A. looks at some likely scenarios and finds further IRS guidance is needed. Read: Can Tangible Property Drive Outside the Opportunity Zone?

Although the use of AI in the tax process is at an early stage, the dramatic increase in remote working has driven the need for technological innovation. Michel Braun, Steven Galginaitis, Rebecca Reitz, Jillian Schleicher, and Brian Shea of KPMG describe a case for the application of AI in transfer pricing benchmarking processes. Read: Disrupting Tax Processes with Artificial Intelligence Technology

Many high net worth families may choose to use a “trust protector” to provide the family leaders a degree of control over the administration of the family’s trust without losing many of the advantages provided by the trust ownership structure. Jeffrey Levin of Squire Patton Boggs addresses several of the issues that a family leader should consider in the selection of a trust protector and determination of the responsibilities and authority of the designated trust protector. Read: Trust Protector Planning—Key Considerations

You shouldn’t have to be a corporate giant to benefit from R&D tax breaks. Lloyed Lobo of Boast.AI says the biggest problem with Amazon’s small tax bill is that startups can’t get the same financial boost from the government, because they typically have little or no taxes to offset with credits. The author says R&D incentives should be structured to be accessible to all businesses. Read: The Real Problem With Amazon’s Tax Bills

The Financial Accounting Standards Board (FASB) has the same lease disclosure requirements for public and private companies under ASC 842. Matt Waters of CoStar explains the purpose and content of such disclosures. Read: Private Company Disclosure Requirements for Lease Accounting

Given the rapid pace of change in the digital tax arena, companies looking to do business in Québec, Saskatchewan, or British Columbia need to get up to speed on the online marketplace liability rules, as discussed by Alan Kenigsberg, Roger Smith, and Alain Fournier of Osler, Hoskin & Harcourt LLP. Read: New Changes Broaden Collection Requirements for Canada’s Provincial Sales Tax Regimes

Indirect tax implications on mergers and acquisitions may appear harmless initially but could result in changing the course of any merger or acquisition if not addressed in the earlier stages, as discussed by Rashmi Deshpande and Anjali Krishnan of Khaitan & Co. Read: Mergers and Acquisitions in India—Indirect Tax Impact

The U.K. tax authority is indicating its intention to enforce legislation and investigate corporations for failure to prevent tax evasion. Mukul Chawla QC and Kate Ison of Bryan Cave Leighton Paisner LLP review the current status of inquiries and discuss what action organizations need to take to ensure their procedures are robust and compliant. Read: U.K. Tax Authority Getting Ready to Bite on Evasion

Corporate Tax Chat

Bloomberg Tax recently chatted with Zahira Quattrocchi, group head of tax for the mining giant Anglo American, about how her job is evolving in a digital age. Quattrocchi leads a team of more than 75 employees around the globe. She is part of a team helping to shape global tax and accounting policy for the company. She previously worked for Royal Dutch Shell and for the Italian food conglomerate Barilla. Anglo American is the world’s biggest platinum producer and owns De Beers, the No. 1 diamond miner. Read: Corporate Tax Chat with Anglo American’s Zahira Quattrocchi

From the Archive

Bloomberg Tax contributors have been keeping up with the rapidly evolving economic landscape and identifying ways for everyone from individual taxpayers to multinational businesses to be prepared for what comes next in the pandemic economy.

The Covid-19 downturn has upended the carefully constructed tax planning of many U.S. inbound taxpayers. Aydin Hayri, Manoj Raj, and Jamie Hawes of Deloitte highlighted some key transfer pricing considerations related to the potential impact of the pandemic on foreign-based multinational enterprises operating in the U.S.

New laws and the rapidly changing environment brought on by the Covid-19 pandemic present new tax challenges. Robert Rojas and Michael Pusey of Rojas & Associates walked through year-end income tax, estate tax, and real property tax planning.

A Democratic success in the coming election could bring a reduction to the gift and estate tax exclusion and necessitate revised estate planning among more affluent individuals, including elite law firm partners. Dr. Hugh Simons outlined some actions and implications for managing partners and other highly-compensated individuals.

Beyond Tax

What’s happening outside the world of tax?

U.S. Army judge advocate Thomas N. Wheatley discusses why the bar exam should remain as the legal industry’s standard for professional competence. He says it may be imperfect, but it hones “practice-ready” skills, including rapid information synthesis, methodical application of the law, and clear articulation of a soundly reasoned answer. Read: The Bar Exam Is ‘Monster of a Test,’ But Worth Keeping

Families and teachers forming “Learning Pods” for remote learning during Covid-19 need to understand legal issues relating to employment, health and safety, and state laws on homeschooling. Kathryn Beaumont Murphy, counsel at Saul Ewing Arnstein & Lehr and co-chair of the firm’s K-12 practice, says a set of guidelines is key for avoiding legal headaches later. Read: Do You Really Need a Contract for Your First Grader’s Learning Pod?

Covid-19 has increased legal work volume and risk for general counsel. GCs can leverage the legal budgeting process to embrace alternative budgeting methods that can lead to better ways of accomplishing legal outcomes and cement their reputation as a change agent and true business partner, writes Catherine Kemnitz, global head of legal for Axiom. Read: GCs Should Embrace Innovative Legal Budgeting in Covid Economy

Law firms need to attract and retain the best talent to remain competitive. Jason Brennan, acting CEO of Luminance, says artificial intelligence is part of the solution, allowing young lawyers to quickly review vast quantities of documentation, have more time for more meaningful work, and meet work-life balance goals. Read: AI Can Help Law Firms Retain New Talent, Find Work-Life Balance

Lenders have been willing to make certain concessions on loans in an out-of-court context due to pandemic-related distress, Morgan, Lewis & Bockius LLP attorneys say. The loan market has seen its fair share of amendment and restructuring activity, and there’s every reason to believe the pace of this activity will continue and even increase this year. Read: Covid-19 Credit Concessions Rely on Give-and-Take

Exclusive Content for Bloomberg Tax Subscribers

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On July 31, 2020, the Treasury and the IRS released long-awaited proposed regulations under tax code Section 1061. Prior to enactment of Section 1061 as part of the 2017 tax law, partnership allocations of capital gain from investments held for over one year were taxable at long-term capital gains rates for both holders of profits interests and for other holders of partnership interests. Section 1061, as enacted, reached a compromise position that allows the look-through approach to continue, but only with respect to allocations of capital gain from investments held for more than three years.

Allocations of gain to carried interest recipients from other investments are now taxed as short-term capital gain subject to ordinary income tax rates. By contrast, allocations of gain to carried interest recipients with respect to their own capital investment in the partnership are intended to be treated consistently with allocations to other partners not performing services. By Michael Bolotin, Peter Furci, Rafael Kariyev, and Cameron Rotblat of Debevoise & Plimpton highlight important aspects of the proposed regulations, with an emphasis on the impact of the proposed regulations on sponsors of real estate funds and other private equity funds.