Week in Insights: Carbon Taxes Must Focus on More Than Numbers

Governments that implement carbon taxes often measure success by how much revenue is raised. Ireland, for example, projects its carbon tax will raise an additional 10 billion euros ($11.1 billion) from 2024 to 2030.

But focusing solely on revenue numbers risks losing sight of carbon taxes’ actual purpose: curtailing carbon emissions. The taxes are intended to place a price on carbon and pressure businesses and individuals to reduce their emissions footprint. The more successful this strategy is, the less money is raised. It’s a good problem to have from an environmental perspective but a challenging one for revenue purposes.

Carbon taxes aren’t supposed to be permanent revenue generators; they’re more like mechanisms that facilitate the transition to greener energy. For Ireland, raising more revenue by 2030 is notable, but a more pressing concern is how effectively the country is investing the funds in climate solutions.

Ireland has earmarked part of the revenue for climate initiatives, but ensuring all of it goes toward projects such as renewable energy incentives and infrastructure for electric vehicles is crucial. The investments must foster long-term change and help bring about a greener economy. Otherwise, the carbon taxes are self-limiting bridges over widening budget shortfalls.

As economies decarbonize, carbon tax revenue will naturally decline. Governments must plan for this reality now by treating such revenue as a finite resource and allocating it to initiatives that will become less necessary over time.

Carbon tax success should be defined by the country’s ability to reduce their carbon output. In the end, properly investing today’s carbon tax revenue should take priority over raising more of it.

—Andrew Leahey

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined the IRS’s transfer pricing enforcement position, the United Nations’ approach to taxing cross-border services, and more.

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Insights

Grant Thornton’s Steven Wrappe analyzes two US transfer pricing cases, saying they reflect the IRS’s more assertive application of Section 6662 penalties.

Cullen and Dykman’s David Wilkes examines New York City’s property tax problem, noting that a more equitable tax system may bring unintended consequences.

Pinsent Masons’ Robert Dever analyzes the $13 billion tax ruling against Apple, saying the close timing of Ireland’s Finance Bill may work in the country’s favor.

Freshfields’ Philipp Redeker and Viktoria von Abel consider Germany’s draft updates on its arm’s-length rule, saying they would align the country’s approach more closely with OECD guidelines.

AICPA’s Kristin Esposito and KPMG’s Stephen Tackney say IRS guidance and certain industry types could deter employers from using the SECURE 2.0 Act’s matching contributions feature for student loan repayments.

KPMG’s Tayo Ogungbenro examines transfer pricing in sub-Saharan Africa, noting that poor training and limited data availability are barriers to improvement.

Squire Patton Boggs’ Jefferson VanderWolk critiques two United Nations tax plans, saying multinationals should start preparing for their possible consequences.

Kostelanetz’s Megan Brackney calls for an end to some IRS international late filing fees, noting that penalties often affect lower- and middle-income taxpayers.

Gray Reed’s Joshua Smeltzer and Chris Davis say anything in writing could be evidence during a digital asset audit, noting that experience and documentation matter.

SMB Law Firm’s Kevin Henderson and Eric Pacifici say culture helps attract and retain talent, and recommend prioritizing flexibility, avoiding micromanagement, and leading by example.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

New York City’s shelving of its partnership tax proposal shows that reform advocates “should focus on lobbying state governments rather than throw their support behind local initiatives that are almost certain to fail,” Andrew Leahey argues in his latest Technically Speaking column.

Obstacles to municipal-level tax overhauls include practical challenges of administering divergent policies, risk of capital flight, and restrictions imposed by state oversight, Andrew says. Read More

News Roundup

IRS Is ‘Daring People to Sue’ Over Pandemic Credit Crackdown

IRS efforts over the past year to clean up an embroiled tax credit program have put companies seeking long-delayed payments in a position they’re trying to avoid—going to court. Read More

Microsoft Wins Refund on Repatriated Income at Oregon Tax Court

Microsoft Corp. is entitled to a partial refund of the nearly $17 million it paid in Oregon income tax to account for repatriated earnings, the Oregon Tax Court ruled in an opinion posted Monday. Read More

OECD Issues Model Pact to Use Simpler Transfer Pricing Rules

The OECD published a template countries can use to honor new rules that would simplify transfer pricing methods for certain transactions. Read More

Why the Corporate Minimum Tax Will Likely Survive a GOP Clawback

Getting rid of the corporate alternative minimum tax—hated by companies and many Republicans—will likely be harder than critics think. Read More

Tax Management International Journal

The Dutch tax authorities’ 2023 mutual agreement procedures report demonstrates the rising demand for international dispute resolutions but also for more advance certainty as more bilateral and multilateral advance pricing agreements have been resolved, says KPMG Netherlands’ Eduard Sporken.

Tax Management Memorandum

Estate planners Matt McClintock and Abbie Everist explain the importance of addressing digital asset issues, particularly given the nascent and “cryptic” nature of the asset, the industry, and the technology through which it is administered.

Career Moves

Louis Jenull joined Winston & Strawn as a partner in its transactions department and tax practice in Dallas.

Kal Dargan joined Husch Blackwell as a partner in its national tax practice.

Donald Melody joined PKF O’Connor Davies as partner in its public company and financial services practice areas.

Michael Nissan joined Alvarez & Marsal Tax as a senior adviser in its compensation and benefits practice.

If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.