Week in Insights: Legal Tax Avoiders Are Just Playing the Game

Curated by Daniel Xu

It seems there is a news story, based on a report from a think tank, about some major corporations or wealthy individuals paying nothing in tax for years on end on almost a weekly basis.

Terms are chosen carefully. Legal “loopholes” or “dodges” are to blame, not illegal “shelters” or “evasion.” These semantic decisions suggest that political will, or the lack thereof, stands in the way of ensuring major earners and corporate interests pay their fair share.

That isn’t to say there aren’t occasional tax arrangements that venture into illegal tax evasion territory. But in the main, the cause of many of these zero-tax fiscal years isn’t illegality, but perfectly legal leveraging of disparate elements of tax policy.

The policy architecture of our US and internationals tax systems—with myriad deductions, credits, incentives, and room for manipulation—provides a fertile ground for legal tax avoidance that sounds like tax evasion when expressed in simple terms to the general public.

Outrage sparked by stories of corporations legally using the tax system to minimize their liabilities is misdirected if it solely vilifies the companies for acting within the confines of established tax policy. Demand for policy reform should match such backlash.

The real path to change lies in electing officials who have the political will to overhaul the underlying policies—not in expecting corporations to pay more taxes than they are legally required to.

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A Bank of America Corp. branch in Austin, on April 11, 2022.

Photographer: Sergio Flores/Bloomberg via Getty Images

State Insights

UConn School of Law’s Richard Pomp says the Tax Injunction Act should be amended to speed up judicial and administrative processes for state tax cases.

Federal Insights

FAMU College of Law’s Darryll Jones says the NCAA should be instructed and permitted to adopt revenue-sharing rules that don’t entail treating student athletes as employees.

Kemp Klein’s Amanda Martin and Neal Nusholtz say the IRS should lessen its grip on tax preparers so they can operate with less fear of being penalized.

Sideman & Bancroft’s Travis Thompson says generative AI will allow tax practices to work on more cases at lower costs and could enable smaller firms to compete more with larger ones.

Global Insights

EY’s Tracee Fultz says transfer pricing leaders should establish plans to standardize data and prepare for dispute resolutions under Pillar Two rules.

Columnist Corner

President Joe Biden’s housing tax credit proposal could exacerbate inequity despite its intentions, Andrew Leahey writes in his Technically Speaking column, saying it appears to favor buyers who can afford a higher mortgage bill. “Policymakers must recognize that solutions must extend beyond temporary financial aids,” Leahey says, arguing that broad reforms to develop more affordable housing would yield the most long-term benefits.

Career Moves

Craig Phillips has joined King & Spalding as a partner in the corporate practice group in New York.

Cedric Bernardeau has been appointed to senior managing director in the transactions tax offering of FTI Consulting within the corporate finance and restructuring segment.

Kiran Uppal has joined Dorsey & Whitney as of counsel with the tax, trusts, and estates group in Seattle.

Thomas Laurer and Ryan Hansen have joined Katten in London as financial markets and funds partners, and Daniel Lewin has joined as a tax planning partner.

Christopher Rizek has joined Holland & Knight as a partner in the the tax, executive compensation, and benefits practice in Washington, D.C.

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

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team (login required).

• It’s not clear what Georgia lawmakers thought their “fetal personhood law” would cost when they passed it in 2019, but new data indicates the state shaved more than $100 million from the tax base to facilitate a first-in-the nation tax deduction for “unborn children.”
• Senate Democrats are demanding new details from the Department of Justice in a long-running political interference probe, in which they allege Trump-era officials interceded to protect Caterpillar from a whopping $2.3 billion tax-and-penalty bill.
• Members of the Multistate Tax Commission are taking the first steps toward more consistent rules that could help states trace and equitably tax income moving through complex tiered partnerships.
• The Australia government is retroactively applying the main global minimum tax deal from the start of this year, to bring it in line with the Organization of Economic Cooperation and Development’s start date.

Buildings along the Elizabeth Quay waterfront in the central business district in Perth, Australia, on July 22, 2023.

Photographer: Lisa Maree Williams/Bloomberg via Getty Images

Tax Journals

(Bloomberg Tax login required)

Tax Management International Journal

US banks affected by the transition from Model Two to Model One under the US/Swiss Foreign Account Tax Compliance Act intergovernmental agreement should carefully review their reporting obligations, Arielle Tucker of Connected Financial Planning says.

Tax Management Memorandum

In what could have been a classic transfer pricing battle over which methodology is most appropriate, the approaches used by the South Africa Revenue Service’s two expert witnesses had no basis in the OECD Transfer Pricing Guidelines or in economic logic, J. Harold McClure says.

Our Team

We talk about tax a lot. But you would hear much more if you popped into one of our Teams meetings. Here’s a quick look at what some of us are watching, reading, and listening to this week.

Watching
Andrew Leahey (Columnist): With spring officially sprung, I’ve been background-watching the Cornell FeederWatch Cam. The 24/7 stream on YouTube invariably has a daily variety of interesting visitors to the feeders.

Reading
Melanie Cohen (Content Editor): T.J. Klune’s “The House in the Cerulean Sea,” a fantasy novel about a caseworker investigating a magical orphanage.

Listening
Jada Chin (Content Editor): “Deeper Well,” the new album from Kacey Musgraves.

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