Week In Insights: Money Makes the World Go Round

In a famous scene in the movie “Cabaret,” Sally Bowles, played by Liza Minnelli, and the Master of Ceremonies, played by Joel Grey, belt out the showstopper, “Money makes the world go around,” noting, “Of that we can be sure.”

Walt Disney Television via Getty Images FEATURE FILMS - “Cabaret” 1972 - - starring Liza Minnelli, Joel Grey, and Michael York.

Photographer: ABC Photo Archives/Disney General Entertainment Content via Getty Images

It’s true. Despite the push in some sectors for a cashless society and a rise in the use of virtual currency, cash and cash equivalent still play a crucial role in governments and in banking and financial sectors all over the globe. That’s become increasingly clear when it comes to transactions that impact tax reporting and compliance.

Not convinced? Just look at the push to stop a measure under consideration in Congress as part of the reconciliation package that would require banks to hand over some account information to the Internal Revenue Service. It made the rounds on social media and in water coolers, as taxpayers worried about handing over their bank information.

Banks, loans, and financial deals have played major roles in other tax stories this week, from planning to compliance. Questions about transparency, self-dealing, and funding necessarily impact tax policy. Fortunately, our experts have the latest federal, state, and international tax analysis to keep you up to date. You can bank on it.

The Exchange… It’s where great ideas intersect.

—Kelly Phillips Erb

Quick Numbers Trivia

In how many countries are the world’s 10 biggest banks—by assets—headquartered?
(Answer at the bottom.)

Our Roundup

This week, our experts touched on a wide range of topics, from self-dealing to the impact of the OECD proposals. For a look at what’s making news, here’s our roundup:

The way that we bank is changing. Declining activity in the underlying unsecured bank funding market, together with the attempted manipulation from interbank lending rate panel banks, have resulted in global regulators working on a transition roadmap from interbank offered rates (IBORs) to alternative reference rates (ARRs). In Addressing the Challenges of the IBOR Transition Under the Arm’s-Length Principle, Marco Striato of GPBL—Gatti Pavesi Bianchi Ludovici considers the potential transfer pricing impact of the transition from interbank offered rates and discusses what multinational enterprises should be aware of when addressing the transfer pricing challenges.

Not all loans are created equal. In September, the IRS announced that it will no longer issue private letter rulings on whether someone with substantial ties to a foundation can “wrap” a note to the foundation in an LLC to avoid self-dealing penalties. In IRS Won’t Rule on Wrapping Disqualified Person’s Note to Foundation in LLC, Richard L. Fox of Buchanan Ingersoll & Rooney explains how wrapping a note works and advises caution in such a transaction unless certain conditions are met.

Cash may no longer be king. Retail stores have struggled as a result of Covid-19, making it more important for stores to find liquidity and new ways to engage customers and strengthen supply chains. In Can the Tax Code Help the Upended Retail Sector?, Ajay Wanchoo and Gregory Bocchino of KPMG LLP highlight how the retail industry can take advantage of federal and state research and experimentation credits to rebound from the pandemic.

While cash in hand is nice, planning for future revenues could pay off. The pandemic has created a price gap between optimistic sellers who believe the economic recovery is imminent and more pessimistic buyers, according to Evan Levine and Nainesh Shah of Complete Advisors. In An Introduction to Earnout Structures For Your Next Deal, they describe several aspects of earnouts—opportunities for sellers to receive additional payments based on future performance—-and how they affect valuation for estate and income tax purposes.

British twenty pound notes sit in this arranged photograph in Danbury, U.K.

Photographer: Chris Ratcliffe/Bloomberg via Getty Images

One goal of the second pillar of the OECD’s global tax reform proposals is to ensure that certain multinational businesses pay a minimum level of tax. But are taxpayers already thinking about ways to get around it? In Hybrid Financial Instruments Might Reduce Impact of Pillar Two Proposals, Lee Hadnum of Bloomberg Tax & Accounting considers how hybrid financial instruments could potentially be used by multinational enterprises to manipulate their effective tax rate and significantly reduce the impact of the Pillar Two proposals.

The Pillar One and Pillar Two proposals are being pitched as global solutions but will certainly impact individual countries. In BEPS 2.0: Global Measures and Their Impact for Portugal, Rogério M. Fernandes Ferreira of RFF & Associados looks at the potential impact for Portugal’s tax revenue and fiscal competitiveness.

What exactly constitutes presence for tax purposes continues to be a theme around the world. In European Court of Justice Clarifies Concept of VAT Fixed Establishment, Aiki Kuldkepp of Grant Thornton Netherlands discusses recent significant decisions of the Court of Justice of the European Union which have clarified the concept of a fixed establishment for VAT purposes.

And, the U.S. isn’t the only country scrambling to pass a budget deal. In September, the National Assembly of Ecuador took the first look at a proposal from President Guillermo Lasso. In Ecuador: Agreements and Reforms to Reactivate the Economy, Diego Andrés Almeida and Cesar Molina of Almeida Guzmán & Asociados consider the measures already taken by the new government, as well as proposed future tax reforms intended to make Ecuador more attractive to investment.

Opinion and Commentary

Banks have been speaking out against a congressional proposal that would increase reporting requirements. But is that a good idea? In Banks Are Wrong to Fight New IRS Disclosure, Charles Ellis and Alexander Boyle write that the key to enforcement is better-targeted audits, not just more of them. And the key to more effective audits, they claim, is information.

U.S. one-hundred dollar banknotes are arranged for a photograph in Hong Kong, China.

Photographer: Paul Yeung/Bloomberg via Getty Images

And speaking of Congress, what else is in the spending bill? In Is Biden’s Economic Plan Actually a Good Idea?, Tyler Cowen writes that there has been remarkably little policy debate about it and remarkably little attempt to persuade the American public that this spending is a good idea.

One of the pieces that didn’t make it into the congressional proposals is the stepped-up basis at death. In To Reform Stepped-Up Basis at Death, Focus on Tax Shelter Recharge, Gavin Landgraf talks about capital gains tax forgiveness and what he has labeled “tax shelter recharge.”

The plan to increase taxes for the wealthiest Americans includes limiting some juicy retirement tax breaks. In The High-Earner Tax Break That Democrats Forgot, Alexis Leondis wonders why Congress isn’t targeting cash balance plans. For lawmakers who say they want to tighten the menu of tax breaks for well-off people who are already saving for retirement, she says, these plans would seem to be low-hanging fruit.

Columnists & Contributors

With deadline extensions still in the pipeline for some tax professionals and new tax proposals being considered, you’ve likely been reaching for your daily cup—or two—of coffee. National Coffee Day is typically celebrated in the U.S. and Canada on September 29, and October 1 has been dubbed International Coffee Day by the International Coffee Organization. No matter when you celebrate, here are a few facts about coffee—and its relationship to tax—to enjoy during your morning brew.

Listen In

The robots have most definitely arrived in accounting. Front-line accountants may already use some of type of bot, also known as robotics process automation, or RPA. In this week’s episode of Talking Tax, Bloomberg Tax’s Amanda Iacone spoke with Loreal Jiles, vice president for research at the Institute of Management Accountants, about how RPA can help take tedious and repetitive tasks out of an accountant’s day—with no programming experience required.

Tax as a career isn’t always easy to categorize, and not all tax professionals are accountants or preparers. Tax reporting could be the perfect career for those who find data, policy, and current events exciting. On this episode of the Taxgirl podcast, host Kelly Phillips Erb is joined by Allyson Versprille to chat about her career as a tax reporter. Versprille is a senior reporter covering tax and the IRS with Bloomberg Tax.

Chime In

From hacks to best practices, hearing what tax professionals have to say about how they achieve success at the office can be valuable. Our Friday networking minute allows you to share your tips on life in the profession.

Last week’s question was:

What is your favorite tax job interview question?

Enrolled Agent Adam Markowitz says: “My favorite question that I asked all of my interviewees for my job is what scared them most about taking a position with my firm.” He explains that there are lots and lots of correct answers and, “Nothing isn’t one of them.”

Firm owner and Enrolled Agent James Upton echoed a few tax professionals—including me—by asking a variation on “What is your favorite code section other than 179 and why?”

And, I immediately thought of Bloomberg Industry Group Executive Editor Paul Albergo with this “good old fun one”: If you were given a choice to be a superhero, would you choose Batman or Superman?

Here’s this week’s question:

What’s your best tip for managing email?

You can leave your answer on social media or email your answer to kerb@bloombergindustry.com (subject line “Chime In”). Be sure to include your name, company, and title: Your response could appear in a future edition of the newsletter.

Spotlight

Our Spotlight series highlights the careers and lives of tax professionals across the globe. This week’s spotlight is on Priya Prakash Royal. Royal is a former IRS attorney, now practicing tax law and estate planning in the private sector. She has an office in Washington, D.C., where she focuses on international trusts and estates, business succession, and nonprofits.

Quick Numbers Answer

This photo illustration shows Chinese 100 yuan notes in Beijing.

Photographer: FRED DUFOUR/AFP via Getty Images

The S&P Global Market Intelligence’s annual global bank ranking indicates the top 10 banks in the world are headquartered in five countries, with China in the top spots:

1. Industrial & Commercial Bank of China Ltd. (China)
2. China Construction Bank Corp. (China)
3. Agricultural Bank of China Ltd. (China)
4. Bank of China Ltd. (China)
5. Japanese Mitsubishi UFJ Financial Group Inc. (Japan)
6. JPMorgan Chase & Co. (U.S.)
7. French BNP Paribas SA (France)
8. HSBC Holdings PLC (U.K.)
9. Bank of America Corp (U.S.)
10. Crédit Agricole (France)

Exclusive Content for Bloomberg Tax Subscribers

A lot of chatter around congressional tax proposals focuses largely on individual tax rates. For a look at what to expect if the rates stay the same, you can check out the projected 2022 inflation-adjusted amounts for key figures in the tax code. Bloomberg Tax calculates the numbers using chained consumer price index (C-CPI-U) data from the Bureau of Labor Statistics. The IRS will publish the official inflation-adjusted amounts in late fall in a revenue procedure.
*Note: Your Bloomberg Tax login will be required to access the 2022 projected tax rates.

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What Did You Think?

Your feedback and suggestions are important to us, so don’t hesitate to email directly to kerb@bloombergindustry.com.