Tax breaks are a frequent topic in the world of tax policy. Their intended effect is to provide relief to some individual or sector that policymakers believe need or deserve a boost.
But some effects are unintentional. The Inflation Reduction Act’s domestic production requirement for electric vehicle credits incentivized the use of lithium iron phosphate, potentially leading to heavier batteries. The goal was to boost job numbers, not turn hatchbacks into M1 Abrams tanks. These accidental effects are called “market distortions.”
Romania faced such a distortion in the early 2000s. The IT sector became overtaxed because of how payroll and personal income tax brackets were structured and deductions were meted out, leading to a failure to flourish in what clearly was the next big thing—technology.
The government responded by introducing a personal income tax cut to programmers with degrees in computer science. Instead of progressive rates ranging from 18% to 40%, eligible IT workers were subject to a flat rate of 16%.
The policy succeeded almost overnight. By 2005, Romanian IT firms had a 24% higher operative revenue, a 13% larger workforce, and 12% more assets than firms in other sectors. The turnaround highlights the impact of market distortions: Policies that fail to account for every factor can artificially suppress entire sectors of the economy.
Tax policy is a web of tangled threads. For every thread, there is an expert who can tell you what happens when it’s pulled, and which knots can be untied or navigated around. Here at Bloomberg Tax, we’re chasing down those experts and shaking insights out of them and onto the page.
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—Andrew Leahey
Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social
State Insights
California’s new film tax credit will benefit and attract more production companies than the old one, though it still falls short of Georgia’s equivalent credit in some aspects, says Gregory Zbylut of Breyer Andrew.
Attorney Holland King looks at elements of Oregon’s new research and development tax credit for semiconductor production companies, explaining key differences from the federal research credit.
A recent ruling involving digital taxes in Maryland does little except to create uncertainty and costs for both taxpayers and the state without protecting any other interests, says Mike Semes of BakerHostetler.
Federal Insights
Deloitte’s Jane Rohrs and Mark Hindes describe the need for official guidance to help businesses comply with newly enacted rules regarding research and experimental expenditures under Section 174 of the tax code.
Several recent Tax Court rulings have underscored the importance of filing petitions with the court well in advance of its midnight deadline, say RSM’s Cindy Hull and Marissa Lenius.
Retailers no longer need to collect and pay sales taxes manually with the availability of sophisticated, customized automated software, says Baker Tilly’s Josh Din.
Herbert M. Chain of Kreston Global Audit Group considers the role of auditors in providing assurance on the fair presentation and reliability of financial statements to regulators, external stakeholders, and the wider public.
OECD Guidance Insights
The OECD’s new guidance on the global minimum tax provides relief to US multinational enterprises but doesn’t preclude some from eventually paying tax on their US profits, say EY’s Barbara Angus and Jason Yen.
The latest guidance from the OECD may assuage some frustrations from US businesses about the undertaxed profits rule, even if temporarily, say Kevin Brogan, Marcus Heyland, and Alistair Pepper of KPMG.
Global Insights
Thierry Viu of CMS France explains the transfer pricing measures that form part of the latest government initiative to reduce public finance fraud.
Meyyappan Nagappan, Saranya Ravindran, and Eeshan Sonak of Trilegal consider the recent increase in tax for online gaming businesses, and the legal challenges from both tax authorities and taxpayers that may follow as a result.
Aiki Kuldkepp of Grant Thornton looks at the facts of a significant recent EU case on fixed establishment and considers the impact of the ruling for businesses operating internationally.
Columnist Corner
Most states provide tax breaks as incentives for film productions within their borders. In this week’s Technically Speaking, Andrew Leahey writes that such programs are bad tax policy that benefit studios rather than state economies.
Career Moves
Matthew Schnall has joined Morgan Lewis as a partner in the global tax practice in Boston.
Kimberly Eney has joined the nonprofits and tax-exempt organizations practice group at Loeb & Loeb in San Francisco.
David Lister has joined Aprio as a tax partner in the Nashville office.
Angel Li has joined CohnReznick as a partner in the tax practice.
Jeffrey Rubinger and Summer LePree have joined Winston & Strawn as tax partners in Miami.
Tina Lawrence has been promoted to an equity principal at Dark Horse CPAs, the firm said Thursday.
If you are changing jobs or being promoted, let us know. You can email your submission to TaxMoves@bloombergindustry.com for consideration.
Spotlight
We’re shining our final Spotlight on Salim Rahim, a partner at Baker McKenzie in Washington, D.C., and chair of the firm’s North America tax practice group. He specializes in transfer pricing matters, including planning, compliance, and disputes. Thanks to everyone who participated in this series over the past two years.
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.
*Note: Your Bloomberg Tax login is required to access Tax News.
- Countries have agreed to a “transitional safe harbor” that could temporarily protect US companies’ US income from other governments’ application of the global minimum tax.
- New York is facing a $36.4 billion budget gap through fiscal 2026, putting increased pressure on lawmakers to rein in spending to align with declining revenue, Comptroller Thomas DiNapoli said in a Tuesday report.
- The US Tax Court must consider equitable reasons for allowing late lawsuits challenging IRS tax bills to go forward, a federal appeals court ruled Wednesday.
- KPMG has said it would co-develop cloud and AI-based products for its employees and its clients—a five-year investment that the firm projects could return as much as $12 billion in revenue.
Tax Journals
Non-guaranteed life insurance policies may expire earlier than expected due to decades of reduced sustained interest rates and fiduciaries need guidance on how to prevent that from happening, says Henry Montag of the TOLI Center East.
*Note: Your Bloomberg Tax login is required to access Tax Journal articles.
Our Wish List
Back-to-school season is starting. For August, we’d welcome submissions on sales tax holidays and educational credits. We’re also seeking articles that discuss tax considerations of college tuition payments.
If you have an interesting, never-published article for publication, you can contact our Insights team by email at TaxInsights@bloombergindustry.com.
Our Team
We talk about tax a lot. But there’s much more that you might hear us talking about 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
Melanie Cohen (Content Editor): The absolutely incredible reality dating show “Love Island USA,” whose fifth season premiered this week.
Reading
Katharine Butler (Acquisitions Manager): I’m reading “Lessons in Chemistry” by Bonnie Garmus for my Womxn in INDG book club meeting next week. So far, it’s very good.
Listening
Andrew Leahey (Columnist): I’ve been on a mid-century kick lately, but with a twist. Give the Günter Kallman Choir version of the song “Daydream” a listen.
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