Efforts to address tax avoidance, promote fairness, combat dark offshore money, and the impact of new tax laws on infrastructure projects in Australia and the Philippines have gained attention. Loopholes in the tax system allow financial firms to pay low effective tax rates, while preferential tax treatment benefits capital gains and the 'carried interest' loophole. Taxes on financial market transactions can discourage short-term speculation and high-frequency trading. Measures to curb excessive CEO pay and wasteful stock buybacks are also suggested. Congress is urged to adopt a bold tax policy that supports public investments, reduces economic disparities, and addresses climate change. Efforts to address tax avoidance, promote fairness, and combat dark offshore money have been ongoing globally. Countries have been working on agreements and legislation to close tax loopholes and ensure that multinational companies and wealthy individuals pay their fair share of taxes. One such agreement, supported by the Organization for Economic Cooperation and Development (OECD), aims to establish a global minimum tax rate of 15% to prevent multinational companies from shifting profits to low-tax jurisdictions. However, a tax watchdog backed by the European Union has warned that the agreement is weakened by loopholes and will raise only a fraction of the revenue that was envisioned. Loopholes such as exemptions for certain types of income and the use of intra-group transactions to reduce taxable income could result in multinational companies paying less than the intended minimum tax. In addition to international agreements, individual countries are also taking action to ensure tax fairness. Congressmen Steve Cohen and Don Beyer have reintroduced the Billionaire Minimum Income Tax Act, which aims to prevent the wealthiest Americans from escaping federal income taxes or paying lower tax rates than ordinary Americans. The bill would require households worth over $100 million to pay an annual minimum 25 percent tax rate on their full income, including regular income along with realized and unrealized gains. The bill has the support of President Biden and has been drafted in coordination with the White House and U.S. Treasury Department. The issue of tax avoidance and the use of tax loopholes by multinational companies and wealthy individuals has gained significant attention in recent years. It has been found that large corporations, including tech giants, have been using complex tax structures to shift profits to low-tax jurisdictions, resulting in a significant loss of tax revenue for governments around the world. This loss of revenue has implications for public services and social programs. Dark offshore money passing through tax havens and jurisdictions with financial secrecy poses a major threat to democracy. The erosion of legitimacy within democracies is fueled by rising inequality and the perception that the economic game is rigged. Tax havens allow the wealthy to accumulate wealth tax-free and exert economic and political power without accountability. Dark offshore money also strengthens authoritarian regimes by supporting candidates, manipulating public opinion, and funding disinformation campaigns. Russian oligarchs and the Chinese government are examples of how dark money is used to exert influence. Shutting down tax havens and increasing transparency on cross-border financial flows should be a policy priority for G7 countries. The use of artificial intelligence can help uncover tax evasion and unusual money flows. Business profits should be taxed in proportion to where sales occur, and tax evasion loopholes should be closed. Increased transparency requirements, criminal penalties, and international assistance should be implemented to combat dark offshore money.
The Supreme Court of the United States has ruled 7-2 to uphold the 'mandatory repatriation tax' (MRT), a provision of the GOP's 2017 tax law that imposed a one-time tax on U.S. individuals and companies who have a significant stake in foreign corporations controlled by Americans. The court ruled against the Moores, who argued they shouldn't have been taxed on 'unrealized gains,' stating that the MRT is in line with other tax provisions imposed by Congress. Striking down the MRT could have benefitted corporations and impacted Democrats' proposals for a wealth tax. The ruling did not address taxing unrealized gains under a wealth tax. The case has potential broader impact on U.S. tax policy. Justice Samuel Alito, who participated in the case, has faced criticism for potential ethics issues. The Moores' ties to the Indian company they invested in have also come under scrutiny. The ruling is seen as narrow, leaving room for future challenges.
Senator Elizabeth Warren celebrates the Supreme Court ruling upholding a tax on Americans with shares of certain foreign corporations. The ruling is seen as a win for wealth tax advocates. The decision does not explicitly affirm the constitutionality of federal wealth tax proposals, but it is seen as a positive development. The case involved a challenge to the mandatory repatriation tax in the 2017 tax law. Conservative Justice Brett Kavanaugh delivered the majority opinion, joined by Chief Justice John Roberts and the three liberals. Justice Amy Coney Barrett concurred in the judgment, joined by Justice Samuel Alito. Conservative Justice Clarence Thomas dissented, joined by Justice Neil Gorsuch. The Roosevelt Institute and Institute on Taxation and Economic Policy estimated that a ruling in favor of the plaintiffs could have led to $270 billion in tax relief for multinational corporations. Warren vows to continue the fight for a wealth tax on ultra-millionaires and billionaires.
The Supreme Court decision in Moore v. U.S. has put pressure on Congress to come up with feasible legislation for a wealth tax. The ruling kept the overall structure of the U.S. tax system intact but left the door open to a potential tax on net worth. The court's decision did not address taxes on holdings, wealth, or net worth, leaving room for lawmakers to develop legislation in this area. With key parts of Trump's 2017 tax cut law set to expire next year, the Moore case adds uncertainty to the upcoming battle over new tax legislation. Both Republicans and Democrats are broadening their tax agendas beyond the parameters of the Trump tax cuts. The IRS has been in touch with Congress about their legislative priorities, while on the international level, tax treaties regarding a global minimum tax and taxation of companies are in various stages of ratification and implementation.
The IRS has issued final regulations that provide guidance on reporting and paying the excise tax on corporate stock repurchases. The regulations implement a new tax code section, Section 4501, which imposes a one percent excise tax on stock repurchases by certain corporations starting after December 31, 2022. The excise tax is at the corporate level and not the shareholder level. The tax applies to public companies and repurchases after December 31, 2022, but does not apply to buybacks of less than $1 million or if the buybacks are contributed to an employee pension or similar plan. Real estate investment trusts (REITs) and regulated investment companies (RICs) are exempt from the tax. The final regulations confirm that the stock repurchase excise tax should be reported on Form 720, Quarterly Federal Excise Tax Return, and a new form, Form 7208, Excise Tax on Repurchase of Corporate Stock, is used to calculate the amount of tax owed. Forms 720 and 7208 are due for taxable years ending after December 31, 2022, and on or before June 30, 2024. The final regulations exempt RICs and REITs from the obligation to file a stock repurchase excise tax return, but they are still subject to recordkeeping requirements. The regulations affect publicly traded domestic and foreign corporations that repurchase their stock or have their stock acquired by certain affiliates after December 31, 2022. The Inflation Reduction Act, passed in 2022, imposed a new tax on buybacks, which has negatively impacted public company growth. Buybacks are used by corporations to signal good financial health and attract investors. They also allow companies to reinvest excess cash and increase their stock value. However, the buyback tax has led to a decline in corporate buybacks, undermining corporate growth and weakening investor returns. The tax also puts U.S. companies at a disadvantage compared to European companies. Additionally, the money that would have been used for buybacks has been redirected towards clean energy initiatives. The Biden administration plans to quadruple the buyback tax, but this could lead to reduced tax revenues. The author suggests eliminating the tax on repurchased shares to incentivize firm growth and make public market entry more attractive.
ByteDance, the owner of TikTok, is adjusting its policy on share options for US-based employees. They can now withhold up to 37% of vested restricted stock units (RSUs) for tax payments, up from the previous 22%. Employees can also sell 60% of vested RSUs back to the company after the first year, up from 50%, with the rest becoming transactable in equal tranches over the following five years. The changes will be effective later this year for US staff. It is unclear when the adjustments will apply to employees in other parts of the world. ByteDance has conducted regular share buy-back programs for employees and institutional investors since 2017. The most recent buy-back priced the shares at $170.81 each. In January, ByteDance issued a new payroll policy allowing employees to sell their vested RSUs faster. The changes come as TikTok faces uncertainty in the US due to a law requiring ByteDance to divest TikTok within 270 days or face an app store ban.