Corporate tax: The latest news and trends

There have been large developments across the globe regarding tax. With misinformation around taxation of LLCs, indirect tax trends causing waves, as well as a possible global minimum corporate tax. This article will cover some of the latest tax news around the globe to keep you updated and informed.

LLCs: Taxes are paid where money is made

Some business owners falsely believe that creating foreign LLCs in specific states may grant them “tax savings”. LLCs, which are taxed differently than other companies, allow pass-through taxation. Pass-through taxation is when the businesses incomes or losses pass through the business and are recorded on the owner’s personal tax rate. A single member LLC is usually taxed as a sole proprietorship while an LLC with multiple owners would usually be taxed as a partnership having the owners reporting profits and losses on their personal tax returns.

Some business owners choose to start an LLC in other states to take advantage of “tax savings” in that state. This is not possible seeing that taxes are paid where money is made. For example, there are myths that Nevada has no corporate income tax, Wyoming LLCs are the most affordable and that Delaware is the best state to form an LLC in.

If a business owner, outside of Wyoming, formed an LLC to take advantage of “tax savings”, they would still have to pay the taxes in the state where the business is based. Business owners who create foreign LLCs may also have to pay additional taxes in fees in that state. Specific states require a registered agent by law, such as Texas. Therefore, if business owners would want to form an LLC in Texas to take advantage of their tax laws, selecting an LLC service that offers a Texas registered agent is imperative.

Indirect tax trends shaking up corporate landscapes

There are five new tax trends which are likely to create new obligations, they increase workloads and create operational challenges for companies’ sales and uses of tax, VAT and GST teams. By doing so, corporate landscapes are being forced to change and allow reshaping. These trends are:

No end to remote work

Due to the pandemic, the need for tax technology that facilitates remote work has vastly accelerated. The workforce is slowly returning back into the office, but remote work will likely not end. Therefore, indirect tax professionals will need software solutions to connect dispersed teams.

Changing tax rules and rates

The Government stimulus packages established to combat the pandemic created public debt. This debt may be addressed by policymakers by increasing indirect taxes. This is because it is considered to be less politically risky than to increase individual or corporate tax.

Greater government scrutiny

To increase revenue, governments are likely to increase the number and intensity of direct tax audits. These aggressive indirect tax audits should be expected as soon as this year.

More outsourcing is expected

To improve operational efficiency, companies will outsource routine tasks. Indirect tax compliance activities may create a competitive advantage. This is because it assists the tax department in streamlining and focusing on value-added activities to reduce tax burdens and improve margins.

The heightening of reporting requirements

Due to the pandemic, tax authorities are adopting e-invoicing and near real-time transaction validation and tax remittance. This would mean monthly filing would become a thing of the past. Doing this would help companies follow technology, data and compliance processes. Then to ride the wave of digital tax reporting, rapid-fire filing requirements and heightened scrutiny from tax auditors.

US Treasury Secretary advocates for a global minimum corporate tax

In April of this year, Janet Yellen, the US Treasury Secretary, spoke in her first major public address and advocated for a global minimum corporate tax in her first major public address. Jake Sullivan, the US National Security Advisor, supported this and said “the U.S. is committed to end the race to the bottom on corporate tax rates and prevent corporations from shifting jobs overseas” as a core piece of its national security strategy. A global minimum corporate tax may be possible due to globalization and intangible capital in recent years.

The takeaway

Taxing multinational corporations has become much more difficult, having international cooperation is needed to make taxation effective. Multinational corporations are easily able to invert their structure and shift profits to tax havens and intangible capital, such as software. This makes it harder to value and locate capital. Having a global minimum tax on profitable multinational corporations would ensure that there is a fixed amount of revenue collected from them.