The last decade saw expansive changes by the IRS to simplify tax procedures, improve voluntary compliance and acclimatize to the growing pace of globalization and the digital economy. While some initiatives proved successful, most fell short of the mark. In this blog we revisit a few significant tax reforms that had a major impact on businesses and individuals over the past decade and into the future:
Implementing FATCA for US taxpayers abroad:
FATCA also known as the Foreign Accounts Tax Compliance Act was enacted by the Obama government in 2010 to promote transparency in the global financial services sector. FATCA brought Corporations and Individuals to file and declare their investments abroad. FATCA regulations also puts the onus on foreign banks to report accounts held by US citizens. Essentially a compliance measure by the US government, FATCA makes sure that all US citizens in various jurisdictions are paying their taxes.
Tackling Global taxation mismatch with BEPS:
The BEPS (Base Erosion and Profit shifting) program was developed in 2012 by the OECD to curb multinationals from shifting profits from higher to lower-tax jurisdictions. The BEPS framework sets out to address domestic and international tax avoidance by developing a multilateral instrument of 15 action plans. This ensures that taxes are levied on activities generating profits from where it is performed and where value is created.
Taxing the digital economy:
Digital goods like streaming services can be used in multiple jurisdictions, creating an environment where multiple states can lay claim to the purchase including the state in which the service is used, the state which hosts the server or the state in which the product originated. The Digital Goods and Services Tax Fairness Act of 2019 was passed to merely prescribe which state can tax the sale without interfering with individual states tax laws on digital goods
At the international level, most countries are yet to reach a unilateral consensus especially on taxing remote businesses that do not have a physical presence in their jurisdiction. The OECD inclusive framework which is still a work in progress aims to resolve the disparity between individual countries’ tax rules and apportionment of profit allocation for intangible value drivers.
TCJA makes the biggest impact on tax reforms:
Perhaps the most defining tax reform of the past decade, the Tax Cuts and Jobs Act of 2017 (TCJA) makes incremental reductions to income tax rates for individual tax brackets and reduces the income tax rate for corporations. Some of the key critical highlights of the Act include:
- The amount of state and local taxes (both income and property) may not exceed $10,000.
- The highest tax rate for individuals has been reduced from 39.6% to 37%.
- Business tax cuts will stay permanent while individual cuts expire in 2025.
- 20% deductions on qualified income for self-employed or pass-through companies.
Though tax functions have evolved in the last 10 years the fundamentals have remained the same – sound financial bookkeeping, accounting and consistent filling of tax returns will help you stay compliant and financially stable in any decade