Navigating the Global Tax Landscape in 2024 – Third Quarter Roundup

It’s been a busy year for global tax issues, between the Global Minimum Tax, worldwide calls for a wealth tax, and significant judicial decisions in the United States. Navigating these complex changes requires a keen understanding of the evolving legal and regulatory environment.

OECD Initiatives Move Forward

The year led off with discussions around the Global Minimum Tax, specifically, the continued rollout under Pillar Two of the Base Erosion and Profit Shifting (BEPS) initiative. The GMT, aimed at curbing profit shifting and ensuring a fairer tax regime, is reshaping international tax strategies. Many countries are adjusting their tax laws to comply, aiming to ensure multinational enterprises pay at least a 15% tax rate on profits. 

 The tax has been agreed to by 140 countries—but not the United States. Japan and South Korea have already enacted domestic Pillar Two legislation, and other countries, including the UK, Switzerland, Ireland, and Germany, have released draft legislation or publicly announced their plans to introduce legislation based on the OECD Model Rules. 

 The U.S. hasn’t signed on to the initiative yet—and is missing out on tax revenue as other countries opt-in. Though U.S. domestic tax regulations haven’t changed, American companies face potential impacts from the agreement. For example, U.S companies operating in Switzerland may need to pay a 15% tax in Switzerland, regardless of existing U.S. tax structures. 

 While the U.S.Treasury Department actively participates in discussions and contributes to technical aspects of the implementation, the next resident of the White House will have an impact on what the United States does next. Democratic Presidential candidate Kamala Haris has proposed increasing the corporate tax rate to 28% to boost revenue if she’s elected president, which raises questions about changes to the corporate tax base and the future of the OECD’s global tax deal.

 The United Nations Weighs In

 G20 leaders are also calling for a global tax on billionaires. And the United Nations is answering the call. As ministers from several countries have suggested a 2% tax for the global fight against poverty, inequality and climate change, the UN General Assembly started negotiations on a new fairer global tax architecture. 

 In the United Nations Framework Convention on International Tax Cooperation, the international organization seeks a way to better coordinate international tax policy, and to reform what they view as a flawed tax system, riddled with loopholes that permit corporations and wealthy individuals to avoid paying taxes. The convention has already met twice, determining the parameters that will guide the negotiation. Cross-border services were prioritized. The final draft of the parameters will go to a vote at the UN General Assembly near year-end.

 U.S. Court Cases Question Wealth Tax Rules

 While the rest of the world is looking to increase wealth taxes, pivotal court cases in the United States are setting new precedents that could have far-reaching implications for wealth management and tax planning. Moore v. United States involved whether the government could tax a company’s owners on income that is earned by the company, but that has not actually been distributed to those owners. The Tax Cuts and Jobs Act (TCJA)  imposed a one-time tax on certain investors in foreign corporations that could offset lost revenue due to the broader corporate tax cuts contained in the TCJA.

 The high court rejected the Moores’ challenge that the tax was a one-time federal tax, and that it did not violate the Constitution because it was a tax on income, which is permitted under the Sixteenth Amendment. The decision affirmed that the government could tax unrealized gains, even if the income had not been distributed to the shareholders, thereby expanding the scope of taxable income and setting a precedent for future taxation of unrealized gains.

 While the ruling upheld the government’s ability to impose taxes on income that has not been directly received by the taxpayer, the opinion by Justice Brett Kavanaugh contained information about the ability to impose a wealth tax. In a footnote Kavanaugh says that his opinion does not resolve the question of whether Congress could impose a wealth tax and also suggests that certain wealth taxes could be unconstitutional.

 The U.S. Presidential Election: Tax Cuts or Hikes Hang in the Balance

 Heading into the end of the year, much attention will be paid to the U.S. presidential election. Besides evaluating each candidate’s tax policies, there is the pressing issue of the expiring tax breaks from the Tax Cuts and Jobs Act, as one estimate shows that over 60% of taxpayers could see higher taxes in 2026 if the provisions are not extended. 

 The fourth quarter of 2024 promises to be an interesting turn of tax and other financial events, as global policies shift, the U.S. presidential election takes place, foreign wars continue to escalate, and businesses grapple with integrating AI technology and an untethered workforce. Watch this space for breaking U.S and international tax news as it develops.

 IWTA Provides Guidance and Know-How

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