[IMGCAP(1)]With Paul Ryan newly instated as House Speaker, many are saying 2016 will be the year for major tax reform, according to Matt Becker, BDO USA regional managing partner for tax services.
“Whether Speaker Ryan will be able to bridge the partisan divide remains to be seen; however, there is no question that politics will shape the business tax landscape in the months and year ahead. Tax reform has already taken center stage at the presidential primary debates and will continue to dominate the presidential race up to the November 2016 election,” he said.
An election year can be a challenging time for businesses to think about taxes, Becker observed. “With widely divergent proposals from numerous candidates and heightened tensions in Congress, critical bills may wind up on the cutting room floor or stuck in revision purgatory. The resulting uncertainty around the future of tax policy makes business decisions impacted by such uncertainty a challenge. Businesses need to be particularly cautious about instituting structures that may prove costly to unwind if future changes make them inefficient or obsolete.”
This past July, the Senate Finance Committee renewed more than 50 recently expired provisions of the tax code, Becker noted. “While the broader tax environment may be uncertain, this year’s tax extenders package contains no surprises, including the extension of the Work Opportunity Tax Credit, look-through treatment of payments between related CFCs, and bonus depreciation, which can deliver significant tax savings to businesses who have recently purchased property or begun building construction. To accelerate bonus depreciation deductions, businesses should consider cost-segregation studies to identify qualified personal property.”
The federal R&D tax credit—among the most valuable of these tax extenders, saving businesses nearly $11 billion annually—is one of the extenders that has not yet been acted on, Becker noted. “While the future of the federal R&D tax credit for 2015 is still to be determined, the credit can be claimed for prior open tax years,” he said. “Most states also offer businesses their own version of the R&D tax credit. For taxpayers with insufficient liability, a growing number of states are offering methods of monetization for these types of tax credits, such as refundable or salable credits.”
From an international perspective, the OECD’s BEPS final package of actions will dramatically change the tax reporting environment, and likely create more administrative complication for businesses due to greater demands for transparency and inevitable inconsistencies in implementation, according to Becker.
“While the BEPS project was intended to create more coherence in international tax principles, because the action items are not legally binding and not all countries are prepared to adopt the recommendations, there is much room for interpretation, and implementation will be very uneven for the next few years. That said, there are several areas of international taxation where we can expect the BEPS Action Plans to have a real impact, such as the measures to combat hybrid mismatch arrangements and treaty abuse, as well as the OECD’s recommended transfer pricing reporting standards,” he said. “Going forward, businesses with international operations will need to adopt a tailored approach to tax planning and reporting for each and every country in which they operate.”
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