2023 Marcum Year-End Tax Guide

THE MARCUM YEAR-END TAX GUIDE 2023 59

assessment process. The recent investments in the IRS will enhance their enforcement capacity in the shorter term, which is of particular concern for middle-market multinationals. Large multinationals have always faced greater risk of transfer pricing audits than middle market multinationals. However, a better-equipped IRS during recessionary times expands the net of transfer pricing audits to include middle-market multinationals engaged in high-risk intercompany arrangements. Such arrangements include financial transactions involving the transfer/sale of intellectual property, among others. In particular, middle-market multinationals operating in the cryptocurrency and cannabis industries or similar sectors must navigate constantly changing regulatory environments, which can have real and significant effects on how intercompany arrangements must be structured to comply with the regulations and ensure the optimization of the intercompany transaction flows. In all cross-border transactions, there are at least two tax administrations with an interest in ensuring an arm’s length allocation of income and expenses to the respective jurisdictions. Consequently, in addition to the

US transfer pricing regulations, rising multinationals must consider the transfer pricing regulations in all jurisdictions they operate. Developing a harmonized transfer pricing regime that considers US transfer pricing regulations, the 2022 OECD Transfer Pricing Guidelines, and applicable local requirements is necessary to meet the compliance requirements and implement an optimized structure that allows the group to benefit from the tax attributes in each jurisdiction. RELEVANT LEGISLATIVE UPDATES On March 9, 2023, the Biden Administration released the Fiscal Year 2024 Budget and the “General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals,” commonly called the “Green Book.” The Green Book summarizes the Administration’s tax proposals contained in the Budget. The Green Book is not proposed legislation, and each of the recommendations will have to be introduced and passed by Congress. The main issues as they relate to international tax and transfer pricing are further discussed below 4 . • The Budget includes an increase to the rate corporations

enormous tax break in 2017, cutting effective U.S. tax rates for U.S. corporations to a low of less than 10 percent. The Budget would set the corporate tax rate at 28 percent, still well below the 35 percent rate that prevailed before the 2017 tax law. This tax rate change is complemented by other proposals to incentivize job creation and investment in the United States and ensure large corporations pay their fair share. • The Budget Stops the Race to the Bottom in International Corporate Tax and End Tax Breaks for Offshoring. For decades, countries have competed for multinational business by slashing tax rates at the expense of having adequate revenues to finance core services. More than 130 nations signed on to a the Budget proposes to reform the international tax system to reduce the incentives to book profits in low-tax jurisdictions, stop corporate inversions to tax havens, and raise the tax rate on U.S. multinationals’ foreign earnings from 10.5 percent to 21 percent. These reforms will ensure that profitable multinational corporations pay their fair share. global tax framework to finally address this race to the bottom. Building on that framework,

pay in taxes on their profits. Corporations received an

marcumllp.com