2023 Marcum Year-End Tax Guide

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“Adopting the new transfer pricing rules will significantly impact taxpayers’ ability to claim foreign tax credits in the US for income taxes paid in Brazil.”

INDUSTRY SPOTLIGHTS Cryptocurrency Industry

have reduced significantly, with only 25 percent of mining operations active in the Chinese shadow economy. Currently, 65 percent of crypto mining operations are located in the US due to factors such as lower levels of political risk, appropriate climate, cheap and reliable power grid, as well as access to renewable energy sources. The US has become a top destination for relocated and new mining operations. On the other hand, these companies must now plan on managing the US tax implications. Although the US provides a suitable location for mining, it imposes significant taxes on realized cryptocurrencies, such as Bitcoin. As such, many cryptocurrency mining groups are not incentivized to receive cryptocurrency allocations in the US jurisdiction and opt for developing an international structure with intercompany arrangements that allow for cryptocurrency mining in the US and distributing crypto rewards to the foreign parent. Multinational cryptocurrency industry players can achieve efficient business and tax structures by developing an intercompany

value chain that allows for the compensation of value drivers consistent with the functions performed, assets used, and risks borne. Given the regulatory microscope on cryptocurrencies, the best defense against an IRS transfer pricing audit is to become more proactive and prepare a transfer pricing study that can be used as an audit defense. Cannabis Industry One of the primary challenges facing cannabis businesses is the lack of federal legalization in the US, which has led to different state-level regulations that can vary widely. Internal Revenue Code (“IRC”) Section 280E 7 states, “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

2023 was a significant year for regulatory advancements in the cryptocurrency (“crypto”) industry. These advancements signal the need for greater reporting requirements for all companies operating in the crypto space. Given the US and international regulatory requirements, MNEs, such as global crypto exchanges, are organized across various jurisdictions. Given the cross-border nature of typical transactions such as management and research and development (“R&D”) services, transfer pricing analyses are critical to ensuring compliance with local requirements and optimizing intercompany transactions. In recent years, cryptocurrency mining operations have experienced significant volatility related to the effects of the global pandemic, the ban of cryptocurrency mining operations in China since 2020, and the market drop of 2022 emanating from the collapse of FTX. In response to the Chinese government’s crackdown on the crypto mining industry, operations

6Chapter X of the OECD Transfer Pricing Guidelines. 726 U.S. Code § 280E - Expenditures in connection with the illegal sale of drugs

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