Four key tax policies to observe in the year 2024:
Buckle Up for Tax Trends in 2024!
As the clock ticks towards the new year, it's time to stay alert and informed about upcoming tax developments that could have a significant impact on individuals and businesses. Here's what you need to know about the four crucial tax policy items that will be shaping the legal landscape next year:
1. Pillar Two
The Organization for Economic Co-operation and Development (OECD)'s Pillar Two initiative, also known as the Model Global Anti-Base Erosion (GloBE) Rules, is a globally coordinated tax regime aimed at ensuring large multinationals pay a minimum tax rate of 15% in every jurisdiction they operate. This means that companies must make up any shortfall with a top-up tax.
The rules require complex calculations of effective tax rates for each jurisdiction using a unique hybrid of tax and financial accounting concepts. These calculations will necessitate companies to maintain an additional set of books, disrupting not just their tax function but finance and controllership functions too. Some aspects of Pillar Two are set to be implemented in Q1 of 2024, so it's vital for in-scope companies to start leveraging data and data analysis tools to prepare for the coming changes.
2. Green Tax Credits
Passage of the Inflation Reduction Act (IRA) in August 2022 expanded the categories of projects eligible for green tax credits, offering new and enhanced opportunities for energy producers and investors in the U.S. Many of these credits can now be freely transferred between taxpayers, opening the floodgates for a wide array of taxpayers to capitalize on these incentives.
The green tax credit market might take some time to mature, so it's essential for companies to keep tabs on future developments and refine risk mitigation strategies to make the most of these incentives.
3. Corporate Alternative Minimum Tax (CAMT)
The CAMT, a minimum tax based on financial statement income that applies to "applicable corporations," was enacted as part of the IRA last August. The tax, which aims to prevent large corporations from avoiding substantial income tax, is set to be effective for tax years beginning in 2023. Many corporations may find it challenging to compute this AFSI, so businesses need to be ready to adapt to the complexities that this new regime will bring.
4. R&D Incentives
The R&D sector has long been a focal point for U.S. tax policy due to its essential role in fostering innovation that generates economic growth and job creation. In 2024, the IRS is expected to issue rules on how companies should amortize R&D costs. Companies should pay close attention to these rules and other investment trends that shape the innovation landscape going forward.
2024 is shaping up to be a pivotal year for tax policy, and staying informed about these crucial developments will put you ahead of the curve and ready to adapt to whatever challenges and opportunities that come your way.
Rema Serafi is an influential figure in the tax world, serving as Vice Chair of Tax at KPMG LLP.
[1] OECD - Tax Policy Reform Indicators (Harmful Tax Competition Index)[2] OECD - Model GloBE rules - Q&A on de minimis rules[3] OECD - Pillar Two - Implementation Timeline[4] KPMG - Pillar Two: Everything You Need to Know[5] Deloitte - Pillar Two: The Global Minimum Tax - An Overview
- Companies operating in multiple jurisdictions need to prepare for the implementation of the OECD's Pillar Two initiative, also known as the Model Global Anti-Base Erosion (GloBE) Rules, which will require them to maintain an additional set of books to calculate effective tax rates, potentially disrupting not just their tax function, but finance and controllership functions as well.
- The expansion of green tax credits through the Inflation Reduction Act offers new and enhanced opportunities for energy producers, investors, and a wide array of taxpayers. However, it's crucial for these entities to stay updated on future developments and refine risk mitigation strategies to effectively utilize these incentives in an evolving market.
- The Corporate Alternative Minimum Tax (CAMT), enacted as part of the IRA last August, aims to prevent large corporations from avoiding substantial income tax. Businesses will need to be ready to adapt to the complexities that this new regime will bring, as it is set to be effective for tax years beginning in 2023.
- The R&D sector will see changes in 2024, as the IRS is expected to issue rules on how companies should amortize R&D costs. Companies should pay close attention to these rules and other investment trends shaping the innovation landscape.
- The tax policy landscape in 2024 promises to be significant, with crucial developments such as Pillar Two, Green Tax Credits, CAMT, and R&D Incentives. Staying informed about these changes will help individuals and businesses adapt to the challenges and opportunities they present.
- In the realm of personal-finance, technology, business, and investing, it's essential to leverage data and analysis tools to prepare for the coming changes in tax policy, enabled by thought leaders like Rema Serafi.
