Four Key Tax Policies to Monitor in the Year 2024

Four Key Tax Policies to Monitor in the Year 2024

Gearing Up for Tax Trends in 2024:

As we welcome the New Year, companies and individuals must stay informed about upcoming tax policy developments and utilize technology to forecast the possible repercussions. Here's a breakdown of four key tax policy topics to watch in 2024:

1. Pillar Two

The Organization for Economic Co-operation and Development (OECD)'s Pillar Two initiative is a global tax strategy intended to ensure that large multinational corporations pay a minimum tax rate of 15% in every operating jurisdiction. If a minimum tax rate hasn't been achieved in a particular jurisdiction, companies will have to compensate by paying a 'top-up tax.'

This plan requires intricate calculations of an effective tax rate for each jurisdiction using a blend of financial and tax accounting concepts. Pillar Two will likely disrupt more than just the tax department, significantly impacting finance and controllership functions too. The clock is ticking as some aspects of Pillar Two will be implemented in the first quarter of 2024, making it crucial for in-scope companies to leverage data and analysis tools to prepare.

2. Green Tax Credits

The passing of the Inflation Reduction Act (IRA) in August 2022 expanded the range of projects eligible for green tax credits, providing new opportunities for U.S. energy producers and investors to receive tax incentives. One key aspect is the transferrability of these credits between taxpayers, potentially benefiting a wider range of taxpayers.

Although guidance on certain elements has been released, the green tax credit market is far from mature. Keeping tabs on the evolution of these credits and developing risk mitigation strategies will be vital to ensuring businesses can fully take advantage of the new green incentives.

3. Corporate Alternative Minimum Tax (CAMT)

The CAMT, a minimum tax based on financial statement income applicable to certain corporations, was enacted in August 2022 as part of the IRA. This tax, estimated to bring in approximately $222 billion in revenue over ten years, will subject many corporations to a 15% minimum tax on their adjusted financial statement income (AFSI).

However, calculating the AFSI to ascertain the exact tax liability has posed difficulties for many companies thus far. It remains uncertain whether the CAMT, as currently implemented, achieves its original intended scope. Nevertheless, the introduction of this regime will undoubtedly create complications and burdens for companies in 2024.

4. R&D Incentives

U.S. tax policy has traditionally emphasized and supported R&D, with legislators from both parties recognizing the importance of incentivizing companies to bolster innovation, which ultimately benefits the economy, job market, and wages.

The tax rules for R&D expenditures, however, are becoming less conducive for businesses, with a new rule requiring companies to amortize these costs. The IRS is expected to issue rules on how companies should amortize these R&D costs in early 2024. Tracking these guidelines, as well as how investments unfold to boost the American economy, will be crucial.

The upcoming year will bring a host of tax policy trends that have the potential to impact the way companies operate. Staying informed and engaging in scenario planning is key to ensuring success in the year ahead.

Rema Serafi is vice chair of tax at KPMG LLP.

Insights to Consider:

• Pillar Two:Implementation began in 2023, and while some aspects will be implemented in the first quarter of 2024, selected jurisdictions may request preliminary information for 2024 tax returns [4][3]. Compliance with Pillar Two will necessitate significant changes in data management and reporting for affected businesses [5].
• Green Tax Credits: Energy-efficient projects and investments in renewable energy and environmental initiatives could help reduce operational costs for companies and promote sustainability [2].
• Corporate Alternative Minimum Tax (CAMT): This tax aims to ensure corporations pay a minimum level of tax on their income, regardless of deductions or credits [3]. However, implementation alongside other tax reforms could add to the complexity of tax compliance.
• R&D Incentives: In 2024, tax rules for R&D expenditures are becoming less favorable, with an amortization rule for these costs being introduced [1]. This could slow down companies' R&D investments.

1. Companies and individuals should utilize data and analysis tools to prepare for the implementation of the Pillar Two initiative, set to disrupt not only the tax department but also finance and controllership functions, commencing in the first quarter of 2024.
2. Staying informed about evolving green tax credit market and developing risk mitigation strategies will be vital for businesses to fully take advantage of new opportunities arising from expanded green tax credits provided by the Inflation Reduction Act.
3. Understanding the complexities surrounding the Corporate Alternative Minimum Tax (CAMT), enacted in 2022 and set to subject many corporations to a 15% minimum tax on their adjusted financial statement income, will be crucial for companies to adapt and ensure compliance in the upcoming year.
4. With amortization rules for R&D expenditures being introduced in 2024, tracking these guidelines and how investments unfold to boost the American economy and sustainability will be vital for businesses.
5. As tax trends evolve in 2024, scenario planning and staying informed on topics such as Pillar Two, green tax credits, Corporate Alternative Minimum Tax (CAMT), and R&D incentives will be key to ensuring success for companies in the year ahead.

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