The 2024 USA Tax Law Guide provides an in-depth analysis of the United States tax system, covering various aspects of taxation relevant to tax professionals, accountants, lawyers, and financial executives. This guide will discuss general taxation, international taxation, transfer pricing, indirect taxation, tax litigation, tax evasion and avoidance, policy advocacy, digital economy taxation, Pillar 2, Base Erosion and Profit Shifting (BEPS), tax policy development, and the complexity of taxation between states in the US.

General Taxation in the US and Understanding US Taxation

The US tax system is based on the Constitution, which grants Congress the power to collect taxes, duties, imposts, and excises[1]. The Sixteenth Amendment, ratified in 1913, allows Congress to tax incomes without apportionment among the states[1]. The Internal Revenue Code, embodied as Title 26 of the United States Code, governs federal income tax[1]. Most states also impose income tax, but rates and regulations vary[1]. The Supreme Court has carved out exceptions to federal income tax, such as in Cheek v. United States (1991)[1].

International Taxation in the US and Cross-Border Tax Issues

The US has income tax treaties with numerous foreign countries, which aim to prevent double taxation and tax evasion[3]. These treaties often reduce tax rates or exempt residents of foreign countries from certain US taxes[7]. The US Department of the Treasury provides resources on tax treaties, Tax Information Exchange Agreements (TIEAs), and the Foreign Account Tax Compliance Act (FATCA)[11].

Transfer Pricing in the US

Transfer pricing regulations in the US are consistent with the OECD Transfer Pricing Guidelines[8]. The US Treasury Regulations §§1.482-1 through 1.482-9 provide guidance on the arm’s length principle, transfer pricing methods, and the definition of related parties[8].

Indirect Taxation in the US

The US does not have a federal value-added tax (VAT) system[12]. However, states impose sales and use taxes, which vary in rates and regulations[12].

Tax Litigation in the US

Tax litigation in the US involves disputes between taxpayers and the Internal Revenue Service (IRS) or state tax authorities. Cases may be heard in various courts, including the US Tax Court, federal district courts, and state courts.

Tax Evasion and Avoidance in the US

Tax evasion and avoidance are illegal practices that undermine the fairness and effectiveness of the tax system. The IRS enforces tax laws and investigates cases of tax fraud, evasion, and avoidance.

Policy Advocacy and Cross-Border Tax Planning

Tax professionals and organizations advocate for tax policies that promote simplicity, transparency, neutrality, and stability[13]. Cross-border tax planning involves strategies to minimize tax liabilities for multinational businesses while complying with international tax rules and regulations.

Digital Economy Taxation

Digital economy taxation addresses the challenges of taxing digital goods and services, as well as the business models of digital companies. Some countries, including the US, have considered implementing digital services taxes (DSTs) to tax the digital economy[10].

The Role of Pillar 2 in the USA

Pillar 2 is part of the OECD’s two-pillar approach to address tax challenges arising from the digitalization of the economy. It aims to ensure that multinational enterprises pay a minimum level of tax, regardless of where they operate.

Base Erosion and Profit Shifting (BEPS) and the USA

BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to shift profits to low or no-tax locations. The US participates in the OECD’s BEPS project, which aims to address these issues through international cooperation and policy reform.

Tax Policy Development

Tax policy development involves the creation and modification of tax laws and regulations to achieve economic, social, and fiscal objectives. Policymakers consider principles such as neutrality, efficiency, certainty, simplicity, effectiveness, fairness, and flexibility when developing tax policies[10].

Complexity of Taxation Between States in the US

Taxation between states in the US is complex due to varying state income tax rates, sales and use taxes, and other state-specific tax regulations. This complexity can create challenges for businesses operating in multiple states.

Education and Training

Education and training are essential for tax professionals to stay informed about the latest developments in tax law and policy. Dr. Daniel N. Erasmus, head of academics at the I/I/T/F Academy of Tax Law, plays a significant role in providing education and training to tax professionals.

The 2024 USA Tax Law Guide offers a comprehensive overview of the US tax system, addressing various aspects of taxation relevant to tax professionals and financial executives. Dr. Erasmus and his team are well-equipped to assist with navigating the complexities of US tax law and provide expert guidance on tax planning and compliance. To learn more about how Dr. Erasmus and the TRM team can help, please get in touch with them directly.