November 2020 / United States

Former US Vice-President Joe Biden has won the 2020 US presidential election. The battle was fierce, took several days to call and drove voters to the polls in record numbers. Because so many people voted early and by mail, it took election officials in many key states days to count all the votes – some are still counting. By Saturday the news outlets felt confident enough in the outcome to declare Joe Biden the President-elect. Fittingly, the votes from Biden's home state of Pennsylvania provided the necessary margin for him to win the Electoral College (see Note below). Although Pennsylvania put Biden over the top, other states – Nevada and possibly Arizona and Georgia – have provided additional margin, beyond the 270 Electoral College votes required for election.

Meanwhile, while Biden and Vice-president-elect Senator Kamala Harris, have called for healing and unity, Republican incumbent President Donald J. Trump has yet to concede the race, but instead has filed a number of lawsuits (many of them already dismissed) challenging the results.

During the campaign, Biden proposed to raise taxes on corporations and single filers earning more than USD 400,000 annually, which is expected to bring in USD 3.5 trillion over 10 years. Biden's tax plans would also require corporations and wealthy American taxpayers to pay more, through the following measures:

• raising the corporate tax rate from 21% to 28% (which is still lower than the pre-Trump rate of 35%);
• imposing a true minimum tax of 21% on foreign earnings of US companies;
• requiring all corporations to pay a 15% minimum tax on book income (i.e. income before tax);
• raising the top individual income tax rate from 37% back up to 39.6% (the top rate in effect under the Obama administration); and
• eliminating the lower 20% capital gains tax rate on investment income of more than USD 1 million annually, requiring taxpayers to pay the same rate as on wages.

Now that Biden has won the presidency, all eyes turn to two US Senate runoff elections in Georgia. Scheduled for 5 January 2021, the outcome of those two races will determine which party controls the US Senate next year. Should Republicans hold their majority, Biden will face an uphill battle to enact his tax plans.

Note: The United States elects its president and vice-president under the rules set out in the US Constitution. Voters do not vote directly for the candidates of their choice, but instead vote for a slate of "electors," pledged to particular candidates for president and vice-president. Each state is entitled to the number of electors equalling the number of members of the US House of Representative from that state, plus the number of senators (i.e. 2) from that state. In December, the electors pledged to the winners of the popular vote in each state meet to cast their ballots in the "Electoral College." There are a total of 538 electors for the United States, and it requires a majority of electoral votes, 270, to win.

This week in IBFD Tax Takes: News & Views we ask Itai Grinberg, former Attorney-Advisor to the US Treasury Department and US representative at the Committee on Fiscal Affairs of the OECD, to talk about the outcome of the US elections and the challenges an incoming Biden administration will face as it enters negotiations over global tax reform on Pillar 1 and Pillar 2 (BEPS Action 1: Tax Challenges Arising from Digitalisation). In the lead-up to our interview, you can catch up on the week's most significant tax news from around the world, drawn from IBFD's online Tax News Service. This week's picks include, Russia and the Bahamas stepping up their efforts to eliminate the competitive advantage of foreign digital service providers like Facebook, Poland and Tunisia raising the stakes in global tax competition with their corporate income tax reform efforts and the European Commission initiating new infringement proceedings against a broad array of EU Member States.   Watch video now:   https://www.youtube.com/watch?v=LOZqEZfLt2A

Giving customers access to prewritten software may trigger New York state and local sales tax if the taxpayer's customers that use the software are located in New York under advisory opinion 20-22. The state generally imposes retail sales tax on sales of tangible personal property, which includes the sale of prewritten software. Certain services are non-taxable, however, when several distinct taxable and non-taxable items are sold together for one non-itemized price, sales tax is due on the total sales price charged.

In this case, the taxpayer's digital platform allowed customers access to certain software tools to create, deliver and manage their own digital advertisements, in addition to offering non-taxable services. The taxpayer approved the advertising campaign (once completed by the customer) and placed the digital advertisements using its network of third-party publishers. The taxpayer's receipts were generally based on the number of views any particular digital advertisement received. There was no specifically identified charge for access to the platform (i.e. the prewritten software), which otherwise would have triggered New York's sales tax requirement. Additionally, The taxpayer billed for all services (taxable and non-taxable) in a single receipt; there was no itemization of charges.

The advisory opinion concluded that the practice of not specifically charging customers for access to prewritten software for their own use triggered sales taxes on tangible personal property in New York to the extent that any of the taxpayers' customers' employees who use the software to create their digital advertising campaigns were located in New York. The tax was assessed on the total sales price charged due to the singular, non-itemized, invoices sent to the taxpayers' customers.

Effective 16 November 2020, the US Tax Court resumed accepting hand-delivered documents to the main courthouse building in Washington DC.

The US Tax Court building had been closed on 18 March 2020 as a result of the ongoing COVID-19 pandemic. Operations were temporarily shut down and mail and other deliveries were put on hold until the court re-opened (deliveries postmarked within allotted timelines were considered timely). Mail delivery resumed and hand-delivered documents were accepted on and after 10 July 2020. Shortly after that, in-person acceptance of hand-delivered documents was again suspended effective 30 October 2020, but eAccess and eFiling systems remained operational.

These changes were announced in various press releases issued by the US Tax Court to accommodate remote operations during the ongoing COVID-19 pandemic.

On 20 October 2020, the US Internal Revenue Service (IRS) issued announcement 2020-40, communicating that the United States provided a written notification dated 18 August 2020 to the government of the Hong Kong Special Administrative Region on the termination of the Honk Kong - United States Shipping Tax Agreement (1989). The termination of the agreement shall take effect on 1 January 2021 and shall have effect for taxable years beginning on or after that date.

Under the Honk Kong - United States Shipping Tax Agreement (1989), income was exempt from tax in one contracting state for income derived from the international operation of ships by residents of the other contracting state.

According to paragraph 8 of the first note of the exchange of notes, either government may terminate the agreement by giving written notice of termination.