Disruption, uncertainty and a lack of familiar guideposts draw a challenging landscape for the tax professional. As tax policy shifts, impacted by both US and global tax rules, the path forward becomes muddied. The complex challenge for business leaders is how to predict and lean into dramatic shifts in policy while waiting on guidance from 2017 tax reform act regulations. This uncertainty creates both challenges and opportunities.
Video: What are PwC’s top tax specialists saying about the key issues the industry should consider when it comes to tax legislation in 2020 and beyond?
The 2020 election will be closely watched. Political analysts project that there are only a few toss-up states in which neither party is currently favored. Leading up to November, the prospects for significant tax legislation are expected to be limited given partisan tensions. It remains to be seen whether Congressional action can be achieved on more select tax proposals.
While the impact of the 2017 tax reform act is expected to be a feature of this year’s political campaigns and legislative debate, the current Congress is unlikely to enact major changes. Even with limited modifications enacted by Congress last year, the outlook for technical corrections remains unclear. Even without new tax legislation, Treasury and the IRS will continue to issue extensive guidance on tax reform provisions as well as other more recently enacted legislation. Taken together, Treasury regulations and other IRS guidance will have a significant impact on US businesses and globally engaged companies.
Most importantly, critical decisions may be made this year regarding the G20 and OECD effort to develop a long-term consensus solution to tax challenges arising from a digitalizing global economy. Stakeholders should communicate their impact on business operations and investment decisions to policymakers well in advance of such provisions taking effect.
Finally, the 2020 elections could change control of the White House and the balance of power in Congress, affecting prospects for tax legislation in 2021 and beyond. Companies will need to consider the potential impact of the 2020 elections on future legislative activity, even as they adapt to changes already being made to tax rules within the United States and around the world.
The trade environment continues to change at an unpredictable and rapid pace, leaving many importers and manufacturers facing uncertainties. Although positive developments with USMCA and China trade have calmed some tensions, there remain many related risk factors that could increase trade costs. Global businesses must continue to monitor the geopolitical landscape for potential uses of tariffs to meet diplomatic or other policy goals and examine whether there is flexibility for alternative sourcing or other supply chain mitigation strategies.
A global campaign to rewrite international tax rules continues to accelerate as political pressures mount around a variety of competing influences. Ongoing efforts by the G20 and OECD to develop a long-term consensus solution to tax challenges arising from the digitalizing economy are playing out at the same time that individual jurisdictions are resorting to unilateral tax measures. Concerns that these unilateral measures constitute discriminatory actions aimed at collecting revenue from US technology companies in turn are leading to increased trade tensions. Against this backdrop, the global tax policy agenda in 2020 likely will continue to feature unprecedented volatility.
In 2019, state tax policy focused on how states should react to the 2017 federal tax reform and to the US Supreme Court's 2018 decision in South Dakota v. Wayfair, Inc., overturning the physical presence nexus standard. These two seminal developments will continue to influence state legislative and administrative actions in 2020.
Moving forward, states will continue to provide guidance and consider legislative adjustments as the post-federal tax reform and post-Wayfair landscape takes shape. Tax controversy also may continue to increase in the near future, as taxpayers react to state actions in this new environment.