Nebraska Considers Sales Tax on Candy and Soft Drinks
Earlier this year lawmakers in Nebraska proposed a bill (LB170) which would end the state’s sales tax exemption for soda and candy. Currently, all food and beverages except prepared foods and vending machine items are exempt from the sales tax.
The proposed bill defines candy as a “preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces” but excludes “any preparation that contains flour or that requires refrigeration” to avoid discouraging consumption of healthier snacks like granola and protein bars. (See Deep Dive: Nebraska Legislature committee to discuss ‘Sugar Tax’). Soft drinks are defined as “nonalcoholic beverages that contain natural or artificial sweeteners” but excludes “beverages that contain milk or milk products, soy, rice, or similar milk substitutes or that contain greater than fifty percent of vegetable or fruit juice by volume.”
The bill is intended to reduce the state’s budget deficit. It is opposed by affected industry including the Nebraska Beverage Association.
EU Platform on Sustainable Finance Focuses on Usefulness of Taxonomy in Response to European Commission Proposal
On the 26 March 2025, the EU Platform on Sustainable Finance (“Platform”) responded to the European Commission’s call for evidence on the draft delegated regulation amending the Taxonomy Delegated Acts[1] (the “Taxonomy”).
The Platform welcomes many of the proposed amendments and notes that several of the Platform’s recommendations from their February 2025 report on the simplification of Taxonomy reporting has been taken into consideration. However, despite this positivity, the Platform has also flagged some serious concerns with respect to the European Commission’s proposed changes to reduce the scope of Taxonomy reporting, as set out in its “Omnibus” proposals to streamline the Corporate Sustainability Reporting Directive (“CSRD”).
The Platform considers that reducing the scope of the current CSRD requirements not only results in the loss of specific Taxonomy data, but also reduces the effectiveness of the Taxonomy generally in the market. As a result, the Platform has proposed a number of updates in relation to the draft regulation, including:
introducing a regime for all companies to report partial Taxonomy-alignment;
clarifying the materiality threshold to ensure that it applies to cumulative exposure and not individual economic activities;
reporting for non-SME companies below the 1,000-employee threshold should be focused on the most essential standards (including Taxonomy-alignment); and
postponing trading books, fees and commission as key performance indicators for banks to 2027.
Additionally, the Platform has also recommended that additional guidance could be issued to support simplifying the Taxonomy’s implementation and process.
Finally, the Platform recommends some form of mechanism to be introduced to allow for responses to Taxonomy-related queries to be dealt with in real time.
[1] The regulation proposed by the Commission contains amendments the Taxonomy Disclosures Delegated Act ((EU) 2021/2178), the Taxonomy Climate Delegated Act ((EU) 2021/2139) and the Taxonomy Environmental Delegated Act ((EU) 2023/2486).
OFAC Final Rule Extends Recordkeeping Requirements to 10 Years
Highlights
U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a new final rule to extend recordkeeping requirements to 10 years, effective March 21, 2025
The new recordkeeping requirement is consistent with last year’s statute of limitations extension for most OFAC violations from five years to 10 years
OFAC affirmed that a conflict such as EU regulations mandating a shorter recordkeeping period would not excuse compliance
On April 24, 2024, former President Joe Biden signed into law the 21st Century Peace through Strength Act. Section 3111 of the Act extends the statute of limitations for civil and criminal violations of the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) from five years to 10 years. These two statutes govern most sanctions programs enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Pursuant to this executive order, OFAC issued a final rule on March 21, 2025, extending recordkeeping requirements for covered parties from five to 10 years. This final rule, which was effectively immediately, followed an interim final rule published by OFAC in September 2024 soliciting public comment.
The newly extended recordkeeping requirements apply to all companies and persons engaging in transactions and holding blocked property subject to OFAC oversight. Such persons are required to keep a full and accurate record of transactions and blocked property and to ensure that these records are available for examination for at least 10 years.
OFAC also made clear that a conflict in law would not excuse compliance with these requirements. The final rule specifically addresses a scenario in which the 10-year recordkeeping period may conflict with the European Union’s regulations on anti-money laundering and counterterrorism financing that mandate deletion of records after five years. In such a scenario, OFAC points to its prior guidance that said although it would consider a conflict of law on a case-by-case basis when determining the appropriate administrative action or penalty, full compliance with OFAC requirements is still expected.
Takeaways
This rule is the most recent example of the U.S. government’s increasing use of sanctions in recent years in support of its foreign policy and national security objectives. Companies may experience higher costs related to compliance with this rule, especially as standard business record retention periods are usually shorter. Additionally, companies should consider updating training, compliance programs, and due diligence checklists to reflect the extended recordkeeping period.
Rule 506(c) Unchained? The SEC Loosens Requirements for Advertising in Private Capital Raises
On 12 March 2025, the US Securities and Exchange Commission (SEC) staff issued a no-action letter that provides private fund sponsors with a concrete, streamlined approach to relying on Rule 506(c),1 based on minimum investment amounts and investor representations. This guidance has the potential to unlock Rule 506(c)’s advantages for private fund sponsors more than a decade after its passage.
Background on Rule 506(c)
Implemented in 2013 pursuant to the Jumpstart Our Business Startups Act, Rule 506(c) provides an alternative to the traditional prohibition on general solicitation in private offerings. Specifically, Rule 506(c) permits issuers to engage in general solicitation and advertising when selling securities, provided they take “reasonable steps” to verify that all purchasers are accredited investors. While enacted in order to give issuers the opportunity to increase their fundraising abilities through marketing to a public audience, Rule 506(c) has been only sparingly used over the last decade. This past November, SEC Commissioner Hester Peirce commented that issuers had “raised around $169 billion annually under Rule 506(c) compared to $2.7 trillion under 506(b), which does not permit general solicitation.”2
The “reasonable steps” verification requirement has presented operational challenges for many issuers. Prior methods qualifying as “reasonable steps” included reviewing tax returns, bank statements, or obtaining verification letters from professionals such as lawyers or accountants. Because of the additional administrative burdens imposed by these verification methods, Rule 506(c) has not been widely utilized, despite its potential to access a much wider audience for capital raising.
The Alternative Verification Method
The no-action letter provides a far less labor-intensive approach to satisfying Rule 506(c)’s verification requirements by streamlining the process issuers must follow to verify an investor’s accredited investor status. Specifically, the SEC mandates that an issuer relying on the no-action letter:
Impose minimum investment amounts of US$200,000 for individuals and US$1 million for legal entities;3
Receive written, self-certified representations from an investor that they are an accredited investor and that their investment is not financed by a third party for the specific purpose of making the particular investment;4 and
Have no actual knowledge of facts contrary to the two above bullets.
This test for determining whether an issuer has taken reasonable steps to verify accredited investor status is objective and depends on the specific facts and circumstances of each investor and transaction.
Practical Considerations for Private Fund Sponsors and Other Issuers
What are the practical implications for private fund sponsors now that the SEC has loosened the verification restrictions? Will private fund sponsors now jump into the fray and begin to advertise on social media, at sporting events, and elsewhere? There remain a number of considerations notwithstanding the less burdensome verification process. The SEC’s no-action letter addressed only this aspect of using Rule 506(c). The Marketing Rule (defined below), antifraud provisions, and other provisions of the Investment Advisers Act of 1940 the (Advisers Act) of course remain in full force and effect. Private fund sponsors considering an offering under Rule 506(c) will need to not only comply with the Advisers Act’s requirements, but be prepared to do so in front of a much wider investor and regulator audience.
Private fund sponsors considering Rule 506(c) offerings should note several additional considerations:
Update Policies and Procedures
Managers should adopt policies and procedures to accommodate Rule 506(c) offerings.
Marketing Rule
Registered investment advisers must continue to consider Rule 206(4)-15 under the Advisers Act the (Marketing Rule) when marketing their funds. While advisers may widely distribute marketing materials, such materials must comply with the Marketing Rule. For example, under the Marketing Rule, advisers are generally prohibited from including hypothetical performance, such as performance targets and projected returns, in advertisements to the general public.6
Switching Exemptions
Managers that want to change to a Rule 506(c) offering should file an updated Form D with the SEC and review offering materials for any necessary updates (e.g., remove representations regarding no general solicitation from subscription agreements and other documents).
What Is Next for Private Fund Sponsors and Rule 506(c)?
The easing of the investor verification process under Rule 506(c) will undoubtedly renew interest in pursuing this alternative path to capital raising. It is no secret that the fundraising environment over the last several years has been challenging, particularly for mid-market and emerging manager sponsors. For those managers, there are good reasons to explore general solicitation under Rule 506(c), bearing in mind the need to comply with the SEC’s recent guidance on verification and the requirements of the Advisers Act. Time will tell whether the SEC’s no-action letter will actually open the floodgates of advertising for private fund sponsors. Watch this space for further insights as the industry’s approach to using Rule 506(c) unfolds.
Footnotes
1 17 C.F.R. § 230.506(c) (1933).
2 https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-sbcfac-111324
3 For an entity investor accredited solely through its beneficial owners, the minimum investment amount is US$1 million, or US$200,000 for each beneficial owner if the entity has fewer than five natural person owners.
4 These representations must be made for each beneficial owner for entities that are accredited solely through the accredited investor status of each beneficial owner.
5 17 C.F.R. § 275.206(4)-1 (●).
6 The Marketing Rule requires that investment advisers only present hypothetical performance to audiences if it is relevant to their likely financial situation and investment objectives, limiting an adviser’s ability to include such performance in advertisements to the public. In the Marketing Rule’s adopting release, the SEC specifically noted that advisers “generally would not be able to include hypothetical performance in advertisements directed to a mass audience or intended for general circulation.” Investment Adviser Marketing, Release No. IA-5653, SEC Dec. 22, 2020 effective May 4, 2021, at 220.
No APA Review of Commission Refusal to Issue Sua Sponte Show Cause Order
The US Court of Appeals for the Federal Circuit dismissed an appeal challenging a US International Trade Commission decision that upheld an administrative law judge’s (ALJ) order, ruling that such an order was within the Commission’s discretion and unreviewable. Realtek Semiconductor Corp. v. International Trade Commission, Case No. 23-1095 (Fed. Cir. Mar. 18, 2025) (Moore, C.J.; Reyna, Taranto, JJ.)
DivX filed a complaint at the Commission against Realtek alleging a violation of § 1337 of the Tarriff Act. DivX later withdrew the complaint. Realtek subsequently filed a motion for sanctions against DivX, alleging certain misconduct. The ALJ denied the motion on procedural grounds. Realtek subsequently petitioned for Commission review, asking the Commission to exercise its authority to issue a sua sponte order requiring DivX to show cause explaining why it had not engaged in sanctionable conduct. The Commission decided not to review and adopted the ALJ’s order without comment.
Realtek appealed, contending that the Commission violated the Administrative Procedure Act (APA) by not issuing a sua sponte show cause order. The Commission argued that Realtek’s appeal should be dismissed, contending that the issue raised was unreviewable.
The Federal Circuit agreed with the Commission, stating that under § 701(a)(2) of the APA, decisions made by an agency are unreviewable by the Court when they are entrusted to the agency’s discretion by law. The Court explained that the sua sponte issuance of a show cause order is a decision that “may be, not must be,” entered by the ALJ or on the Commission’s initiative. Therefore, the decision not to act sua sponte is a decision that remains wholly within the agency’s discretion.
The Federal Circuit rejected Realtek’s argument that the Commission’s refusal to act was reviewable because the Commission failed to provide reasoning, and that Commission review would have allowed the Court to determine if there were “illegal shenanigans” in exercising discretion. However, the case cited by Realtek involved the review of “shenanigans” that fell within the Court’s reviewable categories, not one related to the Commission’s refusal to issue a show cause order sua sponte. The Court found no support for Realtek’s claim that discretionary agency actions under § 701(a)(2) become reviewable under the APA simply because the agency fails to provide its reasoning.
GeTtin’ SALTy Episode 49 | Conformity—Policy or Politics? [Podcast]
In this episode of GeTtin’ SALTy, host Nikki Dobay dives into the complex and timely topic of tax conformity with two state tax guests, Shail Shah, Greenberg Traurig shareholder based in San Francisco, and Jeff Newgard, President and CEO of Peak Policy. The discussion centers on the challenges and implications of how states align—or don’t align—with the federal Internal Revenue Code (IRC).
Key topics include:
Oregon’s Proposed Shift to Static Conformity
California’s Static Conformity Challenges
Administrative and Compliance Impacts
Broader Implications for Tax Policy
Future Outlook
In a lighthearted conclusion, Nikki, Shail, and Jeff reveal which Muppet or Sesame Street character best represents their tax policy personas!
This episode is a must-listen for anyone navigating the intricacies of state and local tax policy, offering a deep dive into conformity issues and their broader implications for taxpayers and state governments alike.
New Office of Financial Sanctions Implementation Financial Services Threat Assessment
On 13 February 2025, the Office of Financial Sanctions Implementation (OFSI) published its assessment of suspected sanctions breaches involving financial services firms since February 2022 (the Assessment). The Assessment forms part of a series of sector-specific assessments by OFSI that address threats to UK financial sanctions compliance by UK financial or credit institutions.
The Assessment highlights three areas of main concern:
Compliance;
Russian-Designated Persons (DPs) and enablers; and
Intermediary Countries.
This alert provides a summary of these concerns and suggests action financial services firms can take to combat these threats when developing their risk-based approach to compliance.
Compliance
OFSI has identified several compliance issues and advised steps that firms can take to improve and strengthen their compliance. These include:
Improper Maintenance of Frozen Assets
All DPs accounts and associated cards, including those held by entities owned or controlled by DPs, must be operated in accordance with asset freeze prohibitions and OFSI licence permissions. Financial institutions should review existing policies or contracts as these can often automatically renew, resulting in debits from DP accounts.
Breaches of Specific and General OFSI Licence Conditions
Firms need to carefully review permissions when assisting with transactions they believe are permitted under OFSI licences. Firms must ensure that OFSI licenses are in date, bank accounts are specified in OFSI licences and licence reporting requirements are adhered to.
Inaccurate Ownership Assessments
Firms must be able to identify entities that are directly owned by Russian DPs, and subsidiaries owned by Russian conglomerates that are themselves designated or majority owned by a Russian DP. Firms should conduct increased due diligence where necessary and regularly update due diligence software.
Inaccurate UK Nexus Assessments
Firms should take extra care to understand the involvement of UK nationals or entities in transaction chains when assessing the application of a UK nexus. They must also ensure they understand the difference between United Kingdom, European Union and United States sanctions regimes to make correct assessments of how UK sanctions might be engaged.
Russian DPs and Enablers
OFSI defines an enabler as “any individual or entity providing services or assistance on behalf of or for the benefit of DPs to breach UK financial sanctions prohibitions.” Broadly, there are two types of enablers:
professional enablers that provide professional services “that enable criminality. Their behaviour is deliberate, reckless, improper, dishonest and/or negligent through a failure to meet their professional and regulatory obligations”; and
non-professional enablers, such as family members, ex-spouses or associates.
Maintaining Lifestyles and Assets
Most identified enabler activity has been in relation to maintaining the lifestyles of Russian DPs and assets as they face growing liquidity pressures from UK sanctions.
OFSI urges firms to scrutinise the following red flags:
New individuals or entities making payments to satisfy obligations formerly met by a DP;
Individuals connected to Russian DPs receiving funds of substantial value;
Regular payments between companies owned or controlled by a DP;
Crypto-asset to fiat transactions involving close associates of a Russian DP;
Family member of a DP that is an additional cardholder on a purchasing card that uses the card for personal expenses and overseas travel; and
Deposits of large sums of cash without sufficient explanation;
Fronting
With a significant value of the assets of DPs having been frozen in the United Kingdom, an increasing amount of enablers are attempting to front on behalf of DPs and claim ownership of frozen assets. The links between enablers fronting on behalf of DPs are not always clear, and so OFSI has outlined several red flags for firms to be aware of:
Individuals with limited profiles in the public domain, for instance, those with limited related professional experience;
Inconsistent name spellings or transliterations;
Recently obtained non-Russian citizenships; and
Repeated or unexplained name changes or declared location of operation.
Utilising Alternative Payment Methods to Breach Prohibitions
Financial services firms need to remain diligent when assessing the threat posed by the increasingly sophisticated methods employed by DPs and enablers to evade UK financial sanctions prohibitions. Particular attention should be paid to attempts at money laundering on behalf of Russian DPs, including any indications of high value crypto-asset to cash transfers.
Intermediary Countries
Emphasis is placed on the use of intermediary jurisdictions in suspected breaches of UK financial sanctions prohibitions. The following jurisdictions are utilised most often: British Virgin Islands, Guernsey, Cyprus, Switzerland, Austria, Luxembourg, United Arab Emirates and Turkey. These jurisdictions offer secrecy or particular commercial interests.
There has also been a change in the third countries referenced in suspected breach reports, with increased activity in the Isle of Man, Guernsey, United Arab Emirates and Turkey. Indeed, the United Arab Emirates accounted for the largest section of suspected breaches reported to OFSI in the first quarter of 2024. This shift has likely been caused by various factors, including capital flight by Russians to jurisdictions that do not have sanctions on Russia.
The Assessment helpfully outlines a non-exhaustive list of specific activities in various countries that could be indicative of UK financial sanctions breaches. Financial institutions are encouraged to review and familiarise themselves with this list so that they can identify potential threats to sanctions compliance. Businesses should then consider the involvement of these jurisdictions when conducting due diligence, and evaluate the risks associated with various transactions.
Conclusion
The recent expansion of the United Kingdom’s financial sanctions regime, particularly in relation to Russia’s invasion of Ukraine, has resulted in sanctions evasion becoming increasingly sophisticated and widespread. Considering the scale of evasion being conducted, financial institutions need to remain proactive and vigilant in identifying transaction activity that may be indicative of attempts to circumvent UK sanctions regimes.
When designing sanctions compliance programmes, financial institutions should refer to the Assessment to account for methodologies of evasion and recognise specific behaviours that might present warning signs. By taking a proactive approach to prevent their services from being exploited as instruments of circumvention, financial institutions will contribute to efforts to combat sanctions evasion, whilst avoiding the financial and reputational repercussions of non-compliance.
If you have any questions on the Assessment or want further advice on developing your policies for UK sanctions compliance, please do not hesitate to contact our Policy and Regulatory practice.
Louisiana Industrial Tax Exemption Program (ITEP) – New Rules and Executive Order
On March 20, 2025, Governor Landry issued Executive Order No. JML 25-033 and Louisiana Economic Development (LED)/Board of Commerce and Industry promulgated new rules (beginning at p. 366) which make changes to Louisiana’s Industrial Tax Exemption Program (ITEP).
The changes, in part, recognize Governor Landry’s view of the importance of the ITEP as an economic development tool to encourage capital investment in Louisiana manufacturing projects. Among other changes, businesses with existing ITEP contracts under the 2017 and 2018 ITEP Rules may “opt out” of the jobs, payroll, and compliance components regardless of whether the contract is up for renewal.
Businesses with existing ITEP contracts under the old rules may want to consider opting out of the jobs, payroll, and compliance components of those contracts. The “Opt-Out” Amendment Form may be filed via LED’s Fastlane NextGen.
Among other changes, businesses with existing ITEP contracts under the 2017 and 2018 ITEP Rules may “opt out” of the jobs, payroll, and compliance components regardless of whether the contract is up for renewal.
Keep California Rolling: New Bills Poised to Revitalize Production (in Hollywood)
The introduction of Senate Bill 630 and Assembly Bill 1138 aims to provide California with a competitive advantage in its quest to retain and bring back production jobs that are vital to the entertainment industry. The bills were introduced by Senator Ben Allen, Assembly Members, Rick Chavez Zbur, and Isaac Bryan, with a focus on job creation and promise to diversify the types of productions that qualify for California’s Film and Television Tax Credit program. SB 630 and AB 1138 will be referred to respective policy committees over the coming weeks. Governor Gavin Newsom has also unveiled plans to more than double California’s current tax credit cap to provide much-needed relief for the entertainment industry following COVID-19 shutdowns, the strikes, LA wildfires and mass exodus of film and television production from California.
SB 630 and AB 1138 are intended to amend, update, and modernize California’s Film and Television Tax Credit Program, with the stated goal of protecting and bringing back jobs that have left, and continue to leave California for other more lucrative production locations, and to ensure that California remains competitive in the industry. SB 630 and AB 1138 would increase the rebate by an unspecified amount from the 20% that is currently offered to most productions in California. Each law would also expand types of productions that are eligible for the tax incentives, by including animation, game shows, and other unscripted programming, each of which is currently excluded.
In an effort to bolster this momentum, the Entertainment Union Coalition has launched a campaign called “Keep California Rolling”, which aims to keep film and television jobs in California.” The initiative is labor-led and its main purpose is to emphasize the importance of exploring new ways to attract film and television production back to the state, as well as support Governor Newsom’s proposal to expand the California Film & TV Tax Credit from $330 million annually to $750 million. However, though likely to be approved, this expansion hinges on California’s 2025-2026 budget which is currently being negotiated.
Several member entities of the Entertainment Union Coalition have traveled to Sacramento to lobby lawmakers in support of this jobs-based program, including the Directors Guild of America, LiUNA! Local 724, SAG-AFTRA, Teamsters Local 399, Writers Guild of America West, California IATSE Council, and the American Federation of Musicians. Collectively, the Entertainment Union Coalition represents over 165,000 members who live and work in California’s entertainment industry. If Governor Newsom’s proposal passes, it will prove to be the most significant expansion to the program in decades.
Production jobs being lured away to different territories has been an issue plaguing California for decades, as the financial incentives in other states and countries have proven too lucrative to pass up–Georgia, Ontario and the United Kingdom have no caps on their subsidies for film and television productions. According to recent reports from FilmLA and the Entertainment Union Coalition, production in Los Angeles was down 30% over five-year averages in 2024 and approximately 50% of the 312 productions did not qualify for California’s tax credit incentive from 2015 to 2020. SB 630 and AB 1138 aim to change that trajectory and create a sustainable environment that keeps jobs and economic benefits in California.
Jennifer Hays contributed to this article.
Australian Federal Budget 2025-2026–Key Tax Measures and Instant Insights
The Australian Federal Government has just released its budget for 2025-26. The K&L Gates tax team outlines the key announced tax measures and our instant insights into what they mean for you in practice.
In summary, with an upcoming Australian federal election, the budget is light on substantive tax changes (other than personal income tax cuts), and largely defers measures to raise further revenue or amend the tax system until after the election. Whilst there will be some relief that there have not been further targeted tax measures (e.g. on multinationals), there is also likely to be disappointment that there has been no attempt at tax reform or addressing the large number of outstanding matters requiring clarification.
Key Announced Tax Measure
K&L Gates Instant Insights
Personal Income Tax Cuts From 1 July 2026
The Government has announced reductions in the first tax rate from 16% to 15% from 1 July 2026 and from 15% to 14% from 1 July 2027.
The Government has also increased the income threshold for where the 2% Medicare levy applies.
These will no doubt be welcome for individuals, and will likely form a key part of the Government’s campaign for re-election.
These changes have been largely targeted at low to middle income earners, although the tax cuts will apply to all taxpayers. Given the higher rates of inflation and wage growth, this essentially returns some (but not all) of the higher income tax take from “bracket creep” to taxpayers.
There is no relief however for businesses, small or large.
Managed Investment Trust (MIT) “Clarifications”
The Government is proposing to legislate to allow foreign widely held pension funds and sovereign funds to get access to the reduced MIT withholding tax rates on eligible income for “captive” MITs (i.e. where they are the sole actual or beneficial member of the MIT).
This is intended to “complement” the Australian Taxation Office’s (ATO’s) Taxpayer Alert TA 2025 / 1 which focused on restructuring to access MIT benefits and using structures to implement captive MITs.
This is a pre-announced, welcome change that confirms existing industry practice, and addresses a difference between the rules to qualify as a MIT and the rules to apply reduced withholding tax.
However, it was only necessary due to the ripple of serious concerns started by TA 2025/1 and focusing on “captive MITs” without sufficient clarity on the ATO’s concerns.
It remains clear that the ATO has a focus on foreign collective investment vehicles (i.e. funds) accessing MIT withholding concessions where they are the sole ultimate owner (even though they may themselves by widely held).
No Changes to Address Taxation of “Digital” Assets–Handball to the ATO
The Government has confirmed it will not legislate any amendments to the taxation laws to deal with the array of digital assets, such as “decentralised finance” (DeFi), gaming finance (GameFi) and non-fungible tokens (NFTs).
It also (in a fairly luke-warm way) endorsed the principles developed by the Board of Taxation (BoT) to guide taxation of digital assets, whilst also indicating that further ATO guidance will be available to address uncertainty.
Whilst the lack of a specific tax regime for digital assets is consistent with the BoT’s recommendations, the tepid endorsement of the BoT’s policy framework for digital assets provides little guidance on how the ATO is to develop further tax guidance to address the taxation of these novel assets, leaving the ATO to largely continue to act as policy formulator and implementor as well as revenue collector.
Based on the existing guidance, it is unlikely this will result in much relief for digital asset providers, platforms or investors.
No Further Guidance on Corporate Tax Residency
The Government has provided no update on the changes (promised back in Federal Budget 2020/21) on clarifying corporate residency laws, particularly following hardening of ATO guidance on corporate residency.
This means the ATO’s views in TR 2018/5 and PCG 2018/9 continue to be applied (notwithstanding the Government’s previously stated intent to address some of the challenges associated with those rules).
Foreign entities with Australian directors etc continue to face heightened risks of the ATO trying to allege Australian tax residency.
Announced but Unenacted Measures
The budget largely provides no clarity on a number of previously announced but unenacted measures, including:
Changes to increase scope of foreign resident CGT withholding tax – other than that this has been delayed until after legislation is enacted;
Clean building MIT rates for data centres and warehouses has been delayed until after legislation is enacted;
Small business instant asset write-off extension to 30 June 2025;
Part IVA amendments to deal with withholding tax;
CGT rollovers and response to the BoT’s review;
Additional taxation of superannuation balances over AU$3 million, including whether this incorporates unrealised gains; and
Changes to Division 7A (i.e. removal of distributable surplus requirement).
The list of announced but unenacted tax measures continues to grow and provides real uncertainty for the tax system and all taxpayers. Whilst there are some positive amendments, including deferring the commencement of the unreleased changes to foreign resident capital gains withholding, it largely leaves these matters unresolved.
Some of the measures, such as taxation of superannuation balances, are clearly baked into the budget revenue forecasts, and so although the Government has not succeeded in getting legislation passed, the intent remains to do so (pending its re-election).
The Government also appears to be in wait and see mode as to what the ultimate outcome is in the Bendel litigation to determine next steps on Division 7A.
However, there has been little or no clarity provided on most measures, and so taxpayers continue to face uncertainty. Whether we see some measures proceed will ultimately depend on the outcome of the election.
Continued Focus on Tax Integrity by the ATO
The Government has provided further funding to the ATO to address tax integrity and target tax avoidance arrangements, particularly focused on multinationals.
The Government has also provided additional funding to the ATO to address non-payment of superannuation contributions and amounts PAYG withheld on account of tax.
This will see the ATO continue to target key concerns – based on our experiences, in recent years this has involved multinationals, foreign investors (including private equity funds) and intellectual property arrangements.
The continued focus on entities using the PAYG withholding and superannuation contribution regimes as a source of funding is unsurprising, and we have seen dramatically increased ATO activity in this space. This has led to increased insolvencies in small to medium businesses.
Understanding Partial Redemptions for Startup Founders
Being a startup founder is hard. Among other things, startup founders face long hours, resource constraints, intense pressure, and the need for constant adaptation and resilience in the face of uncertainty. Founders face all these tasks while also being severely underpaid, adding to the list of trials one of the more challenging: personal financial pressure.
As a result of such financial pressure, and the frightening uncertainty of success, it is not unusual for founders to consider a partial redemption or liquidity event in which they sell a portion of their shares to the company or directly to an investor, typically as part of a proposed financing round. Such a redemption provides cash to the founder in exchange for a reduced level of ownership and risk in the company. A partial redemption may be accomplished through a cash purchase directly from the company or by using a portion of the proceeds from a financing round. A partial redemption can be a strategic move with both advantages and potential drawbacks. Understanding the nuances of this transaction is crucial for founders and investors alike.
Why Consider Partial Redemption?
Several factors might drive a company to pursue a partial redemption of the founder’s shares:
Liquidity: Founders may seek to cash out a portion of their equity for personal or financial reasons.
Tax Planning: Partial redemption can offer tax advantages, especially when structured carefully.
Corporate Governance: Reducing the concentration of ownership can improve corporate governance and decision-making.
Employee Incentive Plans: Repurchased shares can be used to fund employee stock option plans or other incentive programs.
Key Considerations:
Before embarking on a partial redemption, several factors must be carefully evaluated:
Valuation: Accurately valuing the company’s shares is essential for determining a fair redemption price. The company should review the current 409A valuation and consider the potential impact the partial redemption will have on future 409A valuations.
Tax Implications: The tax consequences for both the company and the founder can vary significantly based on factors such as the founder’s holding period, the redemption structure and the company’s tax status. In general, a shareholder may exclude 100% of gain from the redemption of Qualified Small Business Stock (QSBS) for federal income tax purposes if certain issuance date and holding period requirements are met. However, a founder’s redemption may be disqualified from QSBS tax treatment.
Corporate Structure: The company’s legal structure and governing documents may impose limitations or restrictions on share redemptions.
Financial Impact: Repurchasing shares can reduce the company’s cash reserves and potentially affect its financial performance.
Shareholder Agreement/Investment Documents: Existing shareholder agreements or investment documents may contain provisions related to share transfers, redemptions, rights of first refusal, right of co-sale or tag-along rights. The partial redemption may trigger rights for existing shareholders who may wish to participate in the sale.
Potential Drawbacks:
While partial redemption can offer benefits, it also carries potential risks:
Dilution of Ownership: If the redemption is not carefully structured, it can lead to dilution of ownership for existing shareholders.
Company’s QSBS: Impact on Qualified Small Business Stock (QSBS) for existing shares as well as future purchases.
Market Perception: A significant share repurchase can sometimes be interpreted negatively by the market.
Loss of Talent: Founders may feel less motivated or committed to the company after a partial redemption.
The decision to redeem a founder’s shares is complex. Early exits and partial redemptions can provide liquidity and diversification for founders while allowing them to maintain some ownership in the company. However, it is important to consider the potential risks, structuring options and tax implications before the company and founder engage in such a redemption.
Essential Tax and Compliance Insights for Private Medical Practices in 2025
As we move into 2025, the healthcare sector continues to experience significant changes in tax and compliance regulations, especially for private medical practices and NHS contractors. Whether you’re running a private clinic or working as an NHS contractor, staying up-to-date with the latest tax laws and financial obligations is crucial for the success and sustainability […]