Menu
Tax Notes logo

VAT Matters: Exploring the EU E-Commerce Reforms

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: VAT update. On July 1, the European Union's sweeping reforms to the value-added tax took effect. The changes, which most notably affect online purchases in some EU member states, were delayed six months due to the COVID-19 pandemic. So how are businesses in the EU reacting and adjusting to these new VAT rules? And how will the reforms affect customers in both Europe and the United States? Here to talk more about this Tax Notes legal reporter Kiarra Strocko. Kiarra, welcome back to the podcast.

Kiarra Strocko: Thanks, Dave. It's great to be here.

David D. Stewart: Now you've been covering this issue for Tax Notes. Could you tell us some background on why these reforms came about and their significance?

Kiarra Strocko: Of course. So the VAT e-commerce package was adopted by the EU Council in December 2017 with the aim of reducing administrative burdens affecting intra-EU trade while also reducing VAT fraud. These new rules also aim to place EU and non-EU businesses on an equal footing, which promotes fair competition.

As you mentioned, the rules were originally supposed to come into force on January 1, but due to recent challenges this year they were postponed to July 1. So these rules are significant because they reflect the rise in cross-border e-commerce and will impact most businesses around the world. The new measures include a rule that will make online marketplaces that facilitate cross-border sales responsible for collecting and remitting that on deemed supplier transactions. Also, their forms eliminate the VAT exemption for the import of low value goods, so now all goods imported to the EU are subject to VAT.

These new rules are very important because under traditional rules, businesses that sold online goods needed to register an account for VAT in the member state of the consumer when the sales exceeded a certain threshold. But now businesses can register and file VAT in a single member state.

David D. Stewart: Now, you recently spoke with someone about this. Can you tell me about your guest and what you talked about?

Kiarra Strocko: So I spoke with Liz Armbruester, who's a senior vice president of global compliance operations at Avalara, and she provided insight into the nuances of the EU VAT system and the overall effects of the changes that were implemented. We thought it was interesting that the EU VAT system was last updated in 1993. And now these VAT changes are occurring amid the slow down of the pandemic and talks for an agreement on a two-pillar global tax reform plan.

We also discussed the why behind the VAT reforms and its potential to close the e-commerce VAT gap and the overall VAT gap in the EU of €140 billion that was reported in 2018. We also focus on the implications for large and small businesses and whether non-EU and EU businesses are truly prepared six months later to handle the new changes.

It was nice because Liz provided examples of when online marketplaces may become the deemed supplier and apply the change to different business scenarios. She also provided an overview to the VAT One-Stop Shop (OSS) and the Import One-Stop Shop (IOSS) system, and discussed lessons learned from the mini one-stop shop that was launched in 2015 and addressed any challenges we might face ahead.

David D. Stewart: All right. Let's go to that interview.

Kiarra Strocko: Welcome to the podcast, Liz. It's so great to have you here, and what a perfect time to be discussing EU VAT reforms and their implications with the new rules coming into force at the start of this month. It's the calm before the storm potentially from an implementation perspective.

Liz Armbruester: Thanks, Kiarra. Great to be here with you today and talking about this really significant change that is going to impact a variety of sellers around the globe.

Kiarra Strocko: As a result of some of the EU VAT reforms like the introduction of the VAT One-Stop Shop scheme, EU companies are now allowed to declare and pay VAT in a single member state. So what implications does this have for e-commerce sellers? And does this mean that some sellers will now be put at a disadvantage?

Liz Armbruester: I think it's a great question, and I think saying, "Hey, listen, we haven't had this significant of a change in overhaul since 1993," really speaks to just the implications of how fast commerce is changing. And it's taken the EU reforms and just the regime a bit of time to pick up the pace, recognize that, and really get everybody back on a level playing field.

But when we think about the One-Stop Shop, the Import One-Stop Shop, commonly known as OSS and IOSS, it is important to recognize I think first and foremost that when you hear those terms, that's actually not what's creating the disruptions themselves. Right? Those are the methods. Those are the tools, if you will, that sellers will be able to utilize to help simplify the changes that are coming as a result of the reforms that go in to effect on July 1.

And so when I think about that first of all, prior to July 1, one thing, first of all, that comes to mind is the distance selling thresholds. Right? Those existed and those were basically in effect to require foreign companies to VAT register once they exceeded a selling threshold specific to that country. And those ranged, right? They were $35,000 to maybe all the way up to $100,000.

And so beginning the first of July, the VAT package actually withdraws those distance selling thresholds and cross-border sellers have to charge the VAT rate of the customer's country of residence at the very first sale and remit it to the foreign tax authorities. So on first glance that looks like, "Wow. That's a huge compliance burden for sellers. They have to go out and VAT register everywhere that they're selling."

But the reform package says, "Nope. We're actually going to create some simplification there." And so that looks like an extension of the single VAT return. It is that one-stop shop to e-commerce, cross-border selling, distance selling of goods. And that replaces that obligation to VAT register in every country where the sellers are making sales to EU consumers. And it creates, again, a simplification and that existing obligation to register in all the countries is then removed. So that's a big change.

I think in addition to that I would like to call out, Kiarra, because this can be really complicated for sellers to try and absorb. I think a key call out here, and you highlighted it in the introduction, is to really think about who this applies to and what transaction types really fall under that OSS and IOSS simplified scheme. And the first one is business-to-consumer sales of goods shipped within the EU, and then there's business-to-consumer sales of goods shipped from outside the EU. And if you have those B2C sales shipped from within the EU, that's again where the benefits of OSS come into play. If you have B2C goods shipped from outside the EU, that's where IOSS comes into play. It makes it easier to register and to remit VAT.

And one key callout, again, if you fall into that latter category, you're outside the EU, you have to consider the necessity of an intermediary, and that is a representative established in an EU state. It's kind of similar to fiscal rep requirements that exist in many EU member states today. And I don't know if there are any U.K. sellers potentially listening, but there are some real complications right now with whether that intermediary applies to U.K. businesses or not. So just to key callout to those folks that are still working through whether that applies or not.

But last, and an aside kind of from OSS and IOSS, there's one other piece of consideration with this reform that will impact sellers, and that is around deemed marketplace. And those reforms of course hit the first of July as well. And so in this particular situation, the marketplace deemed supplier rules apply to a marketplace that are established outside of the EU, or they're bringing goods into the EU.

And under those rules, the marketplaces will be responsible for handling the VAT reported for sales made by third parties on their platforms. And so it's a lot of change all intended to do the things that you mentioned, which is reduce fraud, create the level playing field as well. But for businesses, even with the models of simplification, it can still be a heavy lift.

Kiarra Strocko: So another major change is that now, like you said, online marketplaces that facilitate cross-border sales will be responsible for collecting and remitting that on deemed supplier transactions. So could you provide us with a short overview of this change and any implications of this from a non-EU perspective?

Liz Armbruester: Sure. Happy to. So the marketplace deemed supplier rules apply to marketplaces that are established outside of the EU or bringing goods into the EU. And under the rules, the marketplaces are going to be responsible for handling the VAT reporting for sales made by third parties on their platforms.

And so once that marketplace is determined to be the deemed supplier, the sale that happens between the seller and the customer in effect is now treated as two separate transactions for VAT purposes. And the first part looks like the seller selling the goods to the marketplace. It's the simplest way to explain it. That becomes a business-to-business tax exempt sale and no EU VAT is due.

The second part of the transaction is when the marketplace sells the goods to the customer, and that becomes a business-to-consumer sale with the marketplace now being responsible for collecting the VAT that's due based on the customer's country of residence. So kind of that destination sourcing idea that a lot of folks in the U.S. are well-versed on.

Here's an example, just to kind of help cement that for the audience. If a U.S. merchant is selling goods today into maybe a French and a German customer through an online marketplace prior to the reform, the seller has to be VAT registered in France and Germany in order to charge the 20 percent VAT to the French customer and 19 percent VAT to its German customer.

Effective first of July under the new rules, the seller becomes basically the underlying supplier and the facilitating marketplace becomes the deemed supplier. They purchase the goods from the seller. They resell them to the EU customer. They collect the VAT. They report the sale through either the local VAT registration or the single EU import OSS for those sales. And what's important for the marketplaces is of course they have to keep detailed records of those sellers' transactions to show that the VAT has correctly been accounted for. They have to electronically maintain those records for 10 years per the rules.

And then also I think important is the marketplace will not be held liable for underpaid VAT. If the seller fails to provide the correct information required for the VAT calculation and the facilitating marketplace can reasonably show that it wasn't aware of the error. So there's some really important nuances to make sure that the seller takes care of in now this two-part transaction if they're selling goods through the marketplace and deem supplier is the methodology that's used.

Kiarra Strocko: Thanks so much, Liz. That seems like a very complex part of the new roles. So it seems like businesses are genuinely trying to stay compliant. Do you think they've been given the adequate resources to facilitate a smooth implementation? I know the commission has issued explanatory notes and has provided detailed outlines on the changes, but is this enough?

Liz Armbruester: Well, I think based on the number of businesses that are compliant today, I would say this is a heavy lift for businesses. I think the tools are there with the simplification of how do you report. But if we go back in time and think about the fact that these reforms changed the way that businesses invoice a customer. Right? When and how they calculate the tax and not only how they remit it, it's like I said, it's a big lift for businesses to try to figure out how to do. They, like I said, have to set that correct tax calculation, and that can be a change within their system today.

So again for importers who didn't have an import threshold, who now do and have the model of IOSS to be able to facilitate these imports of low value goods, they now have this obligation that they have to calculate tax at the point of sale. And again, that's different. So it's hard to say whether they have the tools in place or not because it does go back all the way up the supply chain to the point in time where the transaction happens. It's not just about when the business has to go out and report their transactions.

So again, setting tax calculations to be accurate. Number two, ensuring the pricing of the accuracy of the online goods for those sellers who will be under the obligations of IOSS. Those sellers, again, have to charge the VAT at the time of the transaction. So getting that rate right on a country-by-country basis, they may have the tools in their system to do that today. They might not from a how do you do it perspective around the rules. Yes, I would say they have the tools to do it, but the actual implementation of that for a business could be really, really tough.

And then downstream of that, of course, do they have the tools to understand the reporting requirements? Do they have the models to be able to consolidate transactions and get that data where it needs to be? I would largely say yes, but it is a heavy lift. And I would go on to say that I think maybe for some businesses that are out there, the impact could be that the complexity of these rules may guide them to a place of saying, "Hey, I don't even want to sell into the EU any longer because of the complexity." I'm not saying that's a large number of businesses, but I do think it's a consideration because not only is it complex to understand, but the actual costs to do it.

So if you go back to my example of you have to get the tax rate right at the point in time that you're doing the sale, there might be some compliance costs there. There might be a lift for that business to ensure that they can get those right rates done. And if those compliance costs are too high, it might not make sense for that business to continue with those types of sales.

If that checkout process doesn't include the right cost and they get it wrong, the customer at the end of the day, who is now in the EU, might face additional costs. They might refuse the product. The business now has to deal with a return. And in some cases, some sellers might not want the administrative hassle for those direct sales. And maybe those businesses might choose to only sell through marketplaces.

So your question, I think, can go in so many different directions. As I've just said, having the tools — it really depends on the perspective. I think the rules, yes. The understanding, I think we're getting clarity. I think the implementation of that for many businesses can actually be pretty tough and it's going to take some time for businesses to get compliant. And that's not unlike what happened in the United States with regard to Wayfair. It's taken a while for businesses of all sizes, not just the small ones, but for a business of any size to actually be compliant with the new economic nexus.

Kiarra Strocko: Thanks, Liz. Absolutely. And do you have any recommendations for businesses, especially smaller ones? You were talking about compliance costs and the burdens, and if you have any insight on what could be useful for businesses to utilize in this scenario?

Liz Armbruester: Well, without a doubt. I mean this level of lift for businesses of any size can be significant. And just the manual nature of trying to deal with tax complexity seems a little bit crazy to me when you've got digital technology that can work in your favor.

So there are a variety of automated solutions that can address the entire VAT compliance life cycle, including the registrations, including the calculations, including the reporting, and businesses can certainly benefit and tap into that. And I think technology in this particular instance is really a friend to business. It becomes just an essential component to help businesses not just get compliant, but remain compliant.

Because that's one of the most challenging nature I think of tax in and of itself is that it's not static. It's going to change just as much as this reform is representative of that. There will be reasons why we'll see tax reform in the future. We know that there are upcoming changes that will impact future sales into the EU. And so again, leveraging automated solutions, leveraging technology to help a business as I said not just get compliant, but remain compliant with future changes can really be a significant lift.

And why I think that's so helpful for this period of time is for the reasons that I had stated before. Businesses have to manage the checkout process now in a way that they very likely haven't had to do previously for these low value goods that are being imported into the EU. And you want to make sure that a business can get those taxes calculated accurately because at the end of the day, if they do it wrong, not only do they have a compliance issue, but they might have a customer satisfaction issue. And that's what drives business. They want to make sure that they're retaining their customers, they're selling more, et cetera, et cetera. And if they put that at risk, then they've got a whole different issue to deal with aside from just making sure that their tax compliant.

Kiarra Strocko: So speaking of technology, I like that point you made about how the One-Stop Shop and Import One-Stop Shop are the methods and tools that sellers will use. And so I was wondering if you foresee any technical issues arising or any problems in the transmission of that returns and back paid via the secure communications network?

Liz Armbruester: Yeah. Any time that new technology comes in into play, we might be subject to a little bit of disruption and just a little bit of normalization around the processes. And that can be said of really any technology; the way in which that it's implemented, it's used, the data is transferred, et cetera. There might be a few bumps in the road, but I think the more that we see adoption increase, we begin to see those issues start to smooth out.

And again, you're going to see a rapid adoption, I think over the course of the next six months with more and more businesses coming online to do this. And I think those points in time where we've got technological issues or issues of other kinds, where it's the business doesn't fully understand how to be compliant, let alone how to use the technology in and of itself for the reporting mechanism. I think those will smooth out. It's, like I said, with the institution of any net new change comes even some unforeseen issues and it'll take a little bit of time to work through those.

Kiarra Strocko: Yeah. That's really interesting. And are there any lessons to be gained from the implementation of the optional VAT mini One-Stop Shop scheme?

Liz Armbruester: I think again, just as you think about it from the government's perspective, just the adoption rate, right? It's how transparent can we be with the information with the change? How easy can we make it for businesses to actually adopt? Like in theory, sometimes you can imagine sitting in a room with a bunch of people, you come up with an idea and you're like, "Yeah, this sounds really simple." But in practicality, the implementation of it sometimes can be really tough. I'm not just talking about tax here.

And so I think alongside with that, what a lot of businesses and the government saw was on paper it looks really good, but in practicality, maybe we had some unforeseen hurdles. And so I think some of those have been worked through as they expanded MOSS into OSS and IOSS, and that came around the information share. How much information was available out there? How much lead time was available? And as we said, there was a bit of an extension here for known reasons.

But I think all of that led to getting the word out and helping businesses understand how they can be compliant and utilizing tools that really in effect actually can do the things that the EU reform was intended to do. What I don't think anybody yet completely has wrapped their arms around is just how long it's going to take.

I mean, again, if I flip back to the marketplace facilitation laws that have — now we're on the third anniversary of Wayfair, I would imagine that most people said in June of 2018 that it would take probably a year, maybe two, to get a large margin of our businesses online and being compliant. I don't think that anybody expected even at the third year out from Wayfair that there's still a significant number of businesses who are not compliant.

And I think that might be the case here. I think the expectation of how fast businesses will comply probably won't meet the expectations of what the governments would like. I think they'd like it to be sooner. I think it's going to take a little bit longer. But I do think that again, some lessons learned along the way have helped facilitate that.

And again, if businesses can be out leveraging technology to help them get on board with these changes, and then kind of future-proof, if you will, the next round of changes that will happen and keep them compliant as their business grows, they'll be in better shape.

Kiarra Strocko: Absolutely. So another big change was to eliminate the VAT exemption for the import of low value goods. So the €22 VAT exemption effectively allowed sellers to under declare the import value of goods. So my question is: do you think this was a smart move to eliminate the low value confinement VAT exception?

Liz Armbruester: Let's take a look back first to answer that question. Like what did it look like on prior to July 1? And as you said, any package value below €22 would have passed through customs without the collection of import VAT or customs duties. And from the EU's perspective, I think that exemption encouraged non-compliant traders to misrepresent the value of their shipments to avoid inspection. Right? Just to get the packages through. And now items of any value should be subjected to import VAT and inspection, but that elimination, the abolishment of that threshold does create disruption for sellers that have benefited from that low value consignment exemption previously.

And again, that's why IOSS got introduced. So we're going to abolish the threshold. It might inflict a little bit of pain, but here's the remedy for that. And so again, July 1, that imported sale of consignments that don't exceed €150 will be liable to import VAT at checkout instead of at the customer's point of import. And sellers or facilitating marketplaces do have that ability to use the IOSS return to report those transactions.

And I think that again, because they don't have to go through the inspection process, I do think overall it will push more businesses to be compliant. It's just getting over that first hurdle. Right? Of, "OK. How do I have to register? Do I need an intermediary? And then how do I do this on a month-to-month basis?" So a little bit of pain upfront for those sellers, but in the long run, I think it actually will benefit them.

Kiarra Strocko: So my next question is on the why behind these reforms. Another objective is to combat abusive VAT practices and tax revenue losses. So what impact might the VAT reforms have on closing the e-commerce VAT gap that was reported at approximately €5 billion and the overall VAT gap in the EU of €140 billion that was reported in 2018? Or are there other issues at play here that were not necessarily addressed in the new rules?

Liz Armbruester: Great question. First of all, I think that like you said the aim is to combat fraud. And I think it's also to boost cross-border online trade. When we talked about at the beginning of this interview the fact that commerce has changed. Right? How we sell, to whom we sell, the rules that we had in place were old. They weren't reflective of the new commerce model that we have, the new business models that we have today, including dropshipping and internet sales, and even how we advertise products that are out there like across social media. Like all of that has led to changes in cross-border trade.

And the element of kind of leveling the playing field, of course, has to be considered here as well, where brick and mortar stores were facing a different landscape in competition with the remote online sales. And so when you think about it from a business's perspective and the environment in which they're selling, I don't think anybody really has set out to be intentional about being fraudulent and not compliant.

I just think that the way that the rules have been created, again, aren't reflective of how businesses sell today. And so I do think that this reform will drive significant change in compliance and ultimately in combating fraud because the methodology that they have used aligns to how businesses go to market. And so if that's the thought process, then businesses can fairly easily see — I wouldn't say I wouldn't go so far as to say easily see — how they can be compliant because there is complexity there. But I think it aligns with how they go to market, and therefore, have an improved opportunity and increased chance at really getting it right and remitting the tax obligations accurately and timely to the tax authorities where they're due.

If the consideration of the EU had gone a different route where it really was not well aligned to how businesses go to market, whether that's through marketplace, through e-commerce, through and the consideration, of course, of brick and mortar, I think it wouldn't be as effective at combating fraud. But because they have taken that really into consideration, I think the chances of reducing the significant VAT gap that exists, has existed over the past several years, will see a positive change.

Kiarra Strocko: Absolutely. And that kind of leads me to my next question about some statistics that were in the commission's impact assessment. So they said that the new VAT rules would reduce compliance costs by 95 percent for companies selling goods remotely to multiple EU countries. And will raise €7 billion annually in VAT revenue. I was wondering if you thought that these statistics were ambitious or are these numbers attainable?

Liz Armbruester: Well, again I think the answer is from the perspective of the business. And then there's of course my perspective as well. And as I look out across the business landscape, as I mentioned, maybe for smaller businesses a reduction of costs? I don't know. We talked about the fact that some sellers may see this as too burdensome and the compliance costs being too high. It won't make sense for them to continue to do the type of sales that they do today.

They risk not having the tools in place, maybe not being able to deliver the level of customer satisfaction that they want to. And that just may be too much for smaller businesses. I think overall when you look at the landscape of medium and large, and where businesses are selling and to whom, and where their compliance costs are going to come from, I do think actually that in the whole the cost should come down. Right?

The reforms' intention is to reduce the compliance cost and reduce just compliance obligations overall. If you can limit the number of registrations, limit the amount of reporting that ultimately has to happen. Yes, I would say that while it might be a little bit ambitious, I do think that over time those compliance costs will come down.

But as I said earlier, I think there's a bit of a lift that we have to get over first. So it's a climb and then it's a bit of a downhill, and therefore, overall I think that the cost for most businesses should be a bit less while also promoting trade into and within the EU.

Kiarra Strocko: Thanks, Liz. That's great insight. And since the rules were implemented at the start of July, I thought it would be appropriate to discuss how we arrived at this effective date. So do you think that the delay in the implementation dates from the January 1 date was necessary for member states? I know that there seem to be a varying degree of how hard the pandemic hit different EU member states and the U.S. as well. So do you think that this was a necessary and welcomed setback so to say?

Liz Armbruester: Yeah, I think I would say for most businesses' perspective, I think, yes, the delay was probably welcome. When you think about the overall impact of the pandemic, it was different for every business. Some handled a little bit better than others. Some struggled to even stay in business. So having a very significant tax reform hit them —and for all the reasons we've talked about with cost of compliance, understanding the rules, et cetera. Yeah, I think it was a bit of a welcome breath of fresh air to say, "I've got six more months before I have to go ensure that I'm compliant with these changes."

I think also quite frankly, it actually gave a bit of time for some of the member states to provide some clarification. And to some degree, we're still working on that clarification. As I mentioned, specific to the U.K., if there were U.K. sellers here listening, I think it's important when you talk about whether they need an intermediary or not, some of those rules are still being worked out. So I think not only maybe was it a bit of a relief for the businesses to have that delay, but I also think sometimes in some regard, some of the member states' governments actually needed a little bit more time to make sure that they had firm policies, guidelines, et cetera, to ensure that businesses knew how they could be compliant with these new rules.

Kiarra Strocko: Thanks, Liz. Now I have to ask this question. There's so much attention on the OECD's efforts to reform international corporate tax rules to address the digital economy. Speaking of VAT work, do you think the OECD's work in the VAT space has been successful? And I guess could they call it's VAT work a win regardless of whether countries can agree on pillar one and pillar two?

Liz Armbruester: So I'm going to have to decline to answer that question because I don't have data on that.

Kiarra Strocko: I really appreciate your time today. It was such a pleasure getting to talk to you about all these very, very interesting and important topics.

Liz Armbruester: Thank you. It was a pleasure to be here.

David D. Stewart: Now coming attractions each week, we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what will you have for us?

Paige Jones: Thanks, Dave. In Tax Notes State, Megan Brackney and Daniel Flesch examine the lack of transparency in the IRS Office of Professional Responsibility’s sanctions process. Michael Caryl reviews West Virginia’s most recent legislative session, and where the state tax reform debate may be headed. In Tax Notes International, Andrew Hughes considers a North American construction distribution benchmark for transfer pricing in the latest installment of his series. Wolfram Richter argues that OECD plans to promote international rules on profit tax assessment will not work. In Featured Analysis, Robert Goulder considers a recent attempt to quantify net revenues gains (or losses) under the OECD’s pillar 1 reform proposal. And now for a closer look at what’s new and noteworthy in our magazines, here is Tax Notes Federal Editor in Chief Ariel Greenblum.

Ariel Greenblum: Thanks, Paige. I'm here with Margaret Ryznar, a professor of law at Indiana University McKinney School of Law to discuss her upcoming Tax Notes piece titled, "A Tax Credit for Wills." Welcome to the podcast, Margaret.

Margaret Ryznar: Thanks so much for having me. It's great to be here.

Ariel Greenblum: We're excited to publish your new piece on July 12. To begin, what led you to write about this topic?

Margaret Ryznar: That's a great question. At the beginning of the pandemic, I would say last March 2020, I was reading a lot about what was happening in the news. I guess you can call it doom scrolling like so many other people were. And I was really struck by all the stories about the nurses and the doctors and the other essential workers who were all rushing at that time to get their wills done because they hadn't done any estate planning. And that's not really surprising at all because so few Americans have a will.

There's really no exact number how many do, but by some estimates, it's probably not even half of Americans have a will done. So we don't know why. And I do say that as a professor who's been reading a lot about it and tries to figure out, but we don't have any answers why there are so few wills in our society and why so few people plan their estates.

But one possible reason is it's certainly hard to think about your mortality and to plan for a possible death. So I just thought to myself at that time, "What a hard situation that is for those essential workers to be exposed to that virus every day. And then on top of that, to have all this stress of estate planning."

And it's all made worse by the fact that a will execution in many cases requires a gathering of people to witness the will. And usually it includes the lawyer who wrote the will, and then the tesatrix or who made the will. And this is really difficult in a pandemic to gather together to execute a will. And a lot of these gatherings were actually happening outside at that time.

So I was thinking, "How can we have avoided all of this?" And it's really about incentivizing people to do their will be before they need to. So that's really what sparked this article.

Ariel Greenblum: Yeah. Interesting. Could you give listeners a preview of the article?

Margaret Ryznar: Yeah. Absolutely. So when I started to think about how incentivize this will making, there were really two thoughts that came to my mind, which both I outlined in this article. And the first way to incentivize wills is to make them easier. Right? And so mostly that would be to get rid of the will formalities, which is the ceremony, the gathering of the witnesses, the acts of the witnessing, the testatrix signing the will, et cetera, et cetera.

That's definitely a possibility that a lot of other commentators and scholars have thought about, have written about. But there's another way that I argue in this article is much easier and that's [to offer] a tax incentive and I come down on the side of a tax credit. I like the tax credit pass to incentivizing wills more because it can be done at a federal level to the federal income tax code. It can be done on a time limited basis in order to nudge American society towards a culture that values estate planning, and contrast that with trust and estates and trying to change states' trust and estate laws that have not been changed in many, many years. Our T&E law really stems from English law from centuries ago. It's pretty inflexible. It's state specific.

And so it's a very onerous way to change the law and to incentivize anything to happen regarding wills. So I sort of outline those two routes in my article, and come down on the tax credit as being sort of the easiest way. And I sort of model it in the article on the homeowners' credit back in response to the 2008 financial crisis to incentivize first-time home buyers. And I argue that we can do something similar here.

Ariel Greenblum: Wow. Thank you, Margaret. Before you go, could you tell listeners where they can find you online?

Margaret Ryznar: Sure. Absolutely. You can find me on Twitter at @MargaretRyznar. And also on my official website at Indiana University McKinney School of Law's website.

Ariel Greenblum: Thank you so much for coming on the podcast, Margaret.

Margaret Ryznar: Thank you so much for having me.

Ariel Greenblum: You can find Margaret's upcoming article online at taxnotes.com. And be sure to subscribe to our YouTube channel Tax Analysts for more in-depth discussions on what's new and noteworthy in Tax Notes. Again, that's Tax Analysts with an S. Back to you, Dave. 

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

Tax Analysts Inc. does not provide tax advice or tax preparation services. The information you have seen and heard today represents the views of the presenters, which may not be the same as those of Tax Analysts Inc. It may include information obtained from third parties, and Tax Analysts Inc. makes no warranties or representations of any kind, and is not responsible for any inaccuracies. Nothing in the podcast constitutes legal, accounting, or tax advice. The tax laws change frequently, and neither Tax Analysts Inc. nor the presenters, can guarantee that any information seen or heard is accurate. Also, due to changing tax laws, any information broadcast or downloaded after its original air date may no longer represent the current views of the presenters. If you have any specific questions about any legal or tax matter, you should always consult with your attorney or tax professional.

All content in this broadcast is protected under U.S. and international laws. Copyright © 2021 Tax Analysts Inc. Unauthorized recording, downloading, copying, retransmitting, or distributing of any part of the podcast is strictly prohibited. All rights reserved.

Copy RID