Implementing changes that resulted from the new tax law will be the chief tax issue for the vast majority of U.S. tax officials this year, BDO USA reported Tuesday.
In a survey of 150 tax executives at public companies with revenues of more than $1 billion, 72% of respondents said they worried about putting into effect tax code changes at the federal level, and 19% expressed the same concern about changes at the state and local levels.
At the same time, tax officials in the survey purported to like what they saw in the tax overhaul. Seventy-eight percent said they expected the new law to have a positive effect on their firm’s net income.
Their optimism was the result of several new tax provisions, in particular the 14-percentage-point reduction in the corporate rate, BDO said. Virtually all respondents reported that the reduction would have a greater effect on their business than other key changes.
The reduction also showed that some wishes can come true. In BDO’s 2017 survey, 40% of tax executives cited a lower corporate tax as the change they most wanted.
In addition, 73% of respondents in the 2018 survey said the mandatory repatriation of foreign earnings would affect their business, and 45% said the effect would very likely be significant.
Among other changes to the tax code are tweaks to various provisions relating to the federal research and development tax credit, which will especially affect the 81% of companies that already use R&D credits in some capacity.
The report said companies could expect to feel tax reform effects differently, based on factors such as their sector, legal structure, capital structure, geography and business objectives.
Businesses, it said, will need to strategize around the untested tax code to decide where wins, losses and opportunities may lie, and model how the “butterfly effect” of change may affect their company.
“Given the complexities of domestic and global tax regimes, seemingly small changes in business approach can have wide-reaching consequences to the various tax liabilities of a business,” Matthew Becker, managing partner of BDO USA’s national tax office, said in a statement.
“Examining a company’s total tax liability by considering all of its various tax dynamics is now a necessity for businesses looking to survive and thrive during this time of intense change.”
Multinational Tax Reform
BDO’s survey results highlighted the global nature of respondents: three-quarters reported that they conducted business outside North America, while 53% said they planned to enter or expand in international markets this year.
Today’s web of international tax law is more complicated and highly scrutinized than ever before, and companies need to stay vigilant of upcoming changes, BDO said.
U.S. tax executives reported that international tax planning was critical to their mission of growing their companies overseas. Among the many pressing global regulations competing for their attention is the Organization for Economic Cooperation and Development’s Action Plan on tax base erosion and profit shifting (BEPS).
BDO noted that many BEPS-related deadlines had already passed, but a couple are coming on fast, prompting 56% of respondents aware of BEPS to take proactive steps in responding to the OECD based on action item drafts.
Meanwhile, 33% said they were waiting for individual countries to implement BEPS before acting, and 8% were waiting for peer companies to respond to BEPS.
However, 83% reported that they had met the Dec. 31 deadline for the required country-by-country reporting rules beginning for tax years starting on or after Jan. 1, 2016.
Besides BEPS compliance, transfer pricing continues to be an important issue for the 77% of tax executives in the survey who use it as part of their tax strategy. Among those who do not use it, 26% said it was too complex and another 26% said they lacked internal resources to implement it.
No respondents reported that they avoided transfer pricing out of fear of being audited, BDO said.
“While it has always been important for companies to remain nimble and maintain a high care factor, both attributes are now critical in order for businesses to succeed in the post-tax reform environment,” said Todd Simmens, partner in BDO USA’s national tax office, said in the statement.
“Companies can expect legislative technical corrections and administrative guidance to come down the pike, so it’s imperative that they do what they can to plan today, and remain ready to respond to any further word on tax reform from Congress, the Treasury Department or the Internal Revenue Service.”
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