1.
Transformation of tax –
The pandemic succeeded in accelerating the transformation of many business operations, including tax. CFOs and CTOs will continue to reassess their technologies and data strategies and redefine their target operating models so they can do more with less. For some businesses, this will mean outsourcing or co-sourcing a part of their operations with the goal of minimizing risk, creating longer-term savings and generating greater efficiencies for their entire organization. At KPMG, we call this Tax Reimagined. A reimagined tax function can provide a pathway to help companies conduct effective tax planning, better manage and utilize data and ensure compliance. With the still relatively new Tax Cuts and Jobs Act and its 8,000+ pages of guidance, coupled with the complexities evolving at the OECD and possible Biden Administration tax policy changes on the horizon, most companies will need state-of-the-art modeling technology, combined with tax experts, to help them decipher both the data and the policies.
2.
US tax policy –
Yes, tax policy changes under the new administration are very likely. Following the presidential election, many CTOs and CFOs asked us, “how likely is this?” If we look to history, we know that most new administrations enact some form of tax reform in their first year. And now that we know that Democrats will control the majority in both houses of Congress, Biden and his administration could potentially move forward with the tax policy proposals he laid out during his campaign. Today, CTOs and CFOs are asking us, “how much?” and “how soon?” Although it’s yet to be seen how wide-reaching tax changes will be, if they happen, companies can absolutely be prepared for any forthcoming changes that Biden proposes, including increasing the corporate tax rate to 28 percent or implementing an alternative minimum tax, by using modeling tools to examine the varying scenarios.
3.
International tax –
There’s significant international policy pressure to coordinate a modernization of our tax code for the digital era (and many jurisdictions are eager to generate additional revenue to help pay for pandemic stimulus). There’s also a perception that the current system is no longer fit for its purpose and there’s mounting public pressure that fast-growing digital companies should pay their “fair share” of taxes. The ongoing negotiations on the taxation of the digital economy are slated to continue at the OECD during the first half of 2021, and the outcome is likely to impact the US’s domestic approach to taxation and how US multinational companies are taxed overseas. While big tech companies will no doubt be impacted most, this is an issue that will affect all American companies and, again … it is, therefore, critically important to model the scenarios now.
4.
Tax and transactions –
The tax ramifications of complex transactions was a critical part of the robust deal market in the latter half of 2020 and will continue to be important in 2021. Companies and investors must think through the tax structure and model future cash flows to develop the most financially sound after-tax transaction. As the future tax rates are yet to be known, investors may want to consider selling their business before any potential rate increase, which will impact and stimulate companies that are looking to buy or sell businesses or assets. As the deal market continues to remain strong, and the tax policy agenda shapes up, tax will most certainly play a critical role in how deals are constructed and ultimately finalized.
5.
ESG –
Increasing attention by employees, clients and investors on socially conscious business operations are causing corporate C-suite leaders and boards to pay greater attention to environmental, social and governance (ESG) issues. As companies are increasingly focusing their brand on aligning with ESG agendas, tax plays a role across all three pillars. On the environmental front, tax is being used as a tool to drive ESG behaviors through taking advantage of tax credits in the renewable energy space. From a social perspective, companies are being asked to demonstrate their tax transparency, including what their total tax contribution is and their overall attitude toward tax. It’s not uncommon for an investor to now request a company’s tax code of conduct, which includes a level of transparency previously undisclosed by corporations. On the governance front, it’s all about how a company is managing tax as a corporation and disclosing to investors their overall tax risk. Ultimately, this is an evolving and developing space to watch and one that I think will play a significant role for CTOs, CFOs and other C-suite leaders in the year ahead.
This article represents the views of the author only, and the information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
