Seasoned Conversations with SALT - Episode 5

Partner Jeff Burns continues the Seasoned Conversations with SALT video series with Value Chain Management Principal Paul Glunt.

Jeffrey Burns

Jeffrey Burns

Partner, State and Local Tax, KPMG US

+1 312-665-1077

Paul Glunt

Paul Glunt

Principal, Value Chain Management, KPMG US

+1 949-885-5759


In this episode, Jeff and Paul discuss the concept of value chain management in conjunction with international and state and local tax planning amongst the number of operational disruptors that exist today. Further, they explore how value chain management implores a business first thought process in driving sustainable solutions.

Transcript

Jeffrey Burns: So, Paul, I want to welcome you to another episode of Seasoned Conversations with SALT. I think we’re going to take a little different twist here. Normally, it’s just SALT colleagues talking to SALT colleagues, so you’re a special guest on this one. If you don’t mind, maybe tell us a little bit about yourself, what you do at KPMG and then we can take it from there.

Paul Glunt: Jeff, thanks. I appreciate it and I’m definitely excited to be the first non-SALTy fellow to join your podcast. So, for those out in the audience, if you don’t know, my name is Paul Glunt. I‘m a principal in KPMG’s value chain management practice. I sit in Southern California, but as you know, prior to COVID, I spent most of my time on planes traveling the country because our value chain management practice is a national practice that’s really focused on kind of taking a different perspective on tax.

So, rather than thinking about tax first, we really try to think about business first and we think about what issues are happening in a business and then we try and craft the solution around that for tax, so rather than thinking foreign tax credits, for example, we really are thinking, oh, a company is going through changes in procurement, or a company is going through digitalization or it’s struggling with issues around cyber and cyber breaches and we kind of come to the table thinking, hey, you’ve got this business issue, let’s focus on that and how we can craft a tax solution that kind of aligns with that.

Jeffrey Burns: No, that’s perfect, Paul. I think if you look back at value chain management as a whole, maybe even two years ago, you know, me being fairly new to the VCM practice, there was a heavy international focus and that’s evolved over the last couple of years. Maybe you could talk a little bit about the shift in thought around it’s not just international, SALT plays a big role in this, as well.

Paul Glunt: Jeff, that’s exactly right. There is this misconception these days that VCM is international tax planning and I think it draws from in the past, it really was a big focus because in the old days, before we had tax reform both on the U.S. side and globally, going international tax allowed a lot of U.S. taxpayers to move from a 40 percent combined tax rate to zero, so there was a lot of motivation to do that.

But in the last couple of years, it’s really evolved because the concept around value chain management is focusing on where value sits and having a rate arbitrage. If you break it down to the simplest blocks, I think of it as value and rate arbitrage. So, there is still a lot of play from an international perspective, whether you are sitting in the U.S. and exporting or whether you’re base eroding the U.S., Germany and France into a place like Ireland, but the same concepts apply from a state perspective and so we’re seeing an increased focus on applying these concepts on the state perspective. You’re still looking at value the same way, you’re still using the building blocks the same way, but tax rules obviously are very different and probably a little bit more complicated on the state side.

What’s actually interesting is we also are seeing a little bit more traction on non-state federal work, so if you think about applying value chain concepts to an organization that’s privately held that has C Corps and S corps, or we have some clients where we’re applying the same concepts between a regulated side of the business and a non-regulated side such as certain insurance companies that also have operating businesses.

So, for the audience, they probably are aware that you, Jeff, in addition to being a SALT guy, you’re a SALT VCM guy and I would say that when we were lucky enough to have you join our team, that really kind of was symbolic of how important the SALT VCM planning has gotten and it’s really become a very robust group of tax planning opportunities out there and it’s something that we’re seeing a lot more interest from our clients, to go out there and align their SALT tax planning around their business, so it’s all pretty exciting times.

Jeffrey Burns: Yes. Well said, Paul. I think another thing to add to that, too, is that we’ve really seen an integration with what’s actually happening from an international perspective as there’s a complete impact to the state and local tax level, as well, and who knows what’s going to happen from a tax reform perspective going forward, but I suspect additional impacts there, as well. So I think it’s been a great combination of not only taking that VCM concept and applying it at the domestic level for state tax purposes, but then what’s that tie-in and integration point with international?

Paul Glunt: Exactly. It reminds me of ... I was on a call this morning with a client, where we were putting in an international structure. Most people involved think of it as international structure. The company has put a digital center of excellence in place in Ireland and so, the U.S. company now gets big deductions to buy software that uses internally from its Irish affiliate, and everybody thinks about the Subpart F issues, the transfer pricing issues. But the call we had today was on our sales and use tax component because, frankly, this giant global tax plan falls apart completely if you stub your foot on the sales and use tax side, which in this fact pattern could trigger a 6 percent tax on the gross.

So, it is interesting, the people even in the global context aren’t as focused as they should be on the state side because not only does it give you incremental benefit to your global plan, it also kind of creates some of these kind of, blind spots that if you’re not thinking about it and planning correctly could really blow something up.

Jeffrey Burns: Yes, perfect. I completely agree with that. I think the last thing before we go, I’ll ask you, and I usually ask this of everyone we talk to on these episodes is, you know, if you were to leave the audience with one thing to think about, what would that be?

Paul Glunt: I would have to say, not to be a tax nerd and focus on work ... I’m sure some people say very profound things ... the one parting shot I would say is to really take a fresh look at what’s happening in your organization, whether it’s how your company is digitizing, how you’re thinking about your people strategy, whether it’s remote worker, whether it’s how you utilize processes to enable your people and don’t think about that as part of the business, think of it as an opportunity to create some tax planning and really take a fresh look at how that affects your end-to-end value chain. I think if you’re a tax practitioner and you do that, you will have lots of good things on the horizon.

Jeffrey Burns: Great. Well, Paul, I want to thank you for jumping on this episode. It’s been great speaking with you. I think we’ve absolutely covered some very relevant topics. Thanks, again, for your time and I look forward to catching up with you soon.

Paul Glunt: Great. Thanks, Jeff. It was a pleasure.