- By Lanny Burnett
- With No Comments
- On 15 Jun | '2015
Tax Directors Expect Positive Growth in Upcoming Years
The Tax Outlook Survey of BDO USA, LLP has revealed some vital things. With the economy’s acceleration, various organizations are planning to explore new markets and grow. Here are two major things that this survey’s respondents, who are tax directors at public companies with $1 billion plus value, have mentioned –
• 63% respondents reveal that their organizations plan on going global and exploring international markets in the next 3 years; and
• 50% respondents reveal that their organizations plan on exploring the U.S. itself and expanding hitherto untouched geographical regions in the next 3 years.
Preparation and tax planning is leading these growth prospects for most organizations. According to the survey, all except 10% of respondents (tax directors) have not shown leaning towards adequate tax planning. This shows that majority of tax directors understand the importance of their tax stance.
Tax Planning Pretty Important To Most Tax Directors
BDO, USA LLP’s partner Matthew Becker has also mentioned that importance of tax planning when expansion opportunities come knocking on the doors of organizations. He mentions that most companies understand this and have already started their early tax planning. Becker adds that such a planning is not only beneficial to the organization but also to the jurisdiction it is operating in. Given the complicated tax environment of today’s world, Becker feels that early stage planning has become necessary if growth opportunities are to be optimized.
When it comes to smart and successful domestic expansions, a corporate growth strategy that includes local and state tax planning has better chances of succeeding. Amongst the 50% respondents who mentioned exploring US’ geographical areas in the 3 years to come –
• 45% say that their decision to explore new markets would be influenced by franchise or income tax credits and exemptions.
• 32% say that property tax exemptions and abatements would influence their decision the most.
Focus of Tax Directors is On Efficiencies to Combat Rising Compliance Costs
As the tax landscape evolves, organizations and tax directors are supporting optimal tax strategies with generation of efficiencies. Here’s what the responses have been like –
• 75% respondents believe that in the financial regulatory and tax environment, compliance cost has risen in the last 3 years; and
• 45% believe mention that the biggest tax challenge they face includes the uncertainty over state, federal and foreign tax legislation.
For managing these challenges, the focus of organizations is to reduce compliance costs by streamlining processes.
Organizations that operate outside the U.S. have mentioned that their major issue is regarding OECD’s regulation on increased disclosure, transfer pricing, profit shifting and base erosion.
• 36% respondents respond with a high level of concern.
• 42% categorize their concern as moderate.
However, respondents recognize the fact that tax clarity, guidance and transparency would improve by these regulations.
R&D Credits Equate With Opportunities for Cash Flow
Innovation is also on the list for most organizations, apart from growth and expansion. R&D credits is one area where innovation might lead to certain sure shot cash flow opportunities. Here is what the respondents have to say on this –
• 60% plan to utilize federal R&D credits; and
• 56% plan to use local and state R&D credits.
There are certain organizations that are not planning to utilize and claim the R&D credits.
• 59% of these organizations believe they are not eligible to claim them;
• 6% are concerned that it would lead to them being audited.
BDO, USA LLP’s R&D practice leader mentions that exploring this opportunity is important for organizations that hope to save some cash.
Management of Transfer Pricing Mechanisms
90% respondents are familiar with the mechanisms and rules of transfer pricing. Here is what they have responded with –
• 82% mention that their current tax strategy includes transfer pricing mechanisms; and
• 44% note that because of those mechanisms, they have previously been subjected to IRS issues in the last half decade.
The survey also reveals that 90% of respondents say that the IRS examination did not lead to substantial financial impact for the organizations in terms of fees, penalties and adjusted taxes.
While IRS issues are a real cause of concern for organizations, it is also a fact that transfer pricing may be leveraged when it is properly implemented. This is especially true for the arm’s length rule.
Proactive Planning For Mitigating ASC 740 Errors
Growth periods require increased attention to tax reporting and this can be done by proactive planning. Here is what the respondents have to say –
• 35% respondents mention that the biggest challenge to their organizations is avoiding any form of material misstatements;
• 29% consider annual and interim tax reporting deadlines to be a real challenge;
• 22% say that the primary challenge is to stay up to date with proposals and changes in accounting standards; and
• 14% think that maintaining and recruiting financial reporting professionals is the biggest challenge they face.
I’m a Certified Professional Accountant based in Oregon. Thanks for reading my post. I hope it was informative.
I love to publish about Tax and Accounting topics. I’m a small business owner at heart, and like individuals who wish to design businesses and contribute to the economy.
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