U.S. Tax Executives Gear Up for Tax Reform’s “Butterfly Effect” — BDO Survey

Madeline O'Connor
Bliss Integrated Communication
[email protected]

91 Percent Cite U.S. Tax Reform as their Primary Tax Issue in 2018

Chicago, IL — Now that federal tax reform is law, implementing the tax code changes will be 91 percent of U.S. tax executives’ primary tax issue in 2018, according to BDO’s 2018 Tax Outlook Survey.
More specifically, 72 of the survey’s 150 respondents worry about implementing the tax code changes at the federal level, while 19 percent prioritize those at the state and local levels.
Nevertheless, despite general concerns, many tax executives are looking at the massive tax overhaul—the biggest tax policy change in decades—favorably. More than three quarters (78 percent) of those surveyed post-reform expect the new law to have a positive effect on their businesses’ net income.
Several new tax provisions, including the corporate rate reduction from 35 to 21 percent, are to thank for this optimistic outlook. Nearly all respondents (97 percent) expect the reduction will have the greatest impact on their business, in comparison to other key changes. This high percentage echoes last year’s survey findings, which revealed that 40 percent of executives had a reduced corporate tax rate at the top of their tax reform wish list.
The mandatory repatriation of foreign earnings is also top of mind: 73 percent of tax executives anticipate it will impact their business, and 45 percent say it will “very likely” have a significant impact. This highlights the global nature of the survey respondents, with three-fourths reporting that they currently conduct business outside of North America. Meanwhile, more than half (53 percent) plan to enter or expand in international markets in 2018.
Other changes to the tax code include the repeal of the corporate Alternative Minimum Tax (AMT) provisions, the amortization of research and experimental (R&E) expenditures, and tweaks to various provisions relating to the federal research and development (R&D) tax credit, among several others. The latter will especially affect the 81 percent of companies who already use R&D credits in some capacity.
Organizations can expect to feel the impact of tax reform differently, based on the industry they’re in, their legal structure, capital structure, geography, business objectives, and other details. Businesses 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 impact 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,” said Matthew Becker, Managing Partner of the National Tax Office at BDO USA, LLP. 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 Goes Beyond the Water’s Edge
Outside of navigating domestic tax changes, U.S. tax executives also view international tax planning as critical to their mission of growing their company overseas. Among the many pressing global regulations competing for executives’ attention is the Organization for Economic Co-operation and Development (OECD)’s tax base erosion and profit shifting (BEPS) requirements as part of its Action Plan.
While many BEPS-related deadlines have already passed, there are still a couple that are fast-approaching—prompting 56 percent of those aware of BEPS to take proactive steps in responding to the OECD based on action item drafts. Meanwhile, 33 percent are waiting for individual countries to implement BEPS before acting, and 8 percent are waiting for peer companies to respond to BEPS. Eighty-three percent, however, did manage to successfully meet the Dec. 31, 2017 deadline for the required country-by-country reporting rules beginning for tax years starting on or after Jan. 1, 2016.
Other than BEPS compliance, transfer pricing continues to be an important issue for the 77 percent of tax executives who use it as part of their tax strategy. Most who don’t use it report that it’s too complex (26 percent) or they lack the internal resources to implement it (26 percent).
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.
“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 the National Tax Office at BDO USA, LLP. “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.”
The BDO Tax Outlook Survey is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to 150 tax executives at public companies, using a survey conducted within a scientifically developed, pure random sample.
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 550 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 73,800 people working out of 1,500 offices across 162 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.