KPMG is highlighting some of the main business tax issues that are likely to play a role in the debate next year over tax reform as a new Congress takes office.
The firm noted that business executives will need to keep a close eye on a number of important international, federal and state tax issues that could affect company operations and, potentially, corporate reputations in the coming year.
“Politics, an evolving economic outlook, and a heightened focus on tax transparency could add incredible uncertainty to the tax landscape in 2015, which will make effective planning very challenging,” said Jeffrey C. LeSage, vice chairman of tax for KPMG LLP, in a statement. “To provide the best value for their companies, leaders will need to stay informed and carefully consider a range of tax scenarios when making near- and longer-term decisions.”
Among the issues worth watching in 2015, according to KPMG:
federal business tax reform developments;
the changing state tax landscape;
continued implications of the ongoing drive for tax transparency, including the Organization for Economic Cooperation and Development’s initiative on base erosion and profit shifting, also known as BEPS, and compliance obligations of the U.S. provisions commonly known as the Foreign Account Tax Compliance Act, or FATCA; and
tax considerations that can result from corporate divestitures of non-core businesses.
LeSage believes that with tax affecting almost every entry on a company's balance sheet, its consequences need to be a particularly important consideration for C-suite executives. “Regularly assessing and evaluating key programs and initiatives through the lens of their potential tax implications generally proves to be time well spent,” he said.
The Top Six
Looking ahead, here are six of the main items for business leaders in 2015:
Monitor Federal Business Tax Reform Developments:There is broad agreement in Congress on the basics for tax reform, especially on the need for a lower corporate tax rate and a reduction in the number of tax preferences, but the challenge of reconciling several fundamental issues could make for a difficult and uncertain road ahead. Business leaders will need to monitor the issue closely and consider a range of possible scenarios, particularly in light of the potential for increased corporate inversions, which could spark heightened interest in the issue from Congress. They should also circle the last week of July on their calendars: Bipartisan tax reform will get harder to achieve once Congress leaves for summer recess and the presidential campaign season kicks off in September.
Keep an Eye on the Changing State Tax Landscape: The Republican victories in the mid-term elections mean that lowering or possibly eliminating the corporate income tax altogether could become reality in some states and that various business incentives are likely to continue or expand. But other state taxes and fees may rise to offset any reductions or incentives, so the bottom line for operational costs may not improve dramatically. Major federal tax reform could also almost certainly present both opportunities and challenges for states, depending on the direction of any potential legislation.
Pay Close Attention to the OECD's BEPS Initiative: It is abundantly clear that in 2015 multinationals need to start preparing for the inevitability of increased transparency on several fronts. With refinements to the September 2014 OECD recommendations on key elements of its initiative on base erosion and profit shifting expected in 2015, companies will, for example, need to evaluate whether they are able to produce documentation that will be required to comply with reporting obligations.
Beyond any internal operational changes that may be called for, the increased visibility of tax as a business issue and possible exposure to reputational risk make it critical that companies anticipate public perception of their tax positions and consider how they could address any potential concerns.
Be Prepared to Comply with FATCA and OECD's Common Reporting Standard: Many companies, especially those in the financial services sector, have spent 2014 preparing for the implementation of the U.S. provisions commonly known as FATCA; the focus in 2015 now shifts to ensure that systems put in place to comply with the law are adequate to respond to the globalization of FATCA into the OECD's Common Reporting Standard. While the CRS is based on FATCA, multinationals need to be prepared for some differences as many countries which have agreed to implement the reporting standard get set to bring it online.
U.S. business leaders also should be aware that FATCA can have an impact on their overseas pension obligations. Unless an exemption applies, a company with a foreign pension fund is required to register to satisfy due diligence and annual reporting requirements.
Involve Tax Early in Discussions of Divestitures to Gain Maximum Value: As public companies continue to focus on their core strategies to sustain future growth, many are increasingly turning to large and sometimes complex divestitures of non-core businesses to generate cash and streamline operations. Determining the domestic and international tax implications of these actions is critical, which means that Tax professionals need to be involved early on to increase the likelihood of a successful transaction.
Think Creatively About Tax's Increasing Technology Needs: The expanded tax reporting requirements coming in 2015 at the international, federal, state and local levels make technology integration in company tax operations a critical business need to help address those demands, especially because failure to comply could lead to costly penalties. To gain maximum business benefit from key technology investments, leading organizations will need to continue to add tech-savvy skills in their tax department staffs and forge close alliances between their information technology and tax departments.
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