[IMGCAP(1)]Although a recent ABC News/Washington Post Poll found just 6 percent of voters who lean Republican and 4 percent of those who lean Democrat rank taxes as the most important issue impacting their vote, one in five public company tax directors feel differently.
They say that planning for reform under the next President is their primary tax concern, according to the second annual BDO Tax Outlook Survey.
The survey was conducted by an independent market research consulting firm, whose executive interviewers spoke directly to 150 tax directors, or those with tax director responsibilities, at public companies using a random sample, according to Matt Becker, who leads BDO’s National Tax Office.
“The survey helps Congress and the general public to understand what corporate executives are thinking about,” said Matt Becker, managing partner of BDO’s National Tax Office.
The top tax issues weighing on tax directors are international tax planning and BEPS (the Base Erosion and Profit Shifting initiative of the OECD); planning for tax reform under the next president; attributional nexus concepts (in the sales tax area, when a state may use the presence of an in-state entity to claim jurisdiction over an out-of-state seller); growing scrutiny of foreign earnings; tax on cloud-based transactions; and the taxation of benefits such as carried interest.
”What we’re seeing taking center stage in tax directors’ minds is a primary concern for tax reform, specifically one that would lower the corporate tax rate and simplify corporate tax law,” he said.
“Transfer pricing is also a huge issue in international tax planning, especially given the BEPS initiative,” Becker said. Action items 8-10 of the OECD’s 15-point BEPS Action Plan concern aligning transfer pricing outcomes with value creation. The Action Items contain recommendations for transfer pricing documentation, which relies on a three-tiered approach and a revised template for country-by-country reporting to enhance transparency.
BEPS has reporting implications as early as this year, with country-by-country reporting rules taking effect for tax years starting on or after Jan. 1, 2016. The survey found that most tax directors—87 percent—expect to have completed the country-by-country analysis by the Dec. 31, 2017 deadline for the first report.
Thirty-four percent of tax directors say avoiding material misstatements of income taxes is the most challenging aspect of financing reporting, followed by meeting deadlines for interim and annual income tax reporting (27 percent), recruiting and maintaining professionals responsible for financial reporting of income tax (25 percent), and staying up-to-date on accounting standards changes and proposals (15 percent), according to Becker.
“These financial reporting concerns contribute to the ever-growing tax compliance burden,” he said. “Sixty-three percent of tax directors say the cost of compliance within the tax and financial regulatory environment has increased in the last year.”
There is a disparity in whether they believe tax reform will pass under the next president based on party affiliation. When asked if the outcome of the presidential election will or will not result in significant tax code changes, 77 percent said they believe tax reform will pass if the next president is a Republican, while 33 percent believe tax reform will pass if the next president is a Democrat.
The real challenge for businesses in an election year is planning for uncertainty, Becker noted. “The recent vacancy on the Supreme Court has only heightened the partisan divide. However, the compromise to make permanent a number of important tax extenders reached at the end of last year may portend additional opportunities to find common ground.”
As for the future, there have been budget proposals in the past to eliminate the tax break for carried interest, but no legislation has been enacted. Since potential nominees Hillary Clinton and Donald Trump have both called for its elimination, it may be revisited in next year’s Congress.
“Unfortunately, the areas that tax executives are most concerned with often don’t equate to the legislative issues that Congress chooses to address,” Becker observed.
And no matter what the outcome of the November election, the coming years will likely bring change to tax legislation on both a domestic and international level, he suggested. “Navigating this uncertain tax environment will require a careful balance of capitalizing on potential new opportunities and mitigating future risk.”
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