With the potential for comprehensive U.S. tax reform looming over multinationals' tax departments, many tax directors are being forced to make decisions under highly uncertain circumstances.
Tax reform proposals such as those outlined under the House GOP tax plan, or the Trump Administration’s Tax Plan Outline, would radically alter the corporate income tax base. Potential changes include reducing the corporate federal tax rate, imposing a "border adjustment" mechanism that strongly favors exports and penalizes imports, denying deductions for interest expense, and allowing immediate deductions for capital expense, among other changes.
Political influences are creating much uncertainty as to how much of the tax reform proposals would be incorporated into law, with new information from the media daily. Even if the current proposals do advance, it is unclear how transition rules would operate, what the implementation timeline would be, or how the mechanics would be defined.
Duff & Phelps performed a pulse survey on this topic to get real time feedback on how tax departments are handling this unique environment. We surveyed tax directors, tax counsels and CFOs, and received responses from a wide range of industries, including financial services, technology, consumer/retail and energy/mining. We asked pointed questions about what their companies were doing-or not doing-as a result of potential tax reform.
Important Findings from the 2017 U.S. Tax Reform Survey:
- Companies are taking action. Over 80% of respondents are taking steps to evaluate potential tax reform scenarios, with over 60% having already developed quantitative models to measure impact on their company. This could signify that any company opting for a wait-and-see approach could be left behind.
- Each proposal will impact companies differently. When ranking some of the foundational pillars of various proposals in terms of greatest threats or greatest opportunities, answers were highly diverse. This confirms that each proposal will have unequal effects on market participants depending on their company’s industry, size or profile.
- Companies are craving clarity. In response to an open-ended question about what companies need most, the responses overwhelmingly represented strong (dare we say, emotional?) pleas for clarity on legislation. Anything that can be done to reduce uncertainty for corporate tax departments would be greatly appreciated at this time.
We hope you find this information useful. At Duff & Phelps, we are known for helping companies navigate through uncertainty. If you have any questions about how our teams can help you model the impact of potential tax reform scenarios, please contact our transfer pricing specialists.