Ongoing tax reform developments in a presidential election year, greater compliance demands and a continued focus on tax transparency will each contribute to making the tax environment in 2016 a very challenging one for CFOs, board members and tax directors.
This year it is critical for business executives to stay informed on a number of tax issues in the U.S. and abroad. These international, federal and state tax issues could affect company operations and, potentially, corporate reputations.
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.
Looking ahead, here are some action items for business leaders:
- Keep a close watch on business tax reform developments ”“ While the prospect of some version of tax reform this year are far from certain, it remains a priority for members of Congress, and business leaders would be wise to keep a close watch on the continuing debate. Increased focus on reducing tax code complexity and stimulating business competitiveness, coupled with recent developments that bring new leaders and influencers into the process, creates the possibility for at least limited action on some version of reform in the coming year. One area to watch with substantial common ground is on the international front. With the presidential election coming into full swing, business leaders should stay engaged and monitor proposals and developments closely, and consider engaging with members of Congress on policy direction.
- Monitor ongoing calls from regulators for heightened visibility into corporate tax arrangements ”“ The Organisation for Economic Co-operation and Development”™s (OECD) Base Erosion and Profit Shifting (BEPS) project, focused on developing enhanced tax compliance in the 21st century, is now in the implementation stage. Companies need to closely watch the steps taken by individual countries around the globe to revise their compliance systems and then determine their responses, such as preparing to meet the enhanced transfer pricing documentation and reporting requirements, which may require significant internal operational changes.
Of particular importance will be country-by-country reporting, which will call upon the parent company of multinationals to provide a single report to the government in which they are resident and include detailed financial information about their operations in every jurisdiction in which they operate. Companies will also need to evaluate whether the increased visibility of their tax positions may lead to increased tax audits or create reputational risk and consider how to address any potential concerns.
- Be prepared to comply with FATCA and OECD”™s common reporting standard ”“ During 2015, financial institutions in many jurisdictions made their first reports under the U.S. provisions commonly known as the Foreign Account Tax Compliance Act (FATCA), and obligations under FATCA will continue to phase-in during 2016. In addition, multinational enterprises will need to ensure that they are able to comply with their obligations under the OECD”™s Common Reporting Standard (CRS), which took effect in over 50 “early adopter” jurisdictions on Jan. 1, 2016. While the CRS is based on FATCA, multinationals need to be prepared for some significant differences. In particular, many of the exemptions that apply under FATCA do not apply under the CRS, so many more institutions and relationships will be affected under the CRS.
Even though the U.S. has not adopted the CRS, U.S. businesses will need to meet the new standards if they have business dealings in any implementing jurisdiction.
- Keep an eye on state tax developments and changes ”“ With the presidential election and a significant number of gubernatorial elections taking place, the year should be a relatively quiet one on the state front, at least in terms of major state tax reforms. But business executives are well advised to be attentive to some pending developments and changes. In certain states, particularly those that are heavily reliant on oil and severance taxes, fiscal stress may force lawmakers to adopt tax increases or so-called loophole closing measures. Additionally, a number of states are considering legislative proposals aimed at forcing litigation over remote-seller sales tax collection responsibilities. Finally, in certain states, such as New York, Pennsylvania and Tennessee, which have made some significant changes in their corporation income tax over the last couple years, the state taxing authorities are just now starting to issue interpretive guidance on the new tax laws. These revised tax regimes could contribute to a shift in a corporation”™s income tax profile.
- Be mindful of payroll tax reporting and withholding rules to stay compliant ”“ Today”™s mobile workforce makes it harder for companies to track employees working across borders, internationally and domestically, to conduct business.
Neglecting to properly report and withhold taxes associated with mobile employees can put a company at risk of losing foreign tax credits and corporate deductions; over-paying liabilities; and incurring penalties. Individuals also risk financial penalties for failing to pay taxes or for not filing the required documents with the appropriate tax authorities.
Employers need to be proactive and regularly assess their global and domestic tax reporting obligations with respect to their mobile employees, preferably before issues arise.
- Think creatively about tax”™s growing technology needs ”“ Companies are increasingly recognizing that mining data and insight from their tax functions can provide value beyond a traditional focus on compliance. This year, business leaders should continue to break down corporate silos and unlock the full power of their tax operations ”“ in part by investing strategically in technology solutions that help put their tax departments on par with their finance operations, and by integrating tax into their enterprise information management systems.
Ken Seel is the office managing partner of the KPMG Stamford Office. He is also a member of the firm”™s Global Industrial Manufacturing Steering Committee and global head of the firm”™s conglomerate practice. He can be reached at 203-356-9800.
