Tax directors seeking “success under pressure” according to EY’s 32nd Annual International Tax Conference survey
New York, 26 September 2013
Conference theme addresses corporate transformation, expansion and need to manage regulatory turmoil
A new survey announced at EY’s 32nd Annual International Tax Conference today brings to life the conference theme “Success under pressure” and explores the combination of external pressures and internal corporate plans for growth that international tax and finance executives are managing.
“Externally, gradually stabilizing economies are helping finance leaders and tax executives refocus, rebuild and face uncertainties elsewhere, such as the prospect of US tax reform and more stringent international tax policy,” says Kate Barton, EY Americas Vice Chair of Tax Services. “Internally, their companies are changing, too, combining a returned focus on growth and investment with reorganizations and transformations. These executives are continually challenged to find success under pressure, even as the source of pressure evolves.”
US vs. Global tax policy
Environmental risks continue to grow. Though US legislation / regulation still tops the list of greatest corporate tax risks, it was selected by just 40% of respondents, down from 60% in 2011. Meanwhile, respondents increasingly focus on the second most significant risk, global transfer pricing, cited by 24% (up from 16% in 2012). Since 2011, the major corporate tax risk has been shifting from the impact of US tax policy changes to global transfer pricing.
Expectations that fundamental international tax reform is imminent in the US also ebb as the improved economy and political process eases the urgency. Last year, 68% of survey participants expected tax reform to occur, but 12 months later only 55% predict reform. Watching the political process more closely, US companies are 13% more likely to expect reform than those headquartered elsewhere. Overall, 85% of the “reformists” expect success to become effective in 2015 or later.
“These findings are consistent with the results of a recent TTC-EY Tax Reform Business Barometer indicating that 25% of survey respondents among The Tax Council members expect overall US tax reform by the end of 2014,” says Jeff Michalak, EY Americas leader for International Tax Services. “Whether or not you assume US tax reform will be linked to international reform, it’s clear that professionals expect the political process to take time. And despite that long lead time, many professionals are preparing for change.”
Almost half (46%) say the prospect has already affected their tax planning, slightly less than in 2012 (49%). Of those addressing the potential for change:
- 70% are modifying strategies to plan for potential reform;
- 34% are planning projects in preparation for reform;
- 30% deferred tax planning projects due to lack of legislative certainty.
In principle, 78% support a US move to a territorial tax system, though not all agree on which elements of the new system are most important:
- 37% of US-based supporters believe the most important feature would be transition rules, including treatment of prior accumulated earnings & profits;
- Among non-US-based companies, 34% consider the approach used for thin cap rules most important;
- 31% of US-based companies focus on the approach for any Subpart F based anti-base erosion rule, compared to 19% of non-US companies.
Strategic decisions affecting tax
Many strategic business decisions have significant implications for the tax function.
Conference participants anticipate global investment and growth over the next 12 to 24 months, with 35% citing Asia Pacific as the region with the most significant investment. Europe shows signs of a rebound, almost tied with North America for expected investment – at 22% and 23% respectively – and trailed by Latin America at 15%. Europe had only been selected by 14% of respondents in 2012, ranked lower than Latin America at the time.
Some of that investment includes growth by acquisition, with 83% of those planning a transaction expecting an acquisition in the next 12 months, compared to 35% who anticipate a disposition and only 15% who foresee a spinoff or split up.
Just as corporate contractions led to many organizational changes, corporate growth also leads to restructuring. Among supply chain structures, services are most likely to be centralized, followed by procurement and manufacturing management functions, including planning and quality control.
While many of the risks and challenges for multinationals are changing, the top three goals for US-based companies have remained consistent for several years: Effective tax rates, cash tax savings and accounting for income taxes. Priorities for non-US companies are similar, though tax accounting requirements are replaced by tax risk management. In addition, resources continue to grow, though slightly less than in 2012. This year 41% plan to add headcount to the tax team primarily in North America, even for countries headquartered outside the US. By comparison, 46% planned to hire in 2012.
About the survey
The 300+ EY 32nd Annual International Tax Conference survey respondents represent senior tax executives from large public and private companies across 20 countries, 76% of whom are from companies headquartered in the US.
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This news release has been issued by Ernst & Young LLP, member firm of EY serving clients in the US.