TAX EXECUTIVE OUTLOOK AFTER TAX REFORM

Transcription

1 TAX EXECUTIVE OUTLOOK AFTER TAX REFORM May 30, 2018 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

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3 With You Today TODD SIMMENS National Managing Partner, Tax Risk Management SCOTT SMITH Technical Practice Leader, State and Local Tax MONIKA LOVING International Tax Partner & National Practice Leader CHAD PAUL R&D Tax Credit Partner & Central Region Leader WILLIAM CONNOLLY ASC 740/Income Tax Accounting Managing Director BARBARA TORZEWSKI Tax Transformation Services Managing Director 3

4 Agenda Tax Executive Outlook After Tax Reform Lessons Learned from 2017 Tax Season 2018 Tax Season Planning Recommendations 2018 Tax Outlook Survey Survey of 150 tax executives at public companies with revenues over $1B 4

5 Federal & State Tax Outlook Todd Simmens & Scott Smith 5

6 Top Issues for Tax Executives at Federal Level 6

7 Reform Ripples Throughout States ALIGNING FEDERAL AND STATE CHANGES WILL BE KEY 7

8 2017 Tax Season: Federal and State Tax Lessons Learned Federal tax lessons learned: Time spent explaining impact of possible tax reform Planning for the unknown IRS guidance Choice of entity Focusing on 2017 State tax lessons learned: Need to understand how states conform to the Internal Revenue Code Now it s state legislatures turn Planning for repatriations (deemed and actual) and federal base broadening Choice of entity state repercussions State workarounds to SALT deduction limit 8

9 2018 Tax Season: Federal and State Planning Opportunities Domestic federal tax opportunities: Planning year for new tax law 21-percent corporate rate 20-percent pass-through deduction Choice of entity Expected technical corrections Expected regulations Expected IRS guidance State tax opportunities: Treatment of IRC section 965 (corporate and PTE) Planning for state conformity or decoupling regarding IRC section 163(j) Planning for more state PTE-level income tax? IRS Notice Awaiting administrative guidance and developments 9

10 International Tax Outlook Monika Loving 10

11 International Tax: Businesses Respond to BEPS 11

12 International Tax: 2017 Tax Season Lessons Learned Data readiness challenges in preparation for section 965/foreign earnings transition tax impact Timing of IRS guidance required us to be nimble 12

13 International Tax: 2018 Tax Season Planning Opportunities Game changers requiring international structure assessment Do the math on the international tax aspects of choice of entity analysis GILTI Global Intangible Low Taxed Income FDII Foreign Derived Intangible Income 13

14 R&D Tax Credit Outlook Chad Paul 14

15 R&D Tax Credits More than 81 percent of tax executives surveyed are already claiming these credits in some capacity Tax reform didn t change Sec.41, however, it Reduced the maximum corporate tax rate from 35 to 21 percent, which in turn increased the R&D tax credit s value by 22 percent, from 65 to 79 percent of incremental qualified spending Made the R&D credit relevant again for natural resources and other corporations limited by AMT Repealed Sec. 199 Domestic Production Activities Deduction (DPAD) for years beginning after 12/31/2017 Reduced the Orphan Drug Credit to 25% of eligible expenses for years beginning after 12/31/2017 With the new provisions generally increasing the benefits of the R&D tax credit, taxpayers should evaluate how the changes impact their future tax position and how R&D credits can help minimize their tax liabilities. Regardless of the company or industry, if a company is devoting resources towards developing new products, processes, or software successfully or unsuccessfully it is eligible for some tax savings. 15

16 2017 Tax Season: R&D Tax Lessons Learned IRS LB&I Directive Who benefits? Large Business & International ( LB&I ) taxpayers Assets equal to or greater than $10 million Follow U.S. GAAP to prepare their Certified Audited Financial Statements; AND Report ASC 730 R&D costs on their financial statements When can it be applied? Applies only to original returns timely filed (including extensions) on or after Sept. 11, 2017 Intended purpose: Provide an efficient approach for determining qualified expenses for IRS examiners (and taxpayers) Relieve administrative burden 16

17 2018 Tax Season: R&D Tax Planning Opportunities IRS LB&I Directive What we ve seen from early adopters: Foreign-Derived Intangible Income (FDII) - Increased Claims - Streamlined Documentation Process - Opportunity to reduce/remove ASC reserves - Opportunity to remove from Schedule UTP Repeal of Corporate AMT Under Section 250 of the Internal Revenue Code, the new permanent provision creates a new preferential tax rate for income derived by U.S. C Corporations serving foreign markets, including U.S. corporate subsidiaries of foreign multinationals. U.S companies pay lower effective tax rates on FDII Encourages U.S. companies to develop and maintain IP and operations in US 17

18 Income Tax Accounting Outlook William Connolly 18

19 Tax Reform & Income Tax Accounting: ASC Tax reform impacts all companies, regardless of size, industry or ownership structure. 2. Tax reform calculations are more complex for fiscal filers. 3. Tax reform requires more robust financial statement disclosures. 4. Tax reform will impact every company s total tax liability. 5. Tax process automation will ease the burden of changes brought by tax reform. 19

20 2017 Tax Season: ASC 740 Tax Lessons Learned Majority of companies adopted the relief provided in Staff Accounting Bulletin 118 Transition tax (measurement period adjustments) Rate Changes (fiscal year companies) Loss companies, scheduling and naked credits SAB 118 is not meant to apply to errors but rather changes in estimate Disclosures were for the most part in accordance with the guidelines outlined in SAB 118 Also tax notes explained any variation in year to year rates 20

21 2018 Tax Season: ASC 740 First Quarter Lessons Learned SAB 118 does not apply to any period other than the period that includes the date of enactment (December 22, 2017) Few measurement period adjustments were recorded for transition tax in Q1 Registrants analyzed and recorded on a projected basis the impact of tax reform for purposes of building their projected tax rate for the quarter (GILTI, BEAT, FDII, 163(j)) Still awaiting guidance regarding many of the provisions of the Act State tax decouplings or adoptions Loss companies projected and scheduled reversing temporary differences to ascertain offset versus naked credit Disclosures 21

22 Tax Transformation Services Outlook Barbara Torzewski 22

23 Tax Technology Challenges 23

24 Tech Accelerates Tax s Transformation R&D TAX CREDITS CAN HELP FUND TAX TECHNOLOGY 24

25 2017 Tax Season: Tax Automation Lessons Learned Tax Automation no longer an option Government agencies are starting to improve process and technology and will therefore demand more and more data from taxpayers The IRS will compare revenue predictions based on predictive modeling to actual revenue collection to better enforce compliance with not as manual effort as in the past Predictive models can be used to influence tax policy Tax analysis is becoming more forward looking than purely reporting of past transactions 25

26 2018 Tax Season: Tax Automation Planning Opportunities Assessing the impact of tax reform requires a substantial amount of readilyavailable data Get your data in order Tax reform is causing companies to innovate and have to transform Streamline processes The rise of automation and new technologies will help tax professionals focus more on tax strategy and liability mitigation Reinvest any tax reform savings in technology 26

27 In Summary Federal Tax Reform: Tax reform impacts all companies, regardless of size, industry, or ownership structure. Implementing tax code changes will be 91% of tax executives primary tax issue this year. Choice of entity continues to be a planning opportunity. State & Local Taxes: Many states have implemented, or are discussing, potential tax reforms of their own in response to U.S. tax reform. Awaiting guidance and developments. International Tax Services: Game changers, including GILTI & FDII, will require companies to do an international tax structure assessment, which can affect their choice of entity. Companies must be nimble in response to further IRS changes. R&D Tax Credit: Companies should take advantage of the new R&D tax credit opportunities introduced by tax reform. If a company is devoting resources towards developing new products, processes, or software, it is likely eligible for some tax savings. 27

28 In Summary Income Tax Accounting/ASC 740: Tax reform will impact every company s total tax liability. Tax reform will require more robust financial statement disclosures. Most companies adopted the relief provided in Staff Accounting Bulletin 118, but more guidance is to come. Tax Transformation Services: Tax process automation will ease the burden of changes brought by tax reform and help tax professionals focus more on tax strategy and liability mitigation. Companies must get their data in order for automation to be most effective. Companies should reinvest any tax reform savings in technology. 28

29 For More Information 2018 Tax Outlook Survey: Tax Reform Decoder: Puzzled by U.S. Tax Reform? R&D Calculator: Tax Reform & ASC 740: Tax Automation Consultation: 29

30 Questions? Todd Simmens - tsimmens@bdo.com Scott Smith ssmith@bdo.com Monika Loving mloving@bdo.com Chad Paul cpaul@bdo.com William Connolly wconnolly@bdo.com Barbara Torzewski btorzewski@bdo.com 30

31 Thank You! 31

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