As business executives outline key programs and initiatives for the coming year, several important international, federal and state tax issues could have a significant impact on their business operations and potentially their corporate reputations and, therefore, should be on their radar screens, according to KPMG LLP, the U.S. audit, tax and advisory firm.
“Almost every business decision has tax – and potentially – reputational implications,” said Jeff LeSage, vice chair of tax services for KPMG LLP. “With up to 40 cents of every dollar at stake, keeping an eye on key tax issues is a competitive necessity for CFOs, board members and tax departments, especially as companies put new plans in motion at the start of the new year.”
Among the issues worth watching, according to KPMG: taxation of cloud-related activities, challenges transforming the operational effectiveness of tax departments, the prospect for U.S. and international business tax reform, concerns over base erosion and profit shifting (BEPS), and far-reaching consequences of the implementation of the Foreign Account Tax Compliance Act (FATCA).
“As companies assess these and other developments, leaders should weigh the potential impact on their bottom lines and plan how to best respond to the challenges and opportunities they may present,” added LeSage.
The Top 12
Looking ahead, here are a dozen “to dos” identified by KPMG for business leaders in 2014:
- Manage Efforts Related to the Foreign Account Tax Compliance Act (FATCA) – Implementation has evolved since the enactment of FATCA, but it is clear that implications surrounding this new regime are wide-ranging for foreign institutions, U.S. financial institutions, and non-financial entities that make withholdable payments to non-U.S. entities. Companies will need to continue assessing their FATCA status and their resulting compliance obligations.
- Monitor U.S. Business Tax Reform Developments – There continues to be a strong desire among some members of Congress, the Obama Administration and the business community for a tax system that is simpler, more competitive and conducive to economic growth. The current debate on government funding and the debt limit has temporarily moved tax reform to the sidelines. Nonetheless, companies will need to keep a close watch on the issue as it will continue to remain “on the table.”
- Understand Base Erosion and Profit Shifting – Increased concern about base erosion and profit shifting (BEPS) has triggered a public debate about the tax affairs of multinational companies and a call to action at the highest levels of government. Companies need to be aware of public perceptions, guard against reputational risks, and prepare for the reality of potential changes in tax rules and standards.
- Understand Opportunities Connected with the New Repair Regulations – Beginning January 2014, every business with at least some fixed assets – that is, virtually every business – must comply with the final so-called “Repair Regulations,” issued by Treasury and the Internal Revenue Service (IRS) in September 2013, which established the federal tax standards for costs incurred to acquire, maintain or approve, and dispose of tangible property. Certain industries, such as retail, manufacturing, hospitality and utilities, may be particularly affected. Some taxpayers would be wise to review their capitalization policies before 2014 in order to comply with new elections and to enhance potential benefits; others should also consider filing accounting-method changes early for 2012 or 2013 to take advantage of certain provisions in the final regulations.
- Check Progress of Marketplace Fairness Act – Other major issues in front of Congress, as well as political and business opposition, may have currently moved the Marketplace Fairness Act off the fast-track, but companies need to continue to stay alert to potential tax compliance requirements under the proposed law if the situation changes. The bill, which would allow states to require online and other out-of-state merchants to collect and remit sales and use taxes on products and services they sell, is now in the hands of the House Judiciary Committee, after Senate passage earlier in 2013. The Committee is considering possible changes to the Senate bill.
- Add Tax in the Cloud to Your Business Conversations – The movement of computing services and resources to “the cloud” is expected to continue to drive both back- and front-office business transformations during 2014. It’s critical that tax executives take a more active role in getting a “seat-at-the-table” early for their company’s cloud discussions. Not doing so may lead to missed incentives and planning opportunities as well as increased potential for risk and unforeseen liabilities down the road.
- Navigate a Shifting Landscape for Transfer Pricing – Tax authorities worldwide are continuing to sharpen their focus on transfer pricing arrangements, especially higher-risk/higher-value transactions. Taxpayers should expect heightened enforcement – including increased documentation requirements, examination of uncertain tax positions, expanded tax return disclosures – to continue during 2014 and should consider how they can address these challenges.
- Include Your Tax Department in Business Operation Transformation - Leaders would be wise to include their tax departments in any business improvement and operational transformation programs they consider to mitigate risk and enhance value opportunities. Moving people, assets or revenue streams can have an impact on direct and indirect taxes and the underlying processes to comply with various tax regulations. Ensuring tax is a part of any business transformation process will help determine that compliance and financial reporting processes are captured and tax management opportunities are spotlighted.
- Expect Enhanced IRS Scrutiny – Recent announcements from the Internal Revenue Service (IRS) on its plans to change examination procedures for large corporate taxpayers are making enhanced engagement between the IRS and these taxpayers a priority for 2014. Taxpayer-friendly changes to the IRS’ Information Document Request (IDR) process that now require IDRs to be more narrowly issue-focused and a call for more taxpayer involvement in the determination of information due dates are balanced by a new set of nearly automatic enforcement triggers – if due dates are breeched – which start a series of delinquency notices, pre-summons letters and summonses.
- Focus on Unclaimed Property Liabilities – Potentially significant and costly audit assessments for corporate unclaimed property, coupled with an expanded definition of property reportable as unclaimed, make this an issue to watch in 2014. Companies in all industries – especially retailers, financial institutions, insurance companies and even energy suppliers – need to closely evaluate their reporting requirements as unclaimed property remains an important source of revenue for state jurisdictions throughout the country.
- Use FTZs to Meet International Trade Challenges – As continued economic pressure on international trade leads many companies to look for new ways to strengthen their global competitiveness, the benefits of U.S. Foreign Trade Zones (FTZs) may be an answer for some. These areas, secure within the United States but outside U.S. customs territory, can help companies improve cash flow, manage inventory costs, reduce or eliminate U.S. Customs duties, and generate distribution savings.
- Better Align Tax-Exempt Activities with Corporate Strategies – The coming year may be a good time for companies to review their corporate responsibility and philanthropy activities, not only to foster compliance with their tax-exempt status, but also to enhance their alignment with business strategy. A strategic review of employee volunteer programs, partnerships with not-for-profit organizations, philanthropy and grant making, and overall financial support through the lens of corporate identity and goals can help determine whether the programs are benefiting the organizations they serve and aligning with corporate strategy.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.us/kpmg.com), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.
Robert Nihen/Bridget Carroll