EY Survey Finds Tax Execs Looking for 'Success Under Pressure'

By Jason Bramwell
 
A recent survey from Big Four firm EY explored 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," Kate Barton, EY Americas vice chair of tax services, said in a written statement. "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."
 
Since 2011, the major corporate tax risk has been shifting from the impact of US tax policy changes to global transfer pricing. Although 40 percent of the more than 300 senior tax executives surveyed at the recent EY 32nd Annual International Tax Conference cited US legislation/regulation as their top risk factor, that percentage dropped from 60 percent in 2011. Instead, respondents are increasingly focused on global transfer pricing  the second-most significant risk  which increased from 16 percent in 2012 to 24 percent in 2013.
 
Expectations that fundamental international tax reform is imminent in the United States also ebbed as the improved economy and political process eases the urgency. Last year, 68 percent of survey participants expected tax reform to occur, but twelve months later, only 55 percent predicted reform. US companies are 13 percent more likely to expect reform than those headquartered elsewhere. Overall, 85 percent of the "reformists" expect overall US tax reform to become effective in 2015 or later.
 
According to Jeff Michalak, EY Americas leader for international tax services, the survey findings are consistent with the results of a recent Tax Reform Business Barometer from EY and The Tax Council (TTC) that indicated 25 percent of survey respondents among TTC members expected overall US tax reform by the end of 2014.
 
"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," Michalak said in a written statement. "And despite that long lead time, many professionals are preparing for change."
 
The anticipation of tax reform has affected the tax planning of 46 percent of survey respondents, down slightly from 49 percent in 2012. Tax executives are addressing the potential for change in the following three ways:
  • Modifying strategies to plan for potential reform (70 percent).
  • Planning projects in preparation for reform (34 percent).
  • Deferring tax-planning projects due to lack of legislative certainty (30 percent).
While 78 percent of survey respondents support the United States moving to a territorial tax system, not all agree on which elements of the new system are most important. For example:
  • Transition rules, including treatment of prior accumulated earnings and profits, was ranked most important by 37 percent of USbased supporters.
  • The approach used for thin cap rules was cited as most important by 34 percent of non-USbased companies.
  • The approach for any Subpart Fbased anti-base erosion rule was ranked as most important by 31 percent of USbased companies and 19 percent of non-US companies.
Strategic Decisions Affect the Tax Function
Senior tax executives anticipate global investment and growth over the next twelve to twenty-four months, with 35 percent citing Asia Pacific as the region with the most significant investment, followed by North America (23 percent), Europe (22 percent), and Latin America (15 percent). Europe had only been selected by 14 percent of respondents in 2012, which ranked lower than Latin America at the time.
 
Some of that investment includes growth by acquisition, with 83 percent of those planning a transaction expecting an acquisition in the next twelve months, followed by 35 percent who anticipate a disposition and 15 percent who foresee a spinoff or split up.
 
According to tax executives, corporate restructuring is a result of growth. Among supply chain structures, services are most likely to be centralized, followed by procurement and manufacturing management functions, including planning and quality control.
 
Despite the risks and challenges of multinationals changing, the top three goals for USbased companies have remained nearly unchanged for several years:
  1. Effective tax rates.
  2. Cash tax savings.
  3. Accounting for income taxes.
The top three goals for non-US companies are similar, with accounting for income taxes replaced by tax risk management. Also, the need to add new staff continues to grow, though slightly less than in 2012. This year, 41 percent of North American tax executives plan to add new employees to their tax team, down 5 percent from 2012.
 
About the survey:
The 300-plus survey respondents who attended the EY 32nd Annual International Tax Conference represented senior tax executives from large and private companies across twenty countries  76 percent of whom are from companies headquarters in the United States.
 

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