Survey: Tax Planning Is a Key Cog in Corporate Growth Strategiesby
Corporate tax executives in the United States are anticipating that their companies will expand in the near future by entering into new domestic and international markets – and tax planning and preparation will be a key component of their growth strategies, according to a new report from accounting and consulting firm BDO USA LLP.
Of the 100 tax directors at public companies valued at $1 billion or more who were surveyed for BDO USA’s first-ever Tax Outlook Survey, 50 percent said their organizations are planning to enter new geographic areas in the United States during the next three years, and 63 percent said their companies are planning to enter or expand to international markets during the same period.
Companies are relying on careful tax planning and preparation as part of their expansion plans, BDO USA found. Ten percent of tax directors noted that their primary concern is that business decisions are being made without incorporating tax planning.
“When seeking expansion opportunities, integrating tax planning in the early stages of that process can have a positive impact on both the organization and the jurisdiction in which it will operate,” Matthew Becker, partner in the tax practice at BDO USA, said in a written statement. “We’re seeing financial executives and tax directors focused on this early-stage planning to ensure they’re able to effectively navigate today’s increasingly complex tax environment and optimize growth opportunities for their businesses.”
Incorporating state and local tax planning into corporate growth strategies is especially useful in helping organizations make smart domestic expansion plays, the survey found. Of the respondents who said their organizations will likely expand to new US geographic areas over the next three years, 45 percent noted that income or franchise tax credits and exemptions would have the greatest impact on their decision to enter new markets, followed by property tax abatements and exemptions (32 percent).
One of the tax credits used most by organizations – especially those focused on innovation – is for research and development (R&D). Sixty-six percent of the tax directors surveyed said their organization is taking advantage of the federal R&D credit, and 56 percent are claiming state and local R&D credits.
For those organizations not claiming federal R&D credits, concern about being audited as a result of claiming the credit is identified by only 6 percent of respondents, while 59 percent said the reason for not claiming it is based on the assumption that they did not qualify.
“The biggest hurdle with the R&D credit is creating awareness around the activities that do qualify,” said Chris Bard, practice leader for specialized tax services research and development at BDO USA. “There is a vast list of activities and job titles that often are eligible. While it's certainly on a case-by-case basis, companies that may be able to claim these credits should consider exploring their opportunity, as they can provide significant cash savings to help organizations continue to pursue innovation.”
Among the top challenges corporate tax executives face are avoiding material misstatements of income taxes (35 percent), meeting deadlines for interim and annual income tax reporting (29 percent), staying up-to-date on accounting standards changes and proposals (22 percent), and recruiting and maintaining professionals responsible for financial reporting of income tax (14 percent).
Accounting for income taxes under ASC 740 is complex and often requires even more attention during periods of growth, but Yosef Barbut, tax partner at BDO USA, said organizations can better mitigate their exposure to ASC 740 reporting errors through a proactive approach to managing the process.
“Being proactive about financial reporting of income taxes is especially important during an expansion or a merger or acquisition,” he said. “Transitional periods for organizations can create scenarios where companies are somewhat more susceptible to incorrectly reporting their tax position on their SEC filings. However, if companies continue to include tax planning as part of their due diligence, then they are well-positioned to mitigate exposure to ASC 740, as well as other reporting errors.”