Amid political, economic and regulatory change, US chief financial officers (CFOs) say certainty in the tax code has become even more important than a reduction in corporate tax rates, according to a survey conducted by Alvarez & Marsal Taxand (A&M Taxand), a founding member of the global network of independent tax firms. The firm directly reached out to more than 800 financial executives across the US to solicit perspectives and priorities with respect to tax competitiveness and tax reform.
“For companies to plan, to invest, to create jobs and to grow, they must have certainty,” said Robert Lowe, chief executive officer (CEO) of A&M Taxand. “In fact, confidence in knowing precisely what the tax code will require has become more important than how much it will cost them. As our research reveals, as long as proposed changes remain up in the air, companies will be forced to continue to burn fuel operating in holding patterns rather than charting productive courses forward.”
Concern about the lack of certainty in the current tax system is visible in the way financial executives respond to proposed tax legislation. Only 29% of large businesses model the impact of tax proposals, while just 15% of small businesses do, underscoring the value executives place on certainty.
“The impact of these reforms is judged to be too speculative, especially in the face of other more immediate pressures, emphasizing the hesitancy by companies to take action,” said Kent Wisner, managing director at A&M Taxand.
On the issue of state competitiveness, CFOs named Texas, Florida and Nevada as the most competitive states in which to operate from a tax perspective, while California, New York and New Jersey were called the least competitive.
“With competition for corporate headquarters and the jobs that come with them increasing in the face of a challenging economy, it will be interesting to see if states modify their taxing systems in an aggressive attempt to retain contracts and attract new business,” said Don Roveto, managing director at A&M Taxand.
Overall, financial executives from both large and small businesses view an effective tax rate of 20-25% as necessary to make the US federal corporate rate competitive with global tax rates. While small company CFOs most often choose the 20-25% range (34%), a slightly smaller percentage (28%) believe the rate needs to be even lower, at 15-20%, to make the US competitive.
Similarly, as businesses grow in complexity and extend their global reach, tax increasingly impacts decision making as financial executives give tax greater consideration. The vast majority of large companies surveyed (92%) consider tax implications in global business decisions, while only 77% of small businesses do.
“Most CFOs believe that the US has stood idle for 20 years while other countries have lowered their top corporate tax rates, negatively impacting our ability to compete effectively in a global economy,” said Ernesto Perez, managing director at A&M Taxand. “Aligning our corporate tax system with the rest of the developed world should enable US based companies to compete effectively on a global scale and create more business opportunities in the US.”
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