COVID-19 Shines the Highlight on Taxes as a Resilience Technique | enterprise

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CHICAGO – (BUSINESS WIRE) – February 23, 2021–

While an economic downturn had long been expected, no one expected a pandemic to plunge the globe into economic chaos with such precise magnitude and speed. When Congress passed the Coronavirus Aid, Aid and Economic Security Act (CARES) in March 2020, the tax became an integral part of corporate response and relief planning. According to the BDO 2021 Tax Outlook Survey published today, 99% of tax advisors said they were involved in their organization’s response to the economic slowdown caused by COVID-19.

Although the impact of the pandemic was mixed across industries, liquidity and access to capital were universal keys to survival, and tax departments used a variety of strategies to save cash, from filing repayments for net operating loss (NOL) to using tax extensions . Tax officials have proven to be critical in guiding their organizations through the crisis. In fact, nearly half (49%) said they had improved the tax’s role as a strategic partner in the past six months, and 97% said they were “always” or “sometimes” involved in strategic planning and decision-making of 89% in 2020.

“The tax function has always been a central part of strategic decision-making, but not everyone in the organization recognized it. I do now, ”said Matthew Becker, National Managing Partner of Tax. “The COVID-19 crisis has accelerated the way for the tax function to be perceived as a true partner. Going forward, the tax department will be a key advisor to the C-Suite, whether decisions seem routine, such as the tax implications of hiring a remote employee, or larger-scale, such as mergers or acquisitions. “

Tax advisors expect the impact of the pandemic to preoccupy them in the coming year: 50% said their primary tax problem is mapping the effects of COVID-19-related business strategies, followed by digital taxation of 17%.

The strategies they are expected to apply in 2021 versus 2020 are designed to illustrate the evolution of the impact of the pandemic and the resulting adjustment of the focus from immediate tax solutions like NOL setbacks to longer term optimizations like the supply chain Shifts.

TOP 5 TAX STRATEGIES

2020

2021

# 1

Research and Development Tax Credit Studies

TIE:

Restructuring the supply chain for more tax efficiency

+

Outsourcing of specialized tax work

# 2

TIE:

NOL transfers / AMT refund credits

+

Reverse audits

Challenges in assessing property tax values ​​through appeal

# 3

Deferment of the social security tax

Relaxed tariff / customs payment extensions

# 4

TIE:

Restructuring the supply chain for more tax efficiency

+

Relaxed tariff / customs payment extensions

Research and Development Tax Credit Studies

# 5

Employee Loyalty Credit

Employee Loyalty Credit

Corporate tax rate and total tax liability are expected to increase

If 2020 was the year the tax function was put on the map, 2021 will be the year it is anchored there. Tax officials face significant challenges on the horizon, including a possible increase in the corporate tax rate: 92% of tax officials said the U.S. corporate tax rate will rise this year, and 35% said changes in the federal income tax rate were their main tax priority.

Top tax policy priorities

# 1

Changes in federal income tax rate (35%)

# 2

International tax changes (GILTI, offshoring, etc.) (25%)

# 3

Wage tax adjustments (24%)

# 4

Trade and Customs (17%)

“It remains to be seen how President Biden’s pledge to raise corporate tax rates, among other things, will take shape in light of the demands of the ongoing battle to contain the spread of the coronavirus,” said Todd Simmens, National Managing Partner of Tax Risk Management. “That said, taxes are on the federal agenda, and companies should plan scenarios in which changes are made that could potentially affect corporate tax rates, capital gains rates, individual income tax rates, and the amount of estate and gift tax exemptions.”

With a new presidential administration holding both houses of Congress tightly together and a growing international push to tax multinational corporations, tax authorities are expected to crack down on them, the results of which could be costly. Due to the pandemic, jurisdictions around the world are facing lower tax revenues in 2021 and will likely seek to recoup it in the near future.

In fact, 73% of tax advisors said their organization’s total tax liability – the sum of all taxes owed at any given point in time – increased over the past year, and 70% said it will continue to increase in 2021. Respondents said they are the biggest contributor to that increase will include taxation on digital products and services, as 79% of tax officials believe the Organization for Economic Co-operation and Development (OECD) will reach an agreement on a this year global tax framework. Such an arrangement would result in a multitude of changes in domestic tax law that could create new and substantial tax liabilities for many companies.

What will have the biggest impact on your total tax liability in 2021?

# 1

Taxing digital products and services

# 2

New tax policy due to the US presidential election

# 3

Effects of a prolonged economic slowdown

# 4

International trade tensions and tariffs

# 5

Continued state and local nexus changes

“Companies may suddenly be responsible for paying taxes in many more countries than before,” said Monika Loving, Managing Partner and International Tax Services Practice Leader. “For companies selling digital products or services, moving the distribution of profits out of the seller’s home country would be a huge change, similar to what we saw domestically after the South Dakota ruling against Wayfair.”

State and local taxes play a key role in regaining income

As a result of the 2018 U.S. Supreme Court ruling in the South Dakota v Wayfair case, most states have moved to an economic, not a physical, nexus standard for sales and use taxes to bring online sales revenues back into their jurisdictions to bring in.

Looking ahead, it is likely that many state governments will take action against sellers’ non-compliance. Companies that sell online have seen their sales and tax obligations explode over the past year due to the growth of e-commerce. Technologies that provide a comprehensive view of real-time updated sales tax rates and obligations are key to being in compliance and maintaining compliance, and minimizing liabilities where possible: 65% of accountants updated their technology in 2020, and 51% plan to do so in 2021.

COVID-19 underscores the need to introduce tax technologies

Tax technology is seen as key to managing the areas that vie for tax officials’ attention: more than half (56%) of respondents said technology and process constraints had a major impact on their ability to keep up with tax changes . Unsurprisingly, almost the same percentage said the pandemic had accelerated digital transformation in their tax departments.

In 2021, tax advisors plan to continue investing in transforming their own technologies and processes to achieve greater agility and resilience: their main area of ​​investment in 2021 is identifying and implementing new technologies (51%) and their top mandate is transforming the tax function for more efficiency and better insights (33%). While they may seek advice from outside vendors, their goal is to build skills in-house to implement those efforts in the future.

Tax officials are not strangers to change, but 2020 has accelerated the momentum. With more shifts on the horizon, 2021 will likely have more of them. For tax advisors, the spotlight on their ability to develop or break business strategies has never been better, and the tax department is ready to help their organizations take the next steps.

Download the full report here.

About BDO Tax

The tax practice at BDO is one of the largest tax advisory practices in the United States. With over 65 branches and more than 740 independent alliance locations in the USA, BDO has the banking strength and coverage to provide you with a global network of more than 91,000 employees in over 1,600 branches in 167 countries.

About BDO USA

BDO is the brand name for BDO USA, LLP, a US service company that provides insurance, tax and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has offered high quality service through the active involvement of qualified and committed specialists. The company serves clients through more than 65 offices and over 740 independent alliance company locations across the country. As an independent member company of BDO International Limited, BDO serves multinational customers through a global network of more than 91,000 employees in over 1,600 branches in 167 countries.

BDO USA, LLP, a Delaware Limited Liability Partnership, is the US member of BDO International Limited, a UK limited liability company, and part of BDO’s international network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO member companies. Further information is available at: www.bdo.com.

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PUB: 02/23/2021 09:32 am / DISC: 02/23/2021 09:32 am

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