Insight
The ambiguity, inconsistencies and possible unintended consequences around certain provisions in the law are already posing challenges for many.
By Jeffrey C. LeSage
It’s no surprise that the scope and breadth of the sweeping U.S. tax reform signed into law by President Trump late last December are having a profound impact on almost every U.S. company. Reducing the top corporate rate to 21 percent from 35 percent has already made the U.S. rate more competitive with the rest of the world and is helping to spur investment and other economic activity.
That said, the new law is clearly going to affect different sectors and companies differently. Furthermore, the ambiguity, inconsistencies, and possible unintended consequences around certain provisions in the law are already posing challenges for many.
Tax reform moved from legislation to reality at lightning speed and ultimately layered new law on top of years of existing law.
Jeffrey C. LeSage
Tax reform moved from legislation to reality at lighting speed and ultimately layered new law on top of years of existing law. That’s why it’s not surprising that there are questions and concerns around a number of its provisions – especially the complicated and interrelated international provisions.
As the days are moving ahead, we are hearing that top tax and finance executives are being called on to explain to senior management and boards how the U.S. tax overhaul could affect the business today and over the longer run. Issues they are trying to address right now include:
- Tax technical and reporting challenges arising from the tax reform effort
- The anticipated baseline impact of U.S. tax reform on their businesses and the opportunities to mitigate certain tax costs
- The potential implications of new interest deduction limitations and anti-hybrid measures on existing financing arrangements
- Value chain ramifications of provisions favoring U.S.-based production and manufacturing, as well as recent global tax reforms under the OECD’s Base Erosion and Profit Shifting initiative
- The potential impact of tax reform on M&A calculations
- How to make use of the additional cash that might become available as a result of the corporate rate reduction and mandatory repatriation.
The reality is that it won’t be easy for those executives to provide a lot of detail on many of these issues until some of the uncertainties are resolved through regulations or guidance from the IRS and Treasury, or through technical corrections from Congress. So at the six-month mark, in many cases, adjusting and adapting to the new law is slow-going.
But, as reflected in our latest CEO Outlook, it’s also clear that companies are continuing to look to transform themselves to succeed in the 21st century. Now, business leaders will be able to explore how U.S. and global tax reforms can contribute to, if not drive, aspects of the business landscape over time.
