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A&M Taxand CFO Survey
 

A&M Taxand CFO Survey

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Alvarez & Marsal Taxand, LLC,a tax-advisory affiliate of management consulting firm Alvarez & Marsal, recently surveyed top financial executives of U.S. multinational companies to solicit perspectives ...

Alvarez & Marsal Taxand, LLC,a tax-advisory affiliate of management consulting firm Alvarez & Marsal, recently surveyed top financial executives of U.S. multinational companies to solicit perspectives and priorities with respect to tax competitiveness and tax reform.

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    A&M Taxand CFO Survey A&M Taxand CFO Survey Document Transcript

    • CFO MATTERS:TAX PERSPECTIVESSURVEY HIGHLIGHTS ALVAREZ & MARSAL TAXAND
    • ContentsExecutive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Survey Methodology and Demographics . . . . . . . . . . . . . . . . . . . . 2Results and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8Contact Us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
    • EXECUTIVE SUMMARY “While the contentious debate Amidst political, economic and regulatory change, CFOs say certainty in over what proper tax reform the tax code has become even more important than a reduction in corporate should look like drags on, there tax rates, according to a new survey conducted by Alvarez & Marsal Taxand is no question about what is (A&M). A&M Taxand directly reached out to more than 800 financial executivesmost important to the industry. For across the U.S. to solicit their perspectives and priorities with respect to tax companies to plan, to invest, to competitiveness and tax reform.create jobs and to grow, they must have certainty. In fact, confidence While CFOs generally believe tax rates should be reduced to ensure the in knowing precisely what the U.S. remains competitive in an increasingly global economy, when given the tax code will require has become opportunity to eliminate or significantly change one aspect of the tax code, more important than how much it most chose to increase certainty in the tax system. The vast majority also said will cost them. As our research that tax considerations have a direct impact on their business decisions. They reveals, as long as proposed named Texas, Florida and Nevada as the most tax competitive states and changes remain up in the air, California, New Jersey and New York as the least competitive states in which companies will be forced to to operate. continue to burn fuel operating The following survey highlights tax issues that are top of mind to today’s U.S. in holding patterns rather than corporate financial leaders. charting productive courses forward.” Robert N. Lowe CEO, Alvarez & Marsal Taxand Alvarez & Marsal Taxand would like to thank The Financial Executives Networking Group (FENG) and its members for participating in this survey. CFO MATTERS: GLOBAL TAX PERSPECTIVES SURVEY 1
    • SURVEY METHODOLOGY AND DEMOGRAPHICS A&M Taxand • A&M Taxand directly reached out to more than 800 financial executives and shared the survey with the members of The Financial Executives Networking directly reached out Group (FENG). The survey was also promoted in our weekly newsletter to more than 800 (Tax Advisor Weekly), as well as on www.alvarezandmarsal.com. • A&M Taxand received 302 responses. financial executives • For the purposes of classification in this survey, businesses with less than across the U.S. $1 billion in annual revenue are categorized as “small,” and those with more than $1 billion in annual revenue are categorized as “large.” to understand their perspectives • The respondents to this survey were privately owned companies (51%), on tax competitiveness, tax public and private equity owned (49%).department issues and tax reform. • Businesses with annual revenues of less than $1 billion comprise 74% of the respondents. Demographics of Respondents 2011 Revenue Percent Industry Percent HQ Location Percent < $1 billion 74.00 Energy 4.71 Texas 12 > $1 billion 26.00 Financial Services 16.84 California 11 Grand Total 100.00 Healthcare 6.40 New York 10 High Tech 12.46 New Jersey 7 Ownership Percent Manufacturing 25.25 Massachusetts 7 Closely Held 51.34 Other 20.20 Illinois 5 Equity Owned 20.47 Services 11.78 Pennsylvania 4 Public 28.19 Transportation 2.36 North Carolina 4 Grand Total 100.00 Grand Total 100.00 Florida 3 Connecticut 3 Tax Employees Percent Georgia 3 Professionals Percent < 500 58.84 Delaware 2 < 5 86.94 500-1,000 8.50 Virginia 2 5-10 8.93 1,000-10,000 21.77 Minnesota 2 10-25 1.37 > 10,000 10.88 Ohio 2 > 25 2.75 Grand Total 100.00 Other – U.S. 14 Grand Total 100.00 International 7 2 ALVAREZ & MARSAL TAXAND
    • RESULTS AND ANALYSIS Q What effective tax rate would make the U.S. Large BusinessFederal corporate rate 7% 2% 5% competitive with foreign 18% income tax rates? 17% Financial executives from both large and small companies view an 30-35% effective tax rate of 20%-25% as 25-30% necessary to make the U.S. federal 20-25% corporate rate competitive with 15-20% global tax rates, while a significant percentage of small businesses, 10-15% with generally a higher percentage <10% of domestic income, view an even 51% lower rate 15%-20% as necessary. Small Business “The view among CFOs is that wehave sat here for the last 20 years 7% 15% and have watched other countrieslower their top corporate tax rates 16%while we have done nothing – thus, impacting our ability to compete effectively in a global economy. Aligning our corporate tax system with the rest of the developed world should enable U.S.-based 30-35% companies to compete effectively 28% 25-30%on a global scale and create more 20-25% business opportunities in the United States.” 15-20% 34% 10-15% Ernesto R. Perez Managing Director, Transaction Tax and International Tax 51% of large company CFOs believe a U.S. effective tax rate of between 20%-25% is necessary to allow the U.S. federal tax rate to be competitive with foreign corporate tax rates. Small company CFOs also most often choose the 20%-25% range as the rate required to make the U.S. rate competitive (34%); however, a slightly smaller percentage (28%) believe the rate needs to be even lower, 15%-20%, to make the U.S. competitive. CFO MATTERS: GLOBAL TAX PERSPECTIVES SURVEY 3
    • RESULTS AND ANALYSIS Q If you could eliminateLarge and Small Businesses or significantly change 9% one aspect of the current tax code, what would it be? 37% While our survey indicates that financial executives believe the U.S. Eliminate uncertainty tax rate needs to be reduced to be34% globally competitive, CFOs would Reduce rates and adopt territorial rather have certainty within the tax system system as opposed to a reduction Reduce rates and in rates. Does this suggest that eliminate incentives / companies can overcome the credits complexity and high tax rates of Other the U.S. tax system and still be 20% competitive?When given the opportunity to eliminate or significantly change one aspect of “It isn’t surprising that ‘certainty’the current tax code, CFOs most frequently choose to eliminate uncertainty ranks so high with CFOs.related to tax situations. This response is interesting, given that it tops areduction in tax rates coupled with an elimination of incentives and credits. Significant volatility or unexpected bumps in EPS can be traced to the impact of income taxes. This volatility is more pronounced than ever due in large part to the impact of ASC 740. CFOs are also keenly aware that restatements are often caused by material weaknesses in the area of income taxes. I believe that some of our respondents must think that if the U.S. tax code was built on a bedrock of stability and certainty, then weaknesses in tax internal controls would be greatly diminished.” James M. Eberle Managing Director, Federal Tax and Research Credits and Incentives 4 ALVAREZ & MARSAL TAXAND
    • RESULTS AND ANALYSIS Q To what extent do tax considerations Large Business influence your global 8% business decisions? The tax implications of business decisions are consistently considered by businesses of 48% all sizes. As businesses grow in complexity and increase their global reach, tax increasingly 44% impacts decision making as financial Major consideration executives give tax greater consideration. Companies with Minor consideration greater complexity and global reach Not a consideration have more opportunities to include tax favorable jurisdictions in their operations; generally have greater pressure to reduce their effective tax Small Businessrates; and have more tax resources to develop and maintain complex tax structures. 23% 26% “These results show that it isn’t whether companies are influenced by their tax cost, but rather the degree to which taxes impact business choices. Whether it’s hiring, relocation, expansionincentives, or the tax implications of Major consideration improvements in the organization, Minor consideration companies clearly look at all the aspects of tax cost when making Not a consideration decisions on where to do business. 51% These results confirm that larger companies view the impact of tax 92% of large companies consider tax implications in global business decisions; as a significant or major driver of 48% give tax “major” consideration. In contrast, only 77% of small companies their business decisions.” consider tax implications, with major consideration given by just 26%. Carolyn Shantz Managing Director, Sales and Use Tax CFO MATTERS: GLOBAL TAX PERSPECTIVES SURVEY 5
    • RESULTS AND ANALYSIS Q Which states do you view as most competitive from a tax perspective? (Listed in order of most competitive to least competitive) While many factors may play into financial executives’ perception of state competitiveness, the states generally viewed as having complex tax systems and high tax rates are the three states listed (by a wide margin) as the least competitive states. The states regarded as most competitive generally have someCFOs name Texas, Florida and Nevada among the most competitive states in form of tax exclusion or non-incomewhich to operate from a tax perspective, while California, New York and New based tax systems.Jersey are viewed as the least competitive states. “With the states at each end of the spectrum, it will be interesting to see if they modify their tax systems in an aggressive attempt to retain existing contracts and attract new business. When companies look to relocate corporate functions or expand operations, initial credits and incentives may be the most relevant factor from a tax perspective; although, the ongoing tax burden must be considered. Watch for proposals that are positioned as “pro- business” such as lowering statutory tax rates or modifying state apportionment formulas to favor in-state businesses.” Don Roveto Managing Director, State and Local Tax6 ALVAREZ & MARSAL TAXAND
    • RESULTS AND ANALYSISQ Which of the following areas creates the greatest Large Business risk for your company? 18% 2% Financial executives of large, global 30% businesses view compliance efforts as their biggest risk, specifically when it comes to coordination of Transfer pricing global compliance and transfer 10% pricing. For small businesses, the Tax audits compliance function and resultant Global compliance review by taxing jurisdictions ASC 740-10-25 (external tax audits and global 8% Accounting for income compliance) are viewed as the taxes greatest risks. Other 32% “Interestingly, tax examinations concern small companies to a Small Business much greater degree than large companies. This contrasting view 3% is likely caused by the attention 15% 20% paid to tax and the availability of tax resources. As companies grow, do business in multiple jurisdictions, and leverage bothinternal and external tax resources 10% Transfer pricing to develop more sophisticated tax structures, CFOs gain greater Tax audits awareness and understanding Global compliance of the tax positions that their ASC 740-10-25 companies are taking. This 29% Accounting for income understanding seems to translate taxesinto confidence. Smaller company 23% Other CFOs don’t seem to have this same level of confidence, suggesting that they may need to spend more time talking with Global compliance is viewed as the area of greatest risk by large company their tax resources.” CFOs, while tax examinations are viewed as the greatest risk for small companies. Robert Filip Managing Director, Federal Tax CFO MATTERS: GLOBAL TAX PERSPECTIVES SURVEY 7
    • RESULTS AND ANALYSISLarge Business Q In the past two years,the members of Congress and Obama administration have made numerous fundamental 17% 29% corporate tax reform proposals. Do you actively model the effects of these various Yes No Reform likely, but proposals on your company? dependent on 2012 30% election The lack of faith in legislative No Reform unlikely direction and action leads financial in planning horizon executives to slow efforts to determine 24% No Other the impact of potential proposals. Does this response support the view that gridlock is good for business or that greater clarity and leadershipSmall Business by government is required to get business behind tax legislation and 1% reform? 15% 23% “This response underscores the value executives place on certainty, and emphasizes the Yes hesitancy to take action in the face 22% No Reform likely, but of obstacles to legislative reform. dependent on 2012 Even though the reforms under election discussion are by any measure No Reform unlikely fundamental, the impact of these in planning horizon reforms is clearly judged to be No Other too speculative, especially in the No (blank) face of other more immediate 39% pressures.” Kent WisnerConcern about the lack of certainty in the current tax system is visible in the Managing Director,way financial executives respond to proposed tax legislation. Only 29% of International Taxlarge companies model the impact of tax proposals, while just 15% of smallcompanies do.8 ALVAREZ & MARSAL TAXAND
    • CONTACT USRobert N. Lowe Thomas Aiello Brian Cumberland James M. EberleCEO, Managing Director, Managing Director, Managing Director,Alvarez & Marsal Taxand Federal Tax and State Compensation and Benefits Federal Tax and Researchblowe@alvarezandmarsal.com and Local Tax bcumberland@alvarezandmarsal.com Credits and Incentives taiello@alvarezandmarsal.com jeberle@alvarezandmarsal.comAlan Kirschenbaum Ernesto R. Perez Don RovetoManaging Director, Managing Director, Managing Director,Business Development Transaction Tax and International Tax State and Local Taxand Operations eperez@alvarezandmarsal.com droveto@alvarezandmarsal.comakirschenbaum@alvarezandmarsal.comLaurie Dicker Robert Filip Kathleen KingManaging Director, Managing Director, Managing Director,Transfer Pricing Federal Tax Research Credits and Incentivesldicker@alvarezandmarsal.com rfilip@alvarezandmarsal.com kking@alvarezandmarsal.comCarolyn Shantz Kent WisnerManaging Director, Managing Director,Sales and Use Tax International Taxcshantz@alvarezandmarsal.com kwisner@alvarezandmarsal.com For complete survey results, please contact us to arrange a private consultation.
    • About Alvarez & Marsal TaxandAlvarez & Marsal Taxand, LLC, an affiliate of Alvarez & Marsal (A&M), a leading globalprofessional services firm, is an independent tax group made up of experienced taxprofessionals dedicated to providing customized tax advice to clients and investorsacross a broad range of industries. Its professionals extend A&M’s commitmentto offering clients a choice in advisors who are free from audit-based conflicts ofinterest, and bring an unyielding commitment to delivering responsive client service.A&M Taxand has offices in major metropolitan markets throughout the U.S., andserves the U.K. from its base in London.Alvarez & Marsal Taxand is a founder of Taxand, the world’s largest independent taxorganization, which provides high quality, integrated tax advice worldwide. Taxandprofessionals, including almost 400 partners and more than 2,000 advisors in 50countries, grasp both the fine points of tax and the broader strategic implications,helping you mitigate risk, manage your tax burden and drive the performance ofyour business.To learn more, visit www.alvarezandmarsal.com or www.taxand.com.ALVAREZ & MARSAL®, ® and A&M® are registered trademarks of Alvarez & Marsal Holdings, LLC. © Copyright 2012 Alvarez & Marsal Holdings, LLC. All Rights Reserved. www.alvarezandmarsal.com