Publish Date

Oct 25, 2021

Why Customized Tax Modeling Will Help Your Business Best Plan for Imminent Tax Law Changes

Tax Insights

Is your business ready for the variety of possible tax law changes that await?  Read our guidance on timely and relevant modeling to help you find the most tax and operationally efficient paths forward under the expected changes.

Don’t be left scrambling come December

With another round of comprehensive tax reform on the horizon, taxpayers who aren’t already planning for the impact of anticipated changes may be left facing surprising consequences. And as we learned just four short years ago from the pre-Christmas signing of the 2017 Tax Cuts and Jobs Act (TCJA), the best laid plans are often at the mercy of a rapidly changing tax landscape. Waiting until enactment to evaluate the impact on contemplated or ongoing transactions.

Rather, now is the time to model the impact of tax reform to  determine whether a course adjustment is needed, and time is a luxury we have now that we didn’t have four years ago. Furthermore, businesses are constantly changing to identify new opportunities and  make up for the disruption to the supply chain that Covid-19 triggered over the past two years. Being able to identify the pros and cons of these commercial changes as the tax reform is being rolled out is key to making more informed and efficient decisions on future commercial strategy.

Taxpayers are in a better position now than they were in 2017. Here’s why.

The current bills proposed by the House and Senate would once again dramatically alter the US tax regime, particularly as it relates to the taxation of offshore earnings. But where many taxpayers were caught off guard in 2017, we have two advantages this time around.

  1. We have much more time than the GOP afforded us with the TCJA, which went from initial draft bill to law in just over seven  weeks.
  2. The Democrat proposals largely build on top of current law, rather than introducing broad new regimes.

What key questions should companies considering or currently in a life event ask themselves? 

  • For taxpayers in the midst of a life event, considering the effects of a law change isn’t simply beneficial, it’s essential. Where should debt sit in a structure? What post-tax rate of return can I expect on an acquisition? How should I integrate target IP into my value chain? What business models are more likely to support future growth without triggering higher tax leakage? These are all questions whose answers may look starkly different under the Democrats’ tax plan.
  • For those taxpayers not currently facing such life events, it’s still important to understand how different their tax profile might look in just a few weeks. Now is not the time for high-level estimates.  Taxpayers need actionable decision-making tools based off their data and unique facts.

A&M Tax’s experts help our clients build tailored and customized models to gauge the impact of tax law change on urgent and ongoing matters. We also help our clients make decisions based off these results, finding the most tax and operationally efficient paths forward under a variety of possible law changes.

While US tax reform may make tailored tax modeling an urgent need now, this is only the beginning. We are at the precipice of significant global tax overhaul in many major economies, with broad consensus on a global minimum tax and how to tax corporations as the value chain is constantly changing through digitization and technology. Timely and relevant modeling to guide decision making will become an essential tool for any tax function, and A&M Tax’s professionals are equipped to help you build the custom tools you will need now or in the future.

Advanced modeling clears complexities and helps carve a path forward 

The 2017 TCJA created a complicated network of interdependencies: turn one cog and ten others spin. This complexity left many taxpayers dealing with unintended consequences of seemingly mundane decisions. With the proposed new law changes building on top of this regime, the complexities will only amplify.

Take a simple example: a taxpayer significantly increases its cost-plus payment to a foreign subsidiary that is meant to centralize and control its procurement function. Sure, you’ve potentially increased your Subpart F or GILTI pickup and increased US deductions, but the fun is far from over. What does this additional deduction do to your domestic Sec. 163(j) limitation? Are you able to include the resultant GILTI or Subpart F in domestic ATI under the Sec. 163(j) group election? What if it’s high-taxed? How does the change in interest deductions impact your Sec. 861 apportionment for foreign tax credit purposes? How does the incremental foreign E&P increase your tax basis to which interest will be apportioned? Oh yeah, and was that incremental payment subject to BEAT?

For taxpayers working through life events, there are countless decisions just like this to be made, and without capturing the various indirect consequences of those decisions, companies will be blind to the most tax-efficient path forward.  A&M Tax’s customized models merge tax analysis with benchmarking, industry analysis and sensitivity analysis to also assess potential long- term impact.
Preemptive modeling helps organizations uncover opportunity

It’s easy enough to assume that prepared versus unprepared for tax reform is simply a matter or less of tax versus more. But that ignores the reality of where tax sits in a value chain. Understanding and anticipating the effect of certain changes in law is a key factor in how organizations structure their operations, and most importantly, how they deploy their future commercial and growth strategy.  Procurement, marketing, sales, distribution, financing are all functions that have tax costs and opportunities associated with them. And the tax departments that understand and communicate those costs and opportunities to various internal and external stakeholders will have a key role in guiding organizational decision making.

Why A&M Tax’s customized approach to tax modeling?

To sort through the complexity, Alvarez & Marsal Taxand has developed a comprehensive approach, including a sophisticated methodology to create customized models to help you understand the financial, tax and operational impact of various proposed tax reforms.
Our modeling capabilities allow you to gain insight into the potential impact of tax reform on your company’s operations; they also provide insight as to how competitors may be impacted. Models that take a very standardized approach and that only focus on the tax cost are not likely to provide businesses with enough insight to adapt their existing and future strategy.

Even within the same industry, no business is truly alike. Our modeling solutions reflect your uniqueness and desire to become more efficient in an everchanging and highly competitive environment.

Contact one of our experts today!