What is the most significant change to your region/jurisdiction's tax legislation in the past 12 months?
US tax reform has had a significant impact in the United States, but it also has had a far-reaching effect as global multinational corporations doing business in the US grapple with numerous changes and added complexities. The Tax Cuts and Jobs Act (TCJA) of 2017 moved the US from a worldwide tax system to a system that has begun to resemble a full-inclusion system. Effectively managing the interrelationship among all the new provisions introduced by US tax reform (such as base erosion anti-abuse tax (BEAT), global intangible low-taxed income (GILTI), foreign-derived intangible income, 163(j) interest deduction limitation, and previously existing provisions, like the foreign tax credit system) requires a strategic development framework that focuses on navigating the new provisions while managing the old ones. Furthermore, the application and adoption of the new legislation continues to evolve as the US Department of the Treasury crafts regulations to clarify the provisions. These significant tax implications have placed immense strains on tax departments and their operating models.
What has been the most significant impact of that change?
The navigation of new legislative requirements and the difficult nature of predicting the tax impact of the interrelated new tax provisions has created a need for agile modeling capabilities and has fueled the business imperative for a digital transformation of tax departments. In addition to the modernisation of technology, the impact on tax resources and related change management can pose an even greater challenge to a tax department. Professionals are faced with changing processes, which forces them to build new skills and leverage new technology to keep up with legislative changes, drive greater efficiency and productivity and shift focus to more value-add planning activities. Leaders must consider how to support their professionals in achieving the future goals of their tax departments. Read more in our recently published POV series on Deloitte.com.
How do you anticipate that change impacting your work and the market moving forwards?
Taking into consideration the aforementioned pressures, there is an increased market desire to evaluate current operating models and create roadmaps for the future of tax departments. This is the result of the convergence of CFOs seeking better strategic contributions from their tax departments and the heads of tax seeking to drive greater value and insights, all while meeting growing compliance demands. Deloitte Tax is positioned to serve companies and tax departments across the tax operating model continuum to address an array of challenges – from technology, to talent to governance and more.
How has this changed the way you offer tax advice?
The expectations for tax professionals has evolved. In the past, they were expected to primarily have technical tax knowledge. Now, they are expected to be experts on tax technology and provide broader business advice, as companies look to transform their operating models and benefit from emerging technologies such as robotics and cognitive technologies. At Deloitte, we take a very consultative and customised approach, focusing on our clients' specific culture and needs, rather than a predetermined, packaged solution. When it comes to transforming tax operating models, one size does not fit all.
Are there other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction and what are the potential outcomes that might occur if those changes are implemented?
As mentioned, ambiguity around certain provisions of the TCJA of 2017 remains as rulemaking continues, at both the federal and state levels.
The current legislative environment requires tax departments to have nimble processes and the ability to quickly adapt to changing rules. In order to drive modeling and prepare for additional changes, many tax departments are focused on obtaining the granular data required to calculate and analyse the impact of new legislation. Enterprise Resource Planning (ERP) platforms and other financial systems can be configured – or reconfigured – to provide the additional data now required by the tax department.
Ultimately, they must find the balance between increased legislative complexity and a lower statutory tax rate. More and more tax leaders are looking to resource processes outside the core tax function by using shared services, outsourcing and managed service arrangements. Our upcoming Deloitte Global Management for Tax survey found that 1 in 5 tax leaders are using or plan to use managed services for one or more compliance and reporting processes.
Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Absolutely. These pressures are mandating that companies and service providers evolve to meet the expanding needs of the market. Deloitte has both the technical tax knowledge and technological tax capabilities to provide tax leaders with insights and services to ensure they are keeping up with the changing landscape, staying competitive, quickly meeting their company's demands and doing more with less.
How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
The digital economy is upending many industries, creating new business models and increasing competition, all of which can drive increased tax complexity as well as tax planning opportunities. Tax authorities are also reacting to the digital economy in many different ways. In the US, the Supreme Court's recent decision in South Dakota v Wayfair opened the door to require remote sellers to collect and remit state and local sales tax in jurisdictions where they lack a physical presence, which can have a significant impact on businesses selling Software as a Service (SaaS), cloud, and digital goods/services to end users.
Looking more broadly across the Americas region, there is a clear trend in Latin America toward a more digital economy and digital regulators. Brazil and Mexico are leading the way in the early adoption of real-time electronic government platforms. Companies must evolve to meet the increasing demands and requirements from regulators operating in a more digital economy. This is one more reason why tax departments are focused on transforming operating models and modernising financial and tax data and technology to survive and thrive in this era of increased complexity and demands.
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