In the current climate of economic unpredictability, tax considerations are increasingly being recognized as a cornerstone of strategic business planning. Traditionally an overlooked aspect in boardroom strategy discussions, tax is now being integrated more thoroughly into decision-making processes to capitalize on potential value and to bolster risk management frameworks. This shift is reflected in findings from the 2023 tax and finance operations survey by EY, which reveals that nearly half of respondents view tax planning as crucial for driving cash flow.
Integrating tax early in strategic discussions can prevent missed opportunities for leveraging tax credits and incentives that could offset significant investment costs. It can also mitigate complex tax issues that arise across various business facets, such as the unintended consequences of actions in trade or immigration that may ripple into other operations.
The legislative landscape also demands close attention. With the anticipated changes in Congress, businesses need to be vigilant about shifts in tax policies that could affect both short-term and long-term strategies. For example, there is a potential focus by Republicans on extending provisions of the 2017 Tax Cuts and Jobs Act, which could entail significant financial implications. Expanding these provisions might cost around $4.6 trillion, as indicated in the Congressional Budget Office report. Additionally, proposed tax changes by political figures could further evolve this landscape, costing trillions over the next decade.
Incorporating tax insights during high-stakes transactions, such as mergers and acquisitions, is another area where proactive tax modeling can be invaluable. This approach not only aids in accurate deal pricing but also offers a clearer picture of how impending tax law changes could influence business decisions.
Furthermore, global trade policies can swiftly change, creating intricate tax ramifications for existing business structures and supply chains. The EY survey indicates that a significant number of companies have already adjusted their supply chains to mitigate such risks, with a vast majority intending to make further modifications by 2025.
Executives neglecting tax integration may forgo strategic tax benefits or inadvertently expose their companies to greater tax liabilities and controversy risks. To counter this, companies are advised to:
- Evaluate: Assess the interaction frequency and depth between decision-makers and tax advisers, ensuring tax implications are modeled and discussed as part of strategic initiatives.
- Implement: Establish consistent communication channels to consult tax advisers at pivotal decision points, facilitating regular check-ins.
- Revisit: Regularly review and adapt processes and resources to manage the evolving landscape of tax, regulatory, and legislative changes.
The necessity of embedding the tax function at the strategic decision-making table is underscored as businesses prepare for potential tax policy transformations under the new administration and congressional developments. For further insights, Kevin Flynn of EY provides an extensive analysis on the importance of integrating tax advisers into the boardroom, which can be accessed in the full article.