On June 1, the Internal Revenue Service will close the comment period for its controversial proposed rule on uncertain tax positions. As written, the proposal would require companies to disclose how much they keep in reserve to cover the possibility that the IRS or state tax officials might disallow certain tax treatments. The proposal would also force companies to itemize or describe the tax positions, which essentially would create trails leading IRS auditors to aggressive tax schemes.
The proposal is just one of the measures recently taken by the U.S. government to curb corporate use of abusive tax structures to avoid paying taxes. For instance, audit firm Grant Thornton points out that Congress just passed legislation that changes the rules and increases the associated penalties for transactions that lack economic substance.
On the international front, there has been a rise in so-called simultaneous audits, the tax-return exams in which the United States shares taxpayer information with another government under a bilateral tax treaty. Also, this country is partnering with others through the Washington-based Joint International Tax Shelter Information Center to shut down abusive tax-evasion schemes.
Yet a new survey by Grant Thornton of nearly 500 CFOs and controllers from U.S.-based companies says a sizable majority of corporate tax departments are less concerned with aggressive tax planning than with “timely and accurate tax return and financial reporting.” The attitudes expressed in the survey paint a “very different picture” of business than what recent government actions suggest, say officials at Grant Thornton, which polled the executives during the second quarter.
Of those surveyed about their top tax priority, 41% listed timely and accurate tax-return preparation and compliance, and 21% cited timely and accurate financial reporting. Just 16% of financial executives said their top priority was tax savings or deferrals, while 12% ranked overall effective tax rate as the top concern. Ten percent said their top tax priority was accurate tax risk assessment and appropriate management.
“The survey confirms what we’ve known for a long time,” said Randy Robason, Grant Thornton’s national partner in charge of tax accounting and risk advisory services, in a statement. “Businesses don’t want to pay any more than they have to, but their first priority is always getting it right.”
More than half (54%) of the executives surveyed work at publicly traded companies, with 44% of those businesses generating $1 billion or more in annual revenues and 46% reporting revenues of between $100 million and $1 billion.
The survey also found that 63% of the respondents believed their aggregate state effective tax rates will increase during the coming year. Nevertheless, 69% asserted that their companies are not taking action in anticipation of a federal tax-rate change. However, for the 31% that are taking action, 34% are reorganizing their business structures, 25% are acquiring capital assets, 19% are dumping capital assets, 23% are accelerating dividend payments, and 13% are modifying terms on installment sales. (Respondents could select more than one answer.)
In the realm of international tax, 31% of the respondents were most concerned with the overall global compliance burden associated with tax, while transfer pricing and repatriation of offshore earnings were the top concerns of 28% and 21% of the executives, respectively. Fourteen percent were most worried about risk management in developing countries, and 5% were anxious about merger and acquisition transactions.
As for international tax proposals being floated by the White House, 75% of the respondents said they are not taking any action. But for the quarter of executives who plan to prepare for some sort of change in international tax rules, 36% will repatriate cash, 35% will reorganize international operations, 33% expect to work on foreign tax-credit planning, and 24% will make supply-chain changes.