Direct and Indirect Tax modelling

Companies of all sizes – whether large-scale multinationals or SMEs – increasingly acknowledge the need for a proper direct and indirect tax structuring as an indispensible aspect of financial management. Proper tax structuring can indeed result in decreasing the effective tax rate, maximising the use of available tax assets, optimising the existing leverage, improving the cash flow and reducing the compliance cost. However, often, tax (re)structuring decisions are taken on the basis of very broad assumptions and only high-level, short-term projections of financial and tax figures, without taking into account the variety of factors impacting the direct and indirect tax position of the group. This results in an incomplete understanding of the true financial and tax impact. Because of this, PwC has developed a tax modelling service where we model the tax and cash impact on your business, taking into account your legal, operational, commercial and cash flow requirements. Depending on your needs, our tax model provides you a fair and better understanding of the tax impact of maintaining your current group structure as opposed to certain alternative scenarios. Providing a fair estimation of the tax impact and opportunities based on your business plan, our tax model will allow you to decide on certain business restructuring scenarios in a considerably more informed manner. In the end, tax-friendly modelling helps you to better understand, anticipate and further optimise your direct and indirect tax charges and often to obtain an improvement of your working capital. 

If this is your situation

You are determining a bid price in an acquisition process but your financial model lacks tax input. Uncertainty exists as to which target entity can absorb (bank) debt. 

• You want to reallocate the existing bank and intercompany debt in your group in order to optimise the tax benefits linked to the existing leverage and maximise the use of existing tax assets. 
• Your current group structure is not tax-efficient but it is not clear which reorganisation scenario will allow for the most substantial decrease in consolidated tax rates. 
• You are not certain how to value your deferred tax assets as it is uncertain when you will be able to use them.
• You want to understanding of the impact of VAT on the cash position of your company and the various influencing factors. 
• You generally consider corporate income tax and VAT as a compliance obligation resulting in a net payable/recoverable position (debit or credit position) without understanding how your day-to-day operations can impact on your cash position. 
• You believe you have a complex supply chain with multiple products, countries, legal entities or VAT registrations. 
• Direct tax and VAT represent a substantial and real cost/cash-out to you. 

How PwC can help you 

• In an acquisition process, PwC can complete your business plan with tax input, modelling potential scenarios to find the most optimised debt allocation and funding requirements, taking into account the country-specific rules and regulations. 
• PwC can help you to better assess the impact of modifying your debt allocations or to determine the most suitable reorganisation scenario, taking into account legal, commercial and cash constraints. 
• Building a tax model on the basis of your business model will provide a fair estimation of the future stand-alone and consolidated tax liabilities that can be used by management for budgeting, forecasting, cash-planning and cost-cutting purposes. 
• A tax model built by PwC will demonstrate when and how existing deferred tax assets will be used, helping you to value them in view of IFRS and US GAAP requirements. 
• PwC can assist you in improving working capital by fine-tuning the various factors and levels affecting your VAT cash position, such as the moment when invoices are raised or received, payment and collection terms, VAT filing periodicity and submission dates, VAT payment and VAT refund terms, and the VAT treatment of the flows.