Managing in a downturn: issues to consider

Tax

With an ailing economy and weak credit markets, companies are searching for ways to cut costs, conserve cash and improve their access to capital. You may also be considering mid- and longer-term strategies such as restructuring, consolidating operations and outsourcing. All of these business issues are directly impacted by or through the tax function.

Your company’s in-house tax professionals may be burdened with budgetary constraints, have less time to focus on each matter and have limited resources to carryout their responsibilities. In certain cases, outsourcing all or a part of the compliance function can assist in cutting costs and focussing limited resources. In other cases, a review of priorities, a focus on the most effective use of limited resources and an assessment of where external expertise and resources may be needed, is the best way forward.

In considering ways to conserve working capital by reducing or recovering cash taxes, your company may find it beneficial to work with an external tax advisor to explore various options, which may include:

• Managing and reducing tax instalments and accelerating tax refunds,
• Recovery of cash taxes already paid (whether sales tax, corporate or withholding taxes, customs or commercial property taxes),
• Strategies to reduce or defer the recognition of taxable income,
• Effectively applying capital and non-capital losses, and
• Taking advantage of tax incentives and credits that reduce taxes payable (e.g. R&D costs, film and video investments, pollution control expenditures, and e-commerce).

Having an external tax advisor assist you with new and innovative tax planning strategies, the evaluation of existing strategies and ensuring you keep abreast of global economic changes that may impact your tax decisions can greatly assist you to manage in the downturn. Areas to consider include:

• Strategies for increasing access to capital,
• Reviewing international structures for tax efficiencies,
• Meeting broader treasury management and repatriation strategies,
• Reviewing transfer pricing policies to ensure optimal under current conditions (e.g. cross-border intercompany loan portfolios)
• Structuring opportunistic acquisitions or spin-off transactions,
• Minimizing the tax consequences arising from formal debt settlements or repurchase of debt at a discount, and
• Evaluating restructuring, consolidation and outsourcing decisions from a tax perspective.

To learn more about how PwC can provide the assistance you in need to manage tax in a downturn, contact a member of the PwC team.

Publications of interest

Back to Basics
The majority of private companies in Canada surveyed for PwC’s 2009 Business Insights report said they have not noticed any significant changes over the past year when it comes to accessing capital.

Transcript: Strategy Talks – with Dean & Helen: the PwC Managing in a Downturn Podcast Series -- Episode 14
PwC’s Strategy Talks podcast series welcomes guest speakers Janice Russell and Doug Frost who talk about tax strategies to save you cash in the down economy.

Not Managing your Risk is Risky Business
If there’s any lesson that has been learned from the global financial meltdown, it is the importance of risk management.

Freezing Your Estate
If you were to sell your business today, the value will have dropped. And that is why an economic downturn might be the best time for an estate freeze.

Private Equity Tax Alert -- Distressed Debt Restructuring
This publication discusses why private equity funds must understand the income tax consequences of an acquisition that involves debt forgiveness and debt-parking.

2008-11-26 How the Credit Crunch Affects an Employer’s Accounting for and Disclosure of its Defined Benefit Pension Plans
This Newsletter discusses the impact of the credit crunch on an employer’s accounting for and disclosure of its defined benefit pension plans under Canadian GAAP.

Paying Taxes 2009: The Global Picture
Paying Taxes 2009 - The global picture is a unique study by PricewaterhouseCoopers and the World Bank that investigates and compares tax regimes in 181 economies worldwide.