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How tax can help value creation in private equity

March 12, 2021

Puneet Arora
Private Equity Tax Leader, PwC US

At a time of widespread business disruption, tax can play a significant role as private equity firms and their portfolio companies shape their strategy, examine their supply chains and labor force, execute digital transformations and plan geographic relocation. By considering the various ways that tax can have an impact on your workforce or intellectual property, for example, and by identifying the levers that will set cash taxes and effective tax rate, your company can recalibrate its activities advantageously. Here are three key areas where we’ve found that tax can help drive value for your enterprise.

Scenario planning — looking around the corner

Modeling the impact of potential tax law changes and scenario planning involves stress testing your current way of conducting business and making assumptions about the future. Many believe a hike in the corporate tax rate is likely inevitable with the new Biden Administration. Whatever the specifics, one thing is certain: If you think through potential scenarios and how they might affect your current models and growth plans, you’ll gain a competitive edge. 

The same goes for changes to international tax rules. The OECD is in the process of building a consensus to rewrite tax guidance for business, so it’s important to conduct scenario testing to discover how to take advantage of these changes in your near-term business decisions as well as your long-term goals. This also allows your company to identify areas where it needs to to engage with peers, industry groups and regulators to have its voice heard and considered.

Managing tax attributes and tax synergy assessments 

Tax synergies are critical to any strategic business plan assessment. It’s important to identify and understand the tax attributes that are unique to your organization. In addition, given the nature of the business, location and other factors, credits or incentives may be available that you should factor into your business plans.

Tax input should be considered as part of current operations and proposed changes. By including tax early in any decision-making, your firm can have a better chance of taking tax attributes and synergies into account before it’s too late to act on them.

Keeping an eye out for incentives and grants 

As the post-COVID business environment takes shape, the priorities for many national and local governments are in flux. Many are raising taxes, but they also want to encourage investment and help improve job opportunities. 

With these broader goals in mind, businesses should always be looking at what tax incentives are available for the company and for employees. These could include everything from incentives designed to help attract jobs to incentives designed to encourage the use of renewable energy sources.

At a time of tremendous business and political change, tax can be a key lever to help facilitate business strategy and create additional value for private equity firms and their portfolio companies. Scenario planning, managing tax attributes and tax synergy assessments, and keeping an eye out for incentives and grants — all these can help your firm play both defense and offense and as it vies for a competitive edge.