COVID-19: Tax, trade and regulation

What’s the next step for your Tax function? Integrate tactical solutions for today, with a long-term vision for the future

How Tax functions can emerge stronger

Tax functions are working through plans to bring teams back to the workplace safely, while also grappling with new demands from the business - such as contributing data-driven insights and the need to contain costs - coupled with changing laws and uncertain economic conditions. A ‘tipping point’ may arise whereby Tax must take action to foster the right skills, capacity, and performance level needed to operate efficiently now and going forward.

Prioritizing next steps can be difficult and will vary for each business. To help you streamline an action plan, consider the following strategic objectives that leading Tax functions are focused on right now. No matter where you are in your journey, we are here to help you transition to what’s next.

6 Tax function focus areas for right now

Workplace strategy

A critical task for the Tax function is creating an ecosystem that enables productivity and agility, while having enough capacity to meet increasing workloads and demands from the business. Creative solutions are required and likely include embracing digital platforms to execute action plans, collaborating more seamlessly, and using data analytics to deliver real-time insights. Supplementing current resources, such as with outsourcing, co-sourcing, or loaned staff, can fill the gaps and generate time for Tax staff to focus on more value-added tasks.

Tax should embrace the broader organization’s vision for workplace strategy and safety. Businesses may be pursuing a purpose-driven culture and Tax should align policies and incentives to actions that have a positive effect on performance, such as flattened hierarchies and transparent communication. As the business evaluates all of its human capital needs, Tax should help model and quantify various workforce cost levers while collaborating on a cross-functional basis.

Enable productivity and agility

Revenue generation

C-suites are reviewing their business lifecycle involving operations and customer needs so as to maximize and stabilize revenue. To support this effort, Tax should be modeling ‘what-if scenarios’ such as global supply chain changes to replace sources of raw materials and other components, extraordinary buying and selling of goods, and mitigation of plant closures, to identify tax opportunities and risks. Tax should weigh in on a real-time basis, using more automated modeling capabilities due to the complex, interdependent nature of various US tax calculations.

Businesses also are evaluating investments for critical needs such as CapEx, the tax impacts of which should be reflected. Although certain investments may be paused, many companies may be moving forward with ERP implementations given the importance of gaining stronger financial controls. The Tax function should be ready to assist early on, suggesting system requirements that generate tax-ready data and enhance broader organizational efficiencies.

Maximize and stabilize revenue

Conserve Tax costs

Many businesses have a keen focus on conserving and generating cash, as well as accessing available funding. Restructuring operations and workforces to contain costs while accelerating digital strategies to quickly yield efficiency gains are top of mind. Tax functions need to play a critical role by not only supporting those restructuring efforts, but also focusing on tax cash savings to improve near-term liquidity. The latter may include monetizing tax attributes or other embedded amounts within the tax ecosystem, such as net operating loss carrybacks or other refunds.

Minimizing cash tax outlays going forward also should be top of mind for Tax. Tax functions should identify potential tax relief due to new legislation (such as the CARES Act), as well as re-assess certain tax calculations given the current economic situation. A variety of areas may be examined to properly lower taxable income and reduce required tax payments at the federal, state, and local levels, including accounting methods planning and transfer pricing adjustments for related party transactions.

Improve near-term liquidity

Near term actions to generate cash

Deals enablement

Deals can help businesses reposition by obtaining more reliable sources of capital, revamping processes, and redefining operational efficiencies. More than ever, Tax functions have a critical role to play. Tax should be involved early in the process to ensure the C-suite has the right financial insights and knowledge for informed decision-making given the potential shifts in deal strategy, valuation, and liquidity.

Tax functions should be ready to analyze financial and tax positions, including potential claims by tax authorities as well as new and pending tax legislation worldwide. Modeling tax implications of complex global transactions on a real-time basis is often an important component for success. An integrated suite of digital-enabled tools can help assess opportunities and realize the full value of the deal.

Analyze financial and tax positions

Tax ecosystem

The volume and pace of recent legislative and regulatory activity has expanded, and Tax should remain focused on policy developments to evaluate the impact on business plans and financial reporting. Cumulative increases in federal budget deficits likely will affect the outlook for US tax policy and the overall direction of policy debates for years to come. Companies should continue to engage with tax policy makers and expand their government outreach.

At the same time, Tax functions are under unique pressure to focus internally and develop compliance infrastructure that is scalable for future growth needs - all while lowering costs. More fundamental transformation may be needed to efficiently execute in a way that satisfies the company’s risk appetite. Tax should embrace digital advancements such as small automation as a way to bridge the gap between traditional enterprise technology and tax applications to reduce manual inefficiencies. Quick-paced modeling of potential changes on the horizon is now an expected part of the ecosystem.

Evaluate impact

Foster trust

Businesses are focused on assessing data-driven risk management, particularly given the shift to remote work. As cybersecurity and privacy issues are top of mind for the C-suite, Tax should review its strategy and look for opportunities to bolster its readiness. Tax should closely follow broader business initiatives to not only align its objectives, but also to help identify resulting financial benefits, such as tax credits, for expenses incurred.

Rising government deficits and eroding economic conditions should prompt the Tax function to expect a continued rise in tax audits and controversies globally. Although companies should pursue proactive strategies to prepare such as health checks and documentation reviews, they also should consider methods to gain stronger trust with taxing authorities. One example is integrating automation into tax operations and processes to demonstrate better accuracy, prompting a lighter touch upon audit.

Identify financial benefits

Tax, trade and regulatory considerations

Companies with significant operations in affected areas should think about the broader implications of their business decisions and their strategy moving forward. Here are some tax and trade considerations for all business leaders as they navigate disruptions resulting from COVID-19.

Helping navigate disruptions

CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), features significant tax provisions and other measures to assist impacted individuals and businesses. Stakeholders should carefully review proposals that are intended to help employers retain employees and continue business operations during the current public health emergency. Stakeholders also should continue to engage with policymakers as the legislation is implemented and as additional relief measures affecting their business operations and employees may be considered. Continue reading here.

Important links

  • For a 35-page Senate staff summary of the overall CARES Act, click here. For a six-page Senate Finance Committee staff summary of the Act’s tax and unemployment assistance provisions, click here. For the CARES Act text, click here.
  • For a Senate staff summary of the emergency supplemental appropriations bill, click here. For appropriations bill text, click here
  • For an IRS summary of filing and payment deadlines questions and answers, click here. For IRS guidance updates on coronavirus tax relief, click here
  • For PwC’s tracker of state and local COVID-19 tax filing relief, click here
  • For PwC’s March 18 Insight on the “Phase Two” COVID-19 relief legislation, click here.

Business disruption

As US and global economies respond to disruptive events — including the COVID-19 virus — Tax Departments are forced to re-prioritize their tax agendas. Key focus areas during this time are liquidity, meeting existing compliance burdens with shrinking resources and potential opportunities to respond more flexibly to rising uncertainties.

Though the priority remains on human welfare, companies are facing unprecedented people and productivity challenges. Evaluate:

  • Developing workforce and remote work solutions
  • Filing for bankruptcy
  • Mitigating subpart F income on sales
  • Developing restructuring plans 
  • Reviewing for increased PE risk
  • Reviewing intra-group services expenses and expense allocation

Cash tax savings

Your business should consider how to effectively manage cash taxes by potentially reducing taxable income, obtaining available refunds and effectively manage required tax payments. Any strategy to reduce federal taxable income should be modeled against your company's overall tax posture to ensure that decreasing the federal taxable income does not create or increase other tax liabilities (e.g., Base Erosion and Anti-Abuse [BEAT]).

Tax directors also should work with the Treasury function to align repatriation strategies and with the Finance function to align financing options to achieve liquidity. Consider:

  • Computing corporate estimated tax payments
  • Accounting methods studies
  • Reverse income tax audits
  • Reverse sales tax audits
  • Liquidity, lending and capital resource solutions
  • Increasing use of exemptions and holidays
  • Leveraging tax reform: Modeling BEAT and Section 163(j)
  • Employment tax refund reviews

Cross-border transactions

In today’s globally connected society, events happening around the world impact our people, our businesses and our economy. Due to the economic disruption triggered by COVID-19, supply chains and business strategies are being reevaluated. As a result, more agile tax models are needed. You may consider taking action to stabilize your supply chains, brace for an unpredictable revenue and profitability mix in key markets, or reduce costs and increase productivity. Review:

  • Global structuring
  • Holistic modeling of the tax impacts of economic disruption
  • Repatriation
  • VCT(venture capital trust)/operating model evaluation
  • Meeting regulatory obligations

Global mobility

Global mobility issues — from how to address the physical and financial well-being of employees to ways to ensure business continuity — are top of mind for companies. The COVID-19 outbreak presents various challenges, and global employers must work to evaluate them. Evaluate:

  • New business travel protocols and criteria for business operation
  • Shifting tax obligations
  • Changes to corporate-level cost projections
  • Managing immigration challenges
  • Reshaping mobility policies
  • Preparation for mass movement when crisis lessens

Meeting regulatory obligations

As the virus outbreak widens and economic conditions worsen, Tax organizations may experience additional resource shortages and budget constraints. Nevertheless, tax compliance requirements still need to be met.

Even if your company has historically prepared your returns in-house, you may find yourself short-handed. Consider:

  • Co-sourcing or outsourcing tax compliance
  • Loan staff options

Trade and customs issues

Companies must analyze multiple business, operations, and tax and tariff scenarios; understand the costs of different supply chain configurations, as well as opportunities; and make informed decisions quickly. Business leaders may have to deal with short-term customs issues, such as navigating processes to send goods into affected areas or obtaining appropriate clearances to move manufactured goods out of a country. Additionally, companies that use temporary providers to replace vendors facing constraints will likely need to monitor tariffs and other customs implications. Depending on the regions — as well as the products, types and suppliers being used — the level of import duty and/or tariff a company may have to pay could vary. Assess:

  • Meeting regulatory obligations
  • Duty-drawbacks
  • Supply chain
  • Export controls
  • Sanctions

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Marc Silverman

Marc Silverman

Global Clients & Markets Leader, PwC US

Shelley Giberson

Shelley Giberson

Tax Services Leader, PwC US

Scott McCandless

Scott McCandless

Partner, Tax Policy Services, PwC US

Maytee Pereira

Maytee Pereira

Managing Director, PwC's Customs and International Trade Practice Co-Leader, PwC US

Anthony Tennariello

Anthony Tennariello

Customs and International Trade Co-leader, PwC US

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