Tax Function of the Future: Whiteboard the art of the possible with LESS

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Are you contemplating changes to your organization’s legal entity structure due to the implications of US tax reform and operational considerations? Legal entity strategy and simplification (LESS) is a viable solution – LESS is the process of evaluating legal entity structures for the purpose of reducing the overall number of legal entities. In today’s environment, with tax reform complexity, cost pressures, and increasing M&A activity, a strategic approach to streamlining legal entities is called for. The main objectives of a LESS exercise are to enable M&A integration, achieve SG&A cost reduction, facilitate a flexible business operating platform, and importantly – respond to US tax reform by refreshing your tax strategy.

What are available LESS options?

Traditional legal entity simplification approaches have resulted in some success but are limited in scope and benefits. A new approach, Whiteboarding the Art of the Possible, is an innovative method that allows you to establish a vision for your legal entity organization structure and develop a plan to get there. It is the most strategic approach that considers alignment to the overall business –It’s not just about reducing the number of legal entities. Let’s take a closer look at the various approaches to legal entity strategy and simplification:

Traditional approaches:

  1. The Dormant First approach focuses on eliminating inactive entities. Although some due diligence is needed to confirm dormancy, this approach is easy to implement and can be accomplished relatively quickly. The disadvantage to the Dormant First approach is that it generally does not result in substantial cost savings.
  2. The Outside-In approach focuses on individual entities to be eliminated or combined from a regional, business unit or “jigsaw puzzle”/ad hoc perspective. The key advantage of this approach over Dormant First is that it requires more analysis and due diligence to determine whether you should eliminate or realign entities. For this assessment, leaders need a comprehensive list of entities, a description of each entity’s activities and attributes – information that is useful for other tax purposes. A challenge with Outside-In is that it can be time-consuming and management may become distracted by other priorities. An additional disadvantage is that decisions regarding individual entities may be made in a vacuum without an overall vision or strategy.

Whiteboarding the art of the possible

As mentioned earlier, Whiteboarding is a strategic approach that offers the most benefits to organizations looking to streamline their legal entity structure. It allows the creation of a vision for legal entity organization that is aligned with business needs and enables the design of a roadmap to achieve that ‘ideal’ structure. Whiteboarding causes Tax to think holistically about the overall business, engaging leaders from multiple enterprise functions (including Treasury, Legal, Human Resources, IT, Operations, and others) in the process.

Summary of Whiteboarding benefits:

  • Stakeholder engagement and support: Gaining support from each affected business unit is simpler since Whiteboarding takes the needs of the overall business into account.
  • The ease of a clean slate: It is easier to align a legal entity structure with a business model by essentially ‘starting from scratch’, unencumbered by the current state in developing a vision for the future.
  • Substantial impact: The impact across functions is broader, potentially with higher cost savings and the ability to mitigate enterprise risk.

Contact us

Andy Ruggles

US Data Automation and Global Alteryx Alliance Leader, PwC US

Chris Kontaridis

US Deals, Strategy & Operations Leader for Tax Reporting & Strategy, PwC US

Vik Purewal

Principal, Tax Reporting and Strategy, PwC US

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