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Using tax to unlock cash in business transformation
10/25/21
The COVID-19 pandemic has accentuated the need for businesses to become more agile and resilient. From cost management to digital transformation to reimagining the future of work and the office, organizations are facing the question of how best to invest and reach this goal.
Meanwhile, companies across the board are looking for ways to optimize their investments. What we are finding in discussions with clients is that tax is an important lever for business transformation and can be a key to unlocking cash to help fund these efforts.
Cloud transformation and the tax function
Cloud is central to corporate strategy. PwC’s US Cloud Business Survey reveals that 56% of business leaders view cloud transformation investments as a platform for innovation and growth.
Aligning the tax function with cloud transformation initiatives can help drive growth, increase competitiveness and unlock cash. From thinking through how to leverage a company’s ERP system to identifying applicable state or federal credits, tax should be an integral part of the strategy from the beginning. However, the survey reflects that businesses may not be positioned to utilize these tax benefits.
R&D tax credits can provide a dollar-for-dollar benefit
Leveraging federal and state R&D credits and other state and local tax credits and incentives can create significant cash tax savings and reduce the costs of cloud transformation investments—but only 38% of CFOs say they’re very confident they’re taking full advantage of R&D tax credits for their cloud investments.
Eligible qualified research expenses can include:
- Wages of employees in the US (e.g., technology solution and process development, improving cloud services and software)
- Supplies used or consumed in qualified R&D activities
- Contract research expenses for third parties performing qualified R&D services in the US
- Payments to cloud service providers when used for development.
Similarly, state variations on the tax treatment of R&D activities and state-specific requirements can result in either expanded cash savings or missed opportunities. For example, the availability of California credits is of heightened importance, given that, for the 2020 to 2022 tax years, California is limiting corporate taxpayers to $5 million of credits per year and suspending NOL deductions. Taxpayers with significant R&D spend should consider strategies to navigate these limitations and accelerate cash tax savings.
With our Global Incentives Solutions (GIS) software, PwC can help companies effectively and efficiently identify federal and state R&D tax credits, enabling them to realize cash tax savings for qualified research activities.
Indirect tax savings can fund current and future investments
Evolving technologies now provide for advanced data analytics and business intelligence, in addition to better indirect tax determination, reporting and audit defense. The indirect tax insights provided by bringing the right technology to your ERP system and the cloud environment can unlock cash through refunds and help provide permanent savings through improved compliance.
Enhanced data extraction capabilities and data analytics are key to a comprehensive review for overpayments of sales and use taxes. PwC has automated the process with the help of artificial intelligence and OCR scanning techniques to help eliminate the manual process of mining invoices, purchase orders and other data. This can also result in the implementation of corrective measures to help reduce future overpayments.
Think about involving tax early in the process
When making significant ERP and cloud investments, it is important to involve your tax team from planning through implementation. While tax benefits can be “unlocked” through backward-looking examination and technology tools, a proactive approach is most likely to maximize tax savings and ensure opportunities are not being missed.
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