Keeping up to date with business changes is the most pressing priority given the change in demand and the difficulty in keeping supply chains operating (23 percent of respondents). Chief Financial Officers (CFO) are taking a hard look at the business and capacity requirements. This has clear implications for transfer pricing and the allocation of such losses or expenses, and more than 50 percent identified this as their most critical transfer pricing priority today.
- Satisfactory development, enhancement, maintenance, protection and exploitation of intangibles (DEMPE) may no longer exist in their right places, causing difficulty in maintaining current transfer pricing systems or accessing treaties due to the impact of the multilateral instrument on double tax treaty reliefs;
- Permanent establishment issues, related to employees now assigned to operations in a different country, may become more common; and
- Operations that formerly did not create deemed income under a country’s controlled foreign corporation (CFC) rules may now create deemed income – such as subpart F in the US context.
This calls for the tax department to be in more regular contact with the business than ever in order to stay ahead of potential issues.
Cash preservation was another top priority (21 percent of respondents). Many clients’ treasury departments talk with tax departments on an almost daily basis to determine how to access cash in various countries.
Some countries and territories have cash reserve requirements meaning some cash is trapped. For the rest, treasurers are eager to quickly move cash to where it is most needed. This increases the focus on withholding taxes, cross border interest flows, foreign currency gains or losses and the need to have treaty documentation ready to use at a moment’s notice. Beyond that, tax departments may help the organization by focusing on cash tax liabilities. Ensuring that the technical requirements to claim a tax deduction for losses and excessive expenses incurred due to the pandemic is critical because this may reduce currently projected income taxes. There may even be additional opportunities to carry back losses to request refunds of previously paid taxes as countries and territories adjust carry back rules. Finally, now may be the time to ensure that it’s possible to group or consolidate all entities in a particular country so that one entity is not paying cash taxes while another is running losses. Importantly, the risk of withholding taxes (or BEAT/similar minimum tax regimes) on payments made to non-resident entities, and the potential for new taxes on the digital economy, must also be carefully watched to manage any negative cash impacts.
Rounding out the top three is compliance (17 percent of respondents). Although this would not be on a CFO’s mind, it’s important nonetheless. Files may be at the office and unreachable. DAC 6 is still around the corner. Although some countries have relaxed filing deadlines, others have not. Working remotely makes meeting these deadlines just that much harder and we see clients accelerating that work just so they can be sure that they can meet the deadlines.