CFOs, CTOs: watch these five tax themes in 2021

We made it. We’re two months into a brand new year and things are looking up. While we know there will undoubtedly be challenges ahead in 2021, there will also be opportunities. Best of all… as business leaders, we can be well prepared for many of the ups and downs.

A few weeks ago, I spoke with The Wall Street Journal’s Nina Trentmann for an article she wrote on the ten things that CFOs are likely to keep an eye on in 2021. I highlighted corporate tax and, specifically, the potential for imminent changes to tax policy as a key space to watch. But the topic of corporate taxation extends beyond just the impact of our most recent election season. In fact, there are a handful of emerging themes that Chief Tax Officers (CTOs) and Chief Finance Officers (CFOs) will want to pay close attention to in 2021.  

1. US tax policy – Yes, tax policy changes under the new administration are very likely. Following the presidential election, many CTOs and CFOs asked us, “how likely is this?” If we look to history, we know that most new administrations enact some form of tax reform in their first year. And now that we know that Democrats control the majority in both houses of Congress, Biden and his administration could potentially move forward with the tax policy proposals he laid out during his campaign. Today, CTOs and CFOs are asking us, “how much?” and “how soon?” Although it’s yet to be seen how wide-reaching tax changes will be, if they happen, companies can absolutely be prepared for any forthcoming changes that Biden proposes, including increasing the corporate tax rate to 28 percent or implementing an alternative minimum tax, by using modeling tools to examine the varying scenarios.
2. International tax – There’s significant international policy pressure to coordinate a modernization of our tax code for the digital era (and many jurisdictions are eager to generate additional revenue to help pay for pandemic stimulus). There’s also a perception that the current system is no longer fit for its purpose and there’s mounting public pressure that fast-growing digital companies should pay their “fair share” of taxes. The ongoing negotiations on the taxation of the digital economy are slated to continue at the OECD during the first half of 2021, and the outcome is likely to impact the US’s domestic approach to taxation and how US multinational companies are taxed overseas. While big tech companies will no doubt be impacted most, this is an issue that will affect all American companies and, again… it is, therefore, critically important to model the scenarios now. 
3. Transformation of tax – The pandemic succeeded in accelerating the transformation of many business operations, including tax. CFOs and CTOs will continue to reassess their technologies and data strategies and redefine their target operating models so they can do more with less. For some businesses, this will mean outsourcing or co-sourcing a part of their operations with the goal of minimizing risk, creating longer-term savings and generating greater efficiencies for their entire organization. At KPMG, we call this Tax Reimagined. A reimagined tax function can provide a pathway to help companies conduct effective tax planning, better manage and utilize data and ensure compliance. With the still relatively new Tax Cuts and Jobs Act and its 8,000+ pages of guidance, coupled with the complexities evolving at the OECD and possible Biden Administration tax policy changes on the horizon, most companies will need state-of-the-art modeling technology, combined with tax experts, to help them decipher both the data and the policies.
4. Tax and transactions – The tax ramifications of complex transactions were a critical part of the robust deal market in the latter half of 2020 and will continue to be important in 2021. Companies and investors must think through the tax structure and model future cash flows to develop the most financially sound after-tax transactions. As the future tax rates are yet to be known, investors may want to consider selling their business before any potential rate increase, which will impact and stimulate companies that are looking to buy or sell businesses or assets. As the deal market continues to remain strong, and the tax policy agenda shapes up, tax will most certainly play a critical role in how deals are constructed and ultimately finalized.
5. ESG – Increasing attention by employees, clients and investors on socially conscious business operations are causing corporate C-suite leaders and boards to pay greater attention to environmental, social and governance (ESG) issues. As companies are increasingly focusing their brand on aligning with ESG agendas, tax plays a role across all three pillars. On the environmental front, tax is being used as a tool to drive ESG behaviors through taking advantage of tax credits in the renewable energy space. From a social perspective, companies are being asked to demonstrate their tax transparency, including what their total tax contribution is and their overall attitude toward tax. It’s not uncommon for an investor to now request a company’s tax code of conduct, which includes a level of transparency previously undisclosed by corporations. On the governance front, it’s all about how a company is managing tax as a corporation and disclosing to investors their overall tax risk. Ultimately, this is an evolving and developing space to watch and one that I think will play a significant role for CTOs, CFOs and other C-suite leaders in the year ahead.

2020 was truly one for the ages and, in many ways, tax took center stage amid all of it: from the CARES Act and economic stimulus payments to the payroll tax holiday to the contentious presidential and congressional elections. 2021 is already shaping up to re-shine a bright light on the importance of tax to business success and everyday lives. The above five areas are sure to play an important role in the boardroom this year, and CTOs and CFOs can bring valuable insight on the strategic direction of their companies by doing their due diligence sooner rather than later.

 Which tax theme do you envision having the largest impact on your business operations this year? Would love to hear your thoughts.