KPMG hosted a cross-industry group of chief financial officers (CFOs) to discuss the impact of the two major spending bills, investor guidance in the era of COVID-19 and how to comply with federal vaccine mandates. Carl Carande, global head of Advisory, hosted the call, and John Nord of Profitable Ideas Exchange facilitated. Manal Corwin, principal in charge of Washington National Tax, and Mike DiClaudio, Advisory principal and workforce transformation leader, joined to provide subject matter insights.
U.S. and global tax changes
Legislative activity: Manal Corwin of KPMG shared an update on the current status of both the infrastructure and reconciliation bills. The reconciliation bill is currently being whittled down by conservative Democrats thanks to corporate pressure, particularly on limiting the changes to global intangible low-tax income (GILTI) and the 163(n) provision on limitation of interest deductions. In global tax news, the majority of the countries in the Organisation for Economic Cooperation and Development (OECD) came to an agreement on what positions each country will adopt domestically. Member countries still have their eyes on the U.S. as it relates to their decision to implement changes to GILTI and reallocate profits to market jurisdictions.
One CFO was interested in what was likely to be included in the final reconciliation bill package, particularly whether a new federal minimum tax would be implemented. Though at the time of the Peer Exchange talks had reduced the likelihood of a functional alternative minimum tax, reforms consistent with a global minimum tax at 15 percent seemed likely. Since the CFO discussion, the book minimum tax has been reintroduced, but has yet to pass the full House or the Senate as part of a reconciliation package. Items including a state and local tax (SALT) deduction cap repeal, 163(n), and an increased corporate tax rate are still subject to negotiation.
The group considered whether the elimination of a book minimum tax would lead to a more traditional alternative minimum tax. Corwin explained that the concept has not gained traction, but that a 2 percent tax on share repurchases is a subject of Congressional debate. In terms of net operating loss carrybacks, Congress has effectively eliminated the foreign tax credit carryback, while shrinking the carryforward from 10 to 5 years; with the absence of lobbying activity opposing the change, it is likely to pass.
A CFO discussed their participation in a coalition lobbying against the 163(n) provision and the corporate income tax level. Government relations teams are making efforts to lobby Congressional leaders around removing these statutes, due to the potential impacts of the current bill on competitiveness for U.S. organizations. With the reconciliation bill tied to the current OECD agreement, Congressional leaders are sensitive to the idea that U.S. firms could face a competitive disadvantage, as the reconciliation bill would raise the floor tax for U.S. companies before the implementation of global tax regimes.
Another CFO expressed curiosity about participants’ preemptive actions to position themselves for tax changes, which are likely to emerge through reconciliation. While most officers have not made any significant changes or decisions affecting their tax liabilities, private organizations pursuing mergers and acquisitions (M&A) have been accelerating the necessary processes in order to close transactions within this calendar year. A major concern for one participant is the potential impact on effective tax rate; though their organization has yet to make significant changes, they have seen an increase in the rate of M&A transactions.
Other key considerations from the eventual reconciliation bill include impacts on employment and consumer confidence, particularly in major industries such as automotive. Due to uncertainty of the state of the bills in Congress, along with the ongoing supply chain disruption, forecasting for the near and medium terms remains complex.
Volatility and guidance metrics: As businesses look to the close of 2021, leaders are considering whether to proceed with lower levels of guidance or increase the amount of provided information. As a result of the current environment, one officer’s business reduced their guidance in earnings calls solely to earnings per share. Another participant’s investor guidance has shifted from annual to quarterly predictions, providing approximate numbers rather than predicted ranges. Producing consistent metrics on margins has been challenging, given the rate of inflation in the U.S.. Others have provided annual guidance, but are explicit about the assumptions underlying their estimates. Though organizations are turning away from COVID-limited guidance, current volatility has led many to continue to exclusively provide approximations, rather than ranges.
The volatility of the hospitality industry has led one CFO’s company to offer no guidance whatsoever in the post-pandemic environment. Instead, they are providing same-store sales numbers, allowing analysts to produce their own ranges based on their interpretations of easing COVID-19 restrictions and other social and economic factors.
Federal vaccine mandates
Federal requirements and workforce sentiment: A CFO contending with the federal vaccine mandates has struggled to retain talent resistant to receiving a COVID-19 vaccine. Businesses that hold government contracts are now required to have a fully vaccinated staff at locations involved in federal contract fulfilment. In order to minimize the scope of the mandate, another CFO’s organization has broken out business units into personnel servicing government contracts and others not working in that capacity. Retention looks to be a significant obstacle for their contractor workforce as well. Others have instituted vaccination requirements for incoming talent, to avoid exacerbating an already strained situation.
Mike DiClaudio described the tracking structure being established at KPMG in order to manage compliance with vaccination and/or PCR test attestation requirements for various clients. These requirements have proven burdensome on the Humane Resources and Information Technology departments at many organizations, but KPMG has taken an up-front approach, building a robust infrastructure to support various requirements across their ecosystem. KPMG will be requiring vaccination going forward for those working on-site, further simplifying tracking considerations.
The group discussed approaches to vaccine incentives for employees. Finding the threshold at which incentives motivate staff without excessive expenditures is a complex task, though managing testing-out requirements requires considerable effort as well. Several leaders who had attempted a dollar incentive found that a figure in the low hundred-dollar range barely changed workforce vaccination rates, suggesting that thousands of dollars would be necessary to drive a major increase. Rather than universal payments, one executive’s organization implemented a $5,000 lottery for 10 individuals per week; this served as enough of an incentive to positively impact vaccination. Based on the limited success of other statewide vaccination lotteries, however, some CFOs remain skeptical of a lottery’s application within an employment setting.
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