Value potential for multinationals’ operating model and transaction plans – US tax reform

RobotsThe US Tax Cuts and Jobs Act was passed at the end of 2017 and represents the most significant US tax reform in more than 30 years. Most of its provisions came into force on 1 January 2018. For many groups headquartered in Europe, the Middle East, India and Africa (EMEIA), the US represents their largest foreign operations. Conversely, US companies traditionally have significant investments in the EMEIA market.

US tax reform has widespread business implications. MNCs should review financial and operating aspects, looking at how their business operates, invests, competes and delivers products and services. Whether headquartered in EMEIA, the US or elsewhere, it is imperative that MNCs review their corporate strategy and take action as necessary.

At a time of increasing transparency overshadowing global operations — for example, the Organization for Economic Cooperation and Development (OECD) Base Erosion and Profit Sharing (BEPS) initiative and the EU’s Anti-Tax Avoidance Directive (ATAD), this reform acts as a further layer of scrutiny. Companies with historic structures based on “traditional” tax planning strategies should urgently review their tax models and risk profile. Other MNCs should reassess their current operating model to identify any operational and fiscal opportunities and mitigate potential risk impact.

In a rapidly changing environment, organizational agility — combined with having the appropriate business functionality — is more crucial than ever in order to justify profit allocation and mitigate the impact of US tax reform. A robust response to US tax reforms is important, not only to move fast but also to create a stable foundation, which can help reduce controversy risk.

US tax reform could be the catalyst to introduce cutting-edge technology to a company’s operating model, and could fuel technology investments. Value potential could be unlocked by digitalizing an MNC’s operating model, leveraging available incentives, freeing up cash, and updating strategy and investment plans. Eventually, this could act as a driver or accelerator for improved productivity, margins and returns. Above all, it will require an aligned operating model, tax structure and digital strategy.

Having the capabilities to quickly understand and manage change is key for sustainable success in the face of increased volatility. It is therefore important that it is integrated in the company’s strategy definition. MNCs should take a holistic operating model design approach ensuring a strategy that is reflected in transactional models with appropriate business functionality and follows operational and business requirements.

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rutger

 

Rutger Lambriex – Global Corporate Law Leader

 

 

Jean-Christophe Sabourin

 

Jean-Christophe Sabourin – Global Transaction Law Leader

 

 

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Richard Norbruis – Global Transaction Law Markets Leader

 

 

Carolyn Libretti

 

Carolyn Libretti – Americas Law Leader