What is the most significant change to your region/jurisdiction's tax legislation in the past 12 months?
On December 22, 2017, the US Tax Bill was signed into law by President Trump, after being passed strictly along party lines. This is the most significant US tax policy change in 30 years, and as such, it will have a notable impact on Canadian companies with US operations. Whether they are Canadian headquartered with business in the US or US headquartered with business in Canada, both are impacted.
Since July 18, 2017, the tax landscape faced by private companies in Canada has been filled with uncertainty, as a result of the Department of Finance proposals issued at that time. While some proposed measures have been abandoned and others clarified, many still require further details to provide meaningful direction.
What has been the most significant impact of that change?
With the new legislation, the US has joined many other developed nations in moving to a regime of lower tax rates and territorial systems. From an international tax perspective, the key changes are:
- Mandatory repatriation
- Foreign subsidiary taxation
- Base erosion measures aimed at related-party payments
- Interest limitations
How do you anticipate that change impacting your work and the market moving forwards?
Canadian companies with US operations or US investors must consider the impact of US Tax Reform on their businesses, including current organizational structures, supply chains, leverage, intellectual property (IP) ownership, etc., as well as planning opportunities that may result.
How has this changed the way you offer tax advice?
Deloitte Canada moves forward with confidence. The legislative changes in both Canada and the US raise many questions and potential complications for our clients. However, it can also bring promising new opportunities. For our clients that are impacted by US Tax Reform, our approach is set out below.
US Tax Reform Services for the path forward:
Tax reform is a journey that reveals challenges and opportunities at each stage. Our clients' journey begins by understanding their starting position; it takes on meaning as they analyze their options; it advances as they plan and execute their next steps; it keeps the destination in view through vigilant monitoring.
a. Understand your starting position:
Every journey starts where you are right now. But where exactly is that in this new tax landscape? Deloitte brings together the broad scope of our capabilities to analyze your current state through the lens of tax reform. We'll look across the business of our clients to uncover the potential opportunities and unexpected impacts that tax reform presents.
This may include reviewing tax accounting methods, analyzing multinational tax planning, evaluating global employment programs, understanding the effects on HR and global mobility programs, or considering how to account for and disclose the potential impacts on financial reporting. By digging deeper and looking wider, you'll gain a better understanding of your business and its potential to address and capitalize on tax reform.
b. Analyze and model your options
Using our state-of-the-art modeling tools, Deloitte Tax professionals provide robust scenario analysis and customized reporting for new and existing tax provisions including global intangible low-taxed income (GILTI), foreign derived intangible income (FDII), base erosion anti-abuse tax (BEAT), interest expense limitations, and international tax. We combine these capabilities with our policy insights, tax reform advisory services, and knowledge of your business to reveal how tax reform could impact your organization and its future direction.
We can help you analyze relevant provisions in the new law and consider your options under these new conditions. Should I move from a partnership to a corporation? How does tax reform impact the structuring or synergies related to Mergers & Acquisitions? Exploring these kinds of questions helps you understand the implications for your business–not just for this tax year, but for many to come–and make informed decisions.
c. Plan and take action
The tax reform law is chock full of new and amended provisions. Understanding how all these provisions are interrelated with each other and with existing law is critical to assessing the new complexities of your own tax picture.
Your Deloitte team will work with you to model the impact of new tax provisions, analyze the potential tax reform impacts, and create options to consider for moving forward. We'll help you go from "now what?" to next steps by providing the clarity you need to focus your planning and execution on the issues that matter most to your company's well-being.
d. Monitor and adjust
Now that the tax reform legislation has been enacted into law, congressional leaders may have to spend a good part of the coming year(s) making modifications to ensure it works as intended.
Our tax policy team is continuously monitoring legislative changes and clarifications. Along with our experienced team of on-the-ground specialists, they are uniquely qualified and ready to help you analyze the implications of modifications and adjust your strategic tax plans as changes happen.
e. Helping you stay ahead of tax policy developments
An integral part of our Washington National Tax practice, Deloitte's Tax Policy group provides perspective on the latest corporate tax developments coming out of Congress, the Internal Revenue Service, the Treasury, and the federal courts.
Our Tax Policy team identifies, evaluates, and monitors legislative proposals. And we interpret the practical issues surrounding the application of tax proposals so clients can plan and act with confidence as circumstances change.
What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
- The Canadian government is in the process of analyzing US Tax Reform to assess the impact on Canada from a competiveness perspective this could lead to significant legislative changes in Canada.
- Canadian Federal budget 2019 will be a pre-election budget as such a number of new initiatives will likely be introduced.
- At present the North American Free Trade Agreement (NAFTA) negotiations are underway – the results of those negations would have a big impact on cross-border trade.
What are the potential outcomes that might occur if those changes are implemented?
Potential income tax measures to improve Canada's competiveness could include :
- Reducing tax rates
- Increasing incentives for innovation
Potential NAFTA outcomes include:
- NAFTA is renegotiated, amended and signed by all three parties (Canada, Mexico & the US),
- The US withdraws from NAFTA, or
- The renegotiation process drags on and no settlement is reached, NAFTA remains in place with no amendments (i.e., "zombie NAFTA")
Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Absolutely. We are in a period of rapid change and our clients will be able to rely on our advice and counsel to help guide them through the changing landscape
How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
The Canadian federal government recently announced that it is undertaking a study of this area so we may see legislative developments in this space.
Also, in its 2018 Budget the province of Quebec introduced new indirect tax measures regarding the digital economy.
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