Since the passage of the corporate tax cuts and Jobs Act at the end of the year 2017, the corporate section in the United States of America is adjusting the strategies to run their business after the corporate tax cuts. The lower corporate tax rate produced a significant impact on the U.S. corporate market. It is well understood because not many of the companies are planning to raise the wages of their employees as a result of the corporate tax cuts, according to the new survey conducted by the corporate board members by BDO USA. Rather than this, more companies in USA are planning of doing stock buybacks, increasing corporate dividends as well as pursuing mergers and acquisitions. Black Ink provides best business advisory, consultancy & help in USA for entrepreneurs. You can contact us to get the best business strategy as per your organizational structure to grow robustly towards success heights.
BDO USA Survey Report:
According to the BDO USA survey, almost half of the directors i.e. 47% polled the claim that their companies did not take any particular action in response to the corporate tax cuts and Jobs Act. However, the organizations that were encouraged to take actions on the changes to their tax position, responded by performing certain activities in important directions as compared to BDO’s 2018 survey polling results. 14% of the companies planned last year to increase their employee wages, but it is found this year that only 8% kept their words of increment in salaries. Furthermore, the 2019 survey indicates that only 6% of the directors were able to distribute a one-time bonus to their employees.
On the other hand, 7% of the companies planned last year to initiate the stock buybacks, but the survey of this year shows that around 19% of the directors did this. Last year, 11% of the companies said that they would go for perusing a merger or acquisition, but the results of this are totally different as 23% of the companies peruse merger or acquisition. Anybody can see this that 23% is the double of 11%. Last year, 9% of the respondents said that their companies would increase dividends while this year polling indicates 16% of the directors in affirmative.
As we already acknowledged that auditors are keeping an eye for offshore profit tax with the formation of new tax law for offshore profit taxes in USA. An increase in planning for repatriating corporate profits back to the U.S. from abroad is also seen because of the new tax law. This can be witnessed in the polling as only 10% of the directors polled last year that their companies would repatriate cash back to the U.S. while this year, around 16% of the directors repatriate corporate profits back to the U.S. from abroad. In the meantime, capital investment planning by the companies only shuffled up slightly as the polling of last year i.e. 17% is slightly moved to 18% this year.
Corporate Tax Cuts : Response from BDO, USA:
The reduced corporate tax rate is the main impact that was seen by the corporate board members as it reduced from a maximum of 35% before the TCJA to 21% today. The managing partner of tax at BDO, Matt Becker, shared his thoughts on this reduction in corporate tax rate and said,
That reduced corporate tax rate seems to be getting everyone’s attention. There are some other provisions related to how foreign earnings are treated and how interest deductions are calculated, but we’re not seeing board members as interested. The larger the company, the more nuances get discussed. But in general it’s the reduced corporate tax rate having the biggest impact. Then if you look at the specific actions that are being taken as a result of tax reform, about half the directors say their organizations do not take specific actions. Of those that do take specific actions, we’re seeing those taken related to mergers and acquisitions activity, buybacks, increased cash repatriated to the U.S., and in some cases increases in employee wages.
A severe conflict can be seen between those companies’ directors who plan to increase the employee wages (8%) and those who initiate stock buybacks (19%). About this matter, Mr. Becker said,
I don’t think we have evidence that they’re cutting employee wages, but there’s a clear preference for stock buybacks as a reaction to tax reform.
The findings from the survey by BDO shows that 83% of the directors at large-scale companies reacted towards the effects of tax reform changes as compared to only half of all micro as well as nano capital companies. Furthermore, over the past few years, more companies in USA are keeping an eye on their federal taxes in addition to their local and state taxes. Almost two-thirds (65%) of the directors in the survey reported that they have a high or moderate understanding about the total tax liability of their companies. This means that only two-thirds of the directors were fully aware of their tax liabilities covering income, indirect, payroll, property, excise as well as other taxes along with credits, customs, duties, incentives, along with deductions. As compared to the survey of board members by BDO in 2018, only 44% of the directors were able to show a well-built understanding of the total tax liability of their understanding and its influence on their tax strategy as an organization. Mr. Becker further said,
We’re seeing companies interested in understanding their total tax liability, including indirect and excise taxes. With the federal income tax rate being lower, others represent a [bigger] portion of total tax.
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