Integrating tax considerations into strategic planning

Strategic planning amid economic pressures

To address economic stresses, business leaders are increasingly looking to evaluate various strategic alternatives. As a result, the importance of the tax department’s role in strategic business planning is becoming increasingly significant. Traditionally seen as a compliance function, the tax department can play a crucial role in shaping corporate initiatives and strategies, helping businesses adapt and thrive in this complex landscape.

Therefore, tax executives should look to position the tax function as an area that may help manage working capital considerations and increase after-tax cash inflows/limit cash tax outflows and areas of tax exposure.

A few areas of focus for tax departments to consider are as follows:

Operational tax planning can lead to cash tax savings

When cash savings and working capital management are a strategic initiative, tax planning considerations may be implemented to identify potential areas of cash tax savings. For example, companies may look to pursue potential current cash tax planning through the form of tax accounting method changes or credits and incentives planning.

Over the next decade, clean energy incentive programs could unlock trillions in credits and incentives for companies across various sectors. Coupled with new direct pay and transferability provisions, these opportunities will have a notable impact on tax departments and their ability to drive strategic initiatives to generate cash inflows and limit cash tax outflows. An integrated credits & incentives review may provide cash tax opportunities with the potential to support a company’s growth and transformation.

Tax accounting method changes and ancillary planning may allow for the deferral of income or acceleration of deductions to help align the tax profile of the business with strategic initiatives in managing current-year cash taxes.

Additional opportunities for cash tax savings may include the potential for identifying both income and non-income tax refund opportunities which may further provide companies with incremental cash during periods of economic uncertainty.

Further, companies may consider undertaking legal entity rationalization planning to better align operations and simplify footprint, thus resulting in a more efficient tax structure as well as reduced ancillary tax filing costs which may further align the tax profile of the business with the business’ strategic priorities.

The importance of tax when evaluating strategic alternatives

Companies often evaluate various strategic alternatives as they navigate through economic uncertainties more effectively. For example, company’s may look to divest of non-core assets in order to strategically align their operations and “right-size” their balance sheets.

If divestitures or acquisitions are key to strategic growth and realignment, consider tax planning early in the transaction process. This includes assessing tax implications for various deal alternatives, assessing areas of tax risk, and evaluating the potential impacts on key tax attributes to identify tax value.

Similarly, if substantial tax attributes are present, such as carrybacks & carryforwards, tax departments can assist in evaluating potential alternatives to optimize the ability to utilize or preserve tax attributes to enhance benefits.

Lastly, in the event debt modifications or debt restructurings are being considered to unlock potential value within a business, tax should be at the forefront of any negotiations to limit negative tax effects of potential restructurings.

The role of the tax department in corporate initiatives

Tax departments can implement several long-term strategic solutions to achieve greater efficiency, mitigate risks, and add value to an organization.

For example, modernizing the tax function and embracing new technology can enhance the efficiency of tax processes and result in accretive value to a business that can be sustained over time. Implementing tax technology solutions can help automate repetitive tasks, reduce errors, and provide insightful data analysis to better align the tax function with strategic priorities.

The integration of tax considerations into strategic decision-making processes can drive overall company success, especially in uncertain economic times. By positioning the tax department as a strategic partner in significant corporate initiatives, businesses can unlock the full potential of tax planning and create substantial value for the company. The importance of tax considerations in strategic planning underscores the need for businesses to view their tax departments not just as a function of compliance, but as a strategic asset that can add significant value.