Tax offerings for the technology industry
The shift to consumerism in recent years has sparked many opportunities and challenges for technology companies — almost all with tax implications. As a voracious — and fickle — consumer appetite for innovation forces shorter and shorter product lifespans, technology companies are responding with increased research and development (R&D) investments, especially in China and India. This global approach brings complex tax issues, from strategically managing transfer pricing, customs and duty planning, and overall effective tax rate, to taking advantage of R&D incentives, special enterprise zones and other tax credits and incentives. Meanwhile, the race to create — and ultimately own — emerging technologies continues to spur major merger and acquisition activity. Such consolidation begs a tax-focused analysis of transactions and integration of structures, departments and processes, as well as everything from accounting methods and international employment services to cross-licensing arrangements and transaction-cost recovery.
The Deloitte difference
How we can help
To innovate effectively while maintaining targeted return on investment in this changing landscape, you need a global team of tax specialists with the vision to manage the complexities. Deloitte Tax LLP can help.
Deloitte has one of the largest tax practices in the United States – broad resources that can translate into value for you. Our clients benefit from field-experienced practitioners devoted full time to the technology industry, as well as from our deep-bench strength across tax disciplines. We can address your need for specialized tax knowledge and also supplement your tax organization with ongoing planning and compliance support.
The nuances of tax compliance, integration, and strategic planning are complex for technology companies. Some companies overlook potential points of tax risk and reward simply because the challenges of meeting compliance deadlines consume their resources. We can help you explore ways to reduce your exposure and realize potential savings by helping you understand and manage the following critical issues.
Increased R&D Investments
As consumers’ voracious and fickle demand for innovation continues to force shorter product development cycles, technology companies are responding with increased R&D investments — and are being compelled to examine their R&D approach.
For example, collaborating with research institutes, government laboratories, or academic institutions may place a burden on your company to accurately track geography-based R&D efforts. The IRS has designated the R&D tax credit as a “Tier One” issue under its new Strategic Initiative. Examinations now begin with a standardized Tier One Information Document Request (IDR), defining a broader, more intensive test. Further complicating matters, approaches adopted and accepted by the IRS in prior examinations, including documentation, may no longer be accepted. This creates tremendous uncertainty for corporate taxpayers.
Yet the R&D tax credit still is one of the most significant domestic tax credits remaining under current tax law — an important tool for maximizing a company’s value. As a leader in the identification and calculation of potential R&D tax credits, Deloitte can help you develop your R&D credits strategy at the local, state, national, and international levels. How might the location of your assets, resources or R&D activities make a difference? What types of activities might qualify for credits? What documentation is required to qualify? Our experienced tax specialists can help you address these questions.
Increased R&D also has created a new imperative to improve costs and cash flow management. For instance, companies making significant capital expenditures on product design and testing often are challenged to classify these expenses properly. Depending on the type and volume of assets, Deloitte can help you explore tax benefits by conducting a cost segregation study or capital expenditure review.
Technology industry expansion into other countries — especially China and India — brings with it complex tax issues, from strategically managing transfer pricing, customs, and duty compliance to compliance with local laws in an ever-changing environment and taking into account special enterprise zones and other tax credits and incentives.
For example, tax authorities are turning more of their enforcement efforts toward the role of intellectual property — a significant component of the value of technology products and services — in transfer pricing. The IRS also has designated cost sharing as a Tier One issue for technology companies. As with the R&D tax credit, approaches adopted and accepted by the IRS in prior examinations, including documentation, may no longer be accepted.
The transfer pricing specialists of Deloitte can help your company with its transfer pricing and cost sharing methodologies, documentation, and any existing controversies to address the increasingly complex rules, both in the United States and foreign jurisdictions.
Another important issue for technology companies is supply chain management, creating a growing need for care around international tax planning and compliance. For instance, combining business lines to develop a new product may entail the repatriation of foreign earnings.
Our Global Enterprise Methods and Systems (GEMS) practice can help you evaluate your commercial footprint and transaction flows to assess whether income might be unnecessarily recognized in high-tax jurisdictions.
Executing key international tax processes such as tax provisions, tax compliance, and tax planning can be hindered by insufficient, mismanaged, or inaccessible data. Deloitte International Tax Quantitative Consulting Services (IT.QCS) delivers data management tools that address a wide variety of global tax issues, including expense allocations and basis and Section 987 calculations.
Managing M&A activity
The race to own emerging technologies and market share continues to spur major M&A activity. Often lost in the shuffle due to the speed with which deals are conceived and executed is a comprehensive tax M&A strategic process for transactions covering matters such as structuring, due diligence, compliance, data retention, integration of systems and departments, legal entities, and accounting for income and other taxes. Deloitte can help your tax department keep pace with the growth and evolution of your company through all stages of the M&A lifecycle.
When it comes to structuring, maintaining, and liquidating partnerships and limited liability corporations, technology companies face some of the most complex areas of tax law. Our professionals can help your company closely examine both current and proposed transactions that involve partnerships. Using a powerful proprietary suite of software tools that supports a wide range of analyses, we can help you at all stages of the deal, from planning and structuring through transaction execution and, ultimately, your exit from the partnership.
Deloitte’s integrated approach
Deloitte takes an integrated approach to service delivery
As a firm whose practitioners have specialized experience in both tax and the technology industry, Deloitte takes an integrated approach to service delivery.
For example, we often bring in our colleagues from the U.S. affiliates of Deloitte to provide technology and operational process insights and assistance, as well as assistance with valuation and other financial accounting issues. We also leverage the broader resources of member firms of Deloitte Touche Tohmatsu and their affiliates around the world as needed to address our clients’ growing international needs.
Deloitte’s integrated approach brings added value to our clients