The new tax reform law has already had a huge impact on corporate tax and benefits, but there will be much more.
Amidst much debate, anticipation, and compromise, the tax reform law was finally passed in December. What does it mean now that it’s gone into effect for corporations and other entities?
Apple and the New Tax Law
As the largest taxpayer in the world, Apple has been a main focus of the news after the tax reform law was passed. Apple has always been very transparent about their tax payments, announcing soon after the law was in effect that they were beginning plans to bring cash back into the United States from their abroad markets. They estimate that the impact will be $350 billion spent in the U.S. over the next five years, but their current projected spend is at $275 billion, making their impact right on target with what they were going to spend regardless of the tax law. Although Apple has promised to create more jobs with the money brought back, many financial analysts are unsure if the money will actually have an impact on the economy, as Apple already spends billions on staffing. Economists say that the taxes paid on the money brought back, estimated to be around $38 billion will most likely not have a significant impact for either Apple or the U.S. market, in part because it is just a one-time event, and also because it is similar to the predicted $36.4 billion Apple was estimated to pay on foreign earnings regardless.
Companies such as Microsoft, Alphabet, and Cisco are also in better positions to bring money back from their overseas companies, and many predict they will follow Apple’s lead and do so in the coming months. In the spirit of companies following good PR moves, Apple is following suit of Amazon’s promise to build another headquarters in the U.S following the new tax law.
Apple issued bonuses to its employees in the form of restricted stock units (RSUs), but aside from that, it remains to be seen what the tangible benefits are from the tax reform law, and if jobs and revenue for the U.S. will increase as a result.
Aside From the Bonuses, What Are the Impacts?
While many companies report giving their employees bonuses, similar to Apple, many have also laid off employees or closed retail locations. Size, structure, and the type of industry a business is in has a large impact on whether or not the bill is beneficial to an organization. The permanent tax break for corporations remains controversial, and many small businesses worry about if the law will increase their costs, or increase investment and growth.
Mergers and acquisitions, which many companies were holding off on last year to see what the results of the tax reform law would be, appear to have taken off since the reform bill passed. This trend is predicted to continue now that there is more certainty around what the tax rules will be in regards to M&A.
So, What Do Dealmakers Need to Know?
First and foremost, preparing for the changes in law will include studying exactly what the law covers, such as business tax rates, employee compensation, and industry-specific provisions. The reduction of the corporate tax rate to 21% could have an impact on valuations and pricing for deals that are currently being made. While it remains to be seen what will actually be the trend in the upcoming years, M&A have already increased, and with the lower tax rate, many predict the price point for these purchases will also rise.
Legal and business professionals alike should familiarize themselves with how the new tax reform laws implicate their organizations. Considering potential benefits as well as detriments will help companies position themselves to get the most value out of the new taxes. Ensuring that teams are compliant may be the most complicated part of the new tax reform law. Visibility and ensuring one hundred percent compliance with the new tax reform law (and any other changes that come down the pipe) is more easily achieved with a contract management platform, guaranteeing processes are adhered to and information can be quickly shared across all teams. Legal teams get the control they need, while increasing collaboration.