Event
Navigating the complex and evolving regulatory landscape in automotive
Moderator
Panelists
Ronald Dabrowski, Principal and Technical Deputy, Washington National Tax, KPMG LLP (U.S.)
“We’ve had well over a thousand pages of proposed regulations come out in the fall and in the winter,” said Ron Dabrowski, principal, Washington National Tax at KPMG, referring to the Tax Cuts and Jobs Act (TCJA). “What have we learned so far?”
Tax professionals from General Motors and Ford answered with valuable insights about the impact of the new legislation on the sector to date.
Just the beginning
Dabrowski suggested that the TCJA’s regulations are really only opening bids. “Everything is still in progress.”
The preambles in the regulatory tax packages are more like a part of legislative history—intent, versus specific regulatory language that comes later on. “It’s still going to be a fairly long process before we really understand how all of these rules play together,” he said. “And I think it’s going to be a learning process for Treasury as well on the guidance front.”
The “fun part,” Dabrowski added, is that “the preambles don’t really line up that well, or oftentimes don’t line up… with the language of the proposed regulation itself.” The regulators often riff on their general thinking, which is why “the preamble sounds like a much broader rule.”
For now, Dabrowski said he expects more questions than answers as government regulators use the drafting process to try to figure out what to do, often taking the most conservative position and waiting for the comments to roll in. That’s why proposed regulations generally come out harsher, but with comments, the regulations “get softer.”
Foreign tax credits and BEAT
Sarah Boss, Assistant Director, International Tax, General Motors
GM’s assistant director of International Tax, Sarah Boss, said that the new regulations are going to make tracking and calculations related to foreign tax credits (FTC) extremely difficult.
“We now have all of these different categories ... It’s still not entirely clear to me how you deal with tiering when you have multitier structures, and how you now deal with all of these different categories going forward,” she said.
New software could provide some relief, Boss added. “I'm hoping maybe that we have some systems that come out that can assist… but it’s certainly going to be a compliance challenge in future years.”
Meanwhile, Dabrowski took a critical stance regarding the TCJA’s base erosion and anti-abuse tax (BEAT). “I think they pulled punches in the whole BEAT world.”
He acknowledged that regulators are drafting new language that takes “a much bigger view” of profit shifting overseas by corporations to avoid taxes. But he felt that this effort is being mitigated by the need to balance a number of policy issues. As a result, “the regulations have a mixed bag for taxpayers.”
Impact on tax operations
Dabrowski asked the panelists how the new regulations and proposals have changed tax operations in their daily jobs. “Do you see your jobs, your tax department ... evolving to meet this, or was it a track you were already on?”
Ford’s response includes an effort to improve automation in their compliance process, according to Steve Jenks, their tax attorney.
Steve Jenks, Tax Attorney, Ford Motor Company
“This is a path we need to continue to follow,” he said, citing new levels of complexity in addressing compliance issues. “It’s like with the FTC. It’s just mind boggling.”
Boss said that General Motors has already seen several changes in response to the new regulations.
“Modeling has become even more important, given how these provisions all interact with each other. You have to have your hands on the data and be able to quantify it, and quantify it quickly,” she said.
“I'd say we interact with our business more than we ever have, particularly with the BEAT provisions,” Boss added. “The last thing you’d want to have is a surprise, so we’ve really had to make sure we’ve got a good solid forecasting process, and we understand trade flows and legal entities more than ever.”
Living with tax reform
The speakers touched on a broad array of technical topics such as GILTI and anti-abuse rules, 965, Section 163(j), and anti-hybrid regulations. But the day’s conversation also included an assessment of how the TCJA is affecting tax professionals and their industry on a day-to-day basis.
“The rate reduction is very good. The ability to repatriate cash more easily has been very good,” Jenks said. He also noted that the sheer complexity of the new regulation has only served to increase the need for tax professionals. “I would say their jobs are pretty safe. The complexity is just multiplied.”
“We think it’s good for the industry,” Boss agreed. “We think it’s good for our consumers, which means it’s going to be good for us.”
While the issues have been much more complex than she and others were anticipating, “that's just served to highlight the value of the tax department to our business and to our management. I think the international tax group has become more important than ever.”
Boss added that the TCJA has actually contributed to career growth for tax professionals.
“These opportunities don’t come along very often. It’s been great for our staff, great for development,” she said. “Overall, I’ve been having a blast.”
To access this panel’s presentation, please click here.