TEI Roundtable No. 21: TCJA Implementation: A View From the Trenches
Dealing with landmark legislation takes a special kind of planning

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Tax Cuts and Jobs Act (TCJA) implementation, compliance, and planning is a work in progress. How are tax professionals in the trenches dealing with this landmark legislation? To find out, we convened a roundtable of experts including Stephanie Kuykendall, vice president and general tax counsel at Shell Oil Company; Jason Weinstein, tax director, M&A and planning at Amazon; and Barbara Young, vice president, global tax accounting and compliance at Marriott International. Michael Levin-Epstein, senior editor of Tax Executive, moderated the discussion.

Michael Levin-Epstein: What are the most pressing issues coming out of the tax legislation, from your point of view?

Jason Weinstein: I think for us, there are a few different ways to think about the most pressing issues. One is, how do we implement the new legislation from a compliance and reporting perspective? That is probably the hardest and most pressing issue. But there’s a lot of fronts to cover. There’s the reporting and compliance front, but then there’s understanding entirely new ways to think about what planning looks like and how we help our businesses to grow and expand. There’s an entirely new form of analysis necessary, which is almost an equally pressing issue to reporting and compliance. And then there’s a third front, which is there is an enormous amount of guidance yet to come. And so, it’s preparing and thinking about how to deal with the ambiguities currently out there absent guidance as well as how to ingest the guidance and then input those into the same two areas of compliance and planning. From a process perspective, the issues are created by mainly the international complexities, the cross-border complexities, of the TCJA.

“At the same time, we are required to make estimated tax payments for 2018 as well as report our 2018 quarterly tax provision, both of which include the tax impacts of the new provisions in the TCJA such as GILTI, BEAT, and FDII.”
—Barbara Young

Barbara Young: I would agree with Jason. I think our most pressing need this summer has been to wrap up our 2017 federal income tax return, which includes the repatriation transition tax reporting. At the same time, we are required to make estimated tax payments for 2018 as well as report our 2018 quarterly tax provision, both of which include the tax impacts of the new provisions in the TCJA such as GILTI, BEAT, and FDII. As we move through the rest of 2018, new TCJA guidance could potentially change our full-year estimates. The lack of guidance related to some key provisions is affecting our estimation process. On a long-term basis, our advice to our business partners in the company regarding business transactions is changing as the TCJA has shifted the paradigm for U.S. multinational companies.

Stephanie Kuykendall: I would agree with both Jason and Barbara. From our perspective, the most pressing issues are around added complexities, data requirements, demands on people, and communications internally with stakeholders. Another key challenge has been the need to combine technical tax capabilities with modeling and scenario planning with imperfect information, especially as it relates to changes in the international area.

Levin-Epstein: So, on an everyday, real-world level, are you game-planning this in terms of looking at possible scenarios that the guidance could suggest, or are you truly just sort of waiting for the guidance before you come up with a plan to react to it?

Kuykendall: I would say it’s a combination of both. In areas that are clear, or [where] we expect a material impact, we are modeling and evaluating possible scenarios for execution. In other areas, we are laying the groundwork to ensure we will be prepared to move forward with the scenarios and planning once the guidance is released.

Young: We’re a calendar-year company. We have already filed two quarterly reports for 2018, and we’re going into our third-quarter close, and in the context of our tax reporting and our financial statements, we’ve had to make assumptions and come up with calculations as to how these provisions are going to affect us in 2018 so that we can report our income taxes. We don’t have the luxury of just waiting for guidance and then reacting after it is issued. That said, we certainly have preferences about how we hope the guidance resolves the open issues and are maintaining as much flexibility as possible. With deadlines for 2018 looming, we will have to finalize positions for our financial statements and estimated tax calculations regardless of whether further guidance has been provided.

Weinstein: We’re obviously in the same boat. Again, I sit on the planning side, but I certainly work with my compliance colleagues to deal with those same issues of “Yeah, we have to put out financial statements. We have to make decisions in ambiguity.” On the planning side, there are business decisions that need to be made. The entire Amazon business can’t be on hold for the tax impacts and ambiguities of the TCJA. There are things that need to happen, and from a planner’s perspective, you just need to think about how you have the most optionality in whatever structures you’re trying to set up to support your businesses. There is no way to game-plan the scenarios out, because there’s too many scenarios and too much ambiguity. So, you just need to have the most flexible structures that you can. And push off what you can; what you can’t, make decisions and try for flexibility. But the flexibility doesn’t help the compliance teams, either, sometimes, to push off those decisions.

Young: I agree with Jason that some tax planning that isn’t urgent has been shelved, awaiting clarification from Treasury guidance. For a company with a more urgent need, such as an acquisition closing, the tax structuring considerations may now involve TCJA provisions and the lack of guidance can lead to significant uncertainty. Furthermore, the tax due diligence efforts will need to incorporate these new TCJA provisions and evaluations of the positions taken by the target company.

Weinstein: I don’t know how a PE firm would deal with the level of ambiguity right now, how they would forecast their after-tax returns. I would guess that there’s a bit of a standstill but not knowing from a personal perspective.

Internal Processes

Levin-Epstein: Take us through how you deal with this internally at your companies.

Kuykendall: As soon as it became likely that a tax bill would get passed, we established recurring meetings with our global tax leadership to share information, provide updates, and answer questions. This process has carried over post-enactment of the TCJA and works fairly well. Of course, as guidance gets issued, these meetings take on a new level of importance for various participants. We have created dedicated workstreams for each of the areas we have identified as critical and continue to refine our views on other areas that may be less critical but nonetheless important or necessary. Managing the expectations and needs for information of internal stakeholders has been challenging at times.

Young: Given the timing of the enactment shortly before our year-end, we provided our company’s leadership team with information related to the effects on our 2017 financial statements such as the transition tax and the change in the U.S. corporate rate. After our annual 10-K was behind us, we have provided our company’s leadership team with an overview of the other provisions in the TCJA that are significant to the company. As we identify adjustments to the preliminary amounts that we reported in our 2017 10-K, and as we refine calculations related to the provisions that are effective for 2018, we provide quarterly updates to our finance leadership team who have primary responsibility for the quarterly press releases, investor calls, and SEC filings.

Weinstein: I would say that there’s a little bit of both to your question: does it impact our everyday meetings or is there special processes? There’s, of course, the same types of processes we have for reporting and compliance and for planning, and now there’s additional pieces to the conversations, saying, “OK, the impact of this is not just a foreign tax but a GILTI impact,” and just working through thinking about the new pieces. But at the same time, there’s entirely new processes in forecasting that we need to create. Barbara, I’d be curious if this is happening with you, where the forecasting and actual information that we now need for our foreign and domestic subsidiaries just to do provision, it’s just totally different. In order to calculate and forecast GILTI, what we now need to know is of such finer granularity compared to pre-TCJA. And it’s not just [profits and losses], but it’s balance sheets. In order to calculate QBAI [qualified business asset investments], we have to have balance sheet forecasting on foreign subsidiaries. The level of difficulty that was added to the practices of the tax department is enormous, and that doesn’t even get to BEAT. We’re expanding businesses at a fast pace, and that requires ensuring that relevant intercompany relationships are properly identified and documented, and that we had processes in place to deal with that. But to then layer BEAT on top of that and just say, “Oh, wait. Are there relationships being created to support our business that we need to think harder about?” The data that is now required to calculate and forecast the tax provision is distributed and has increased exponentially. I think that those are huge impacts to how we do business as a tax department.

“As we develop our strategies to ensure we are able to file our 2018 return on time, we are also putting a significant amount of focus on the source of the data with an eye toward automation and simplification going forward.”
—Stephanie Kuykendall

Young: The implementation of the TCJA has also led to resource discussions for the tax department because of the increased amount of work. Not much other work has been eliminated, and resources are already stretched.

Weinstein: That’s a great point. We haven’t taken away any of our difficulties in the process of adding new ones. A great example of that is that [Internal Revenue Code Section] 956 is still around, right? We have all these processes to ensure that our intercompany balances aren’t creating 956 issues, and now we have a participation exemption world for dividends, and so maybe there’s a simplification of the world and your APB 23 reps and all that, but we could still have 956 issues, so we still have an enormous amount of 956 processes. We’ve added an enormous amount of processes to comply with our reporting obligations for GILTI, BEAT, etc.

Kuykendall: Tax reform has definitely added a significant burden to the tax team’s daily responsibilities and how the team supports our businesses. This has been particularly challenging because we have needed to balance a very active business investment portfolio while also grappling with the new changing tax code. At some point, I expect we will have to look at the sustainability of the demands with a goal to ensure we are maintaining a reasonable work–life balance for the team.

Young: The lack of guidance adds complication to the resource issues because typically, with a new set of rules, we will seek to build a data collection process to support any calculations required. Many of the TCJA interpretive uncertainties affect the first step of developing a process: defining the data needs. For several of the TCJA provisions, there will be new types of data that will be needed, and the data won’t necessarily be available.

Weinstein: Yes, and the data-set point is one that we are feeling acutely. How do you find reliable data sets for FDII? To your point, we don’t even know exactly what data sets we might need to calculate FDII, but what we do know is they’re not data sets that we previously had. There are going to be new data sources that the company may need to secure from other systems or may not even have in other systems. So, what we need to build to gather data is a really difficult path, and taxpayers are not even at day one of building those data sets.

Young: It would be a different situation if the act itself had sufficient detail that would enable people inside a company to say, “OK, now I know what data I’m going to need to do this calculation. I may not have it today, but at least I know what it is.” It’s very difficult with so many interpretive uncertainties and open issues to know what we’re going to need.

“It is literally the creation of new systems, and for really complex multinationals, there aren’t going to be these nice, neat data sets. You have independent subsidiaries from acquisitions on different systems. Integrating those is hard enough already, much less to layer on BEAT and GILTI and FDII. It’s just beginning.”
—Jason Weinstein

Kuykendall: We are facing similar data challenges. In a company the size of Shell that is operating in virtually every country around the world, and given certain unique challenges associated with having our headquarters overseas, the data collection processes and systems can be disjointed, because they were not necessarily designed to roll up to give a U.S.-centric view.

Weinstein: I don’t know if you’re seeing this, but resources are one thing and technology is another thing. I don’t think, right now, that it’s possible. It’s not like you can plug your ERP system or whatever into Corptax and have it tell you what your FDII is.

Young: We want to move as quickly as possible to create automation around the collection of data and calculations, but we can’t move forward until there is more certainty.

Kuykendall: Yes, I would agree. As we develop our strategies to ensure we are able to file our 2018 return on time, we are also putting a significant amount of focus on the source of the data with an eye toward automation and simplification going forward. Sourcing the data may be as challenging as the technical work necessary to understand the new rules and develop strategies to ensure compliance!

Weinstein: It is literally the creation of new systems, and for really complex multinationals, there aren’t going to be these nice, neat data sets. You have independent subsidiaries from acquisitions on different systems. Integrating those is hard enough already, much less to layer on BEAT and GILTI and FDII. It’s just beginning.

Young: It’s going to be a multiyear process starting with interpretive guidance that will define the calculations and the data needs.

Weinstein: And then, what are the controls around that data?

Levin-Epstein: Always fun to end a roundtable with the question for the readers. Thanks, everyone.

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