Global growth: tax insights for c-suite decisions: as companies formulate their growth strategies, financial executives need to understand and consider the tax implications in four critical areas.

• Author: Cockrell, Sandy
• Position: Tax

Increasingly, U.S. and international tax laws have a substantial impact on the success of companies' global growth strategies. Where should senior executives pay closer attention to tax as they expand and manage foreign operations?

The following examines trends and planning considerations around four areas--globalization, mergers and acquisitions, international tax considerations and global talent--that require additional focus and coordination with the tax function as organizations pursue global growth.

Globalization Trends

While residual problems linger following the worst crisis of the last 60 years, particularly in some of the world's principal economies, the overall outlook is for moderate global growth with low inflation. The structure of the global economy, however, is changing, as the United States increases exports and investment in emerging markets and as emerging markets begin to grow from their own consumer demand.

Tax planning implications. As companies expand globally, they will need to align strategic decision-making and tax planning, particularly in four areas:

* Transfer pricing: to manage the overall corporate tax burden, enhance operational performance, manage tax audit risk and increase cash flow.

* Talent deployment: to avoid unexpected employer and employee tax consequences.

* Business model considerations: to help lower corporate income tax rates on incremental profits and seek tax-related, above-the-line cost reductions.

* Corporate structure: to address benefits or requirements as companies move into emerging markets.

Additionally, impending implementation of International Financial Reporting Standards will pose challenges with respect to tax provision calculations, effective tax rate volatility, cash taxes in specific tax jurisdictions as well as the way in which capital markets view companies.

Emerging market activity. With the lion's share of global economic growth in the next couple of years coming from emerging markets, and principally the BRIC countries--Brazil, Russia, India and China--multinationals based in the U.S. and Europe will need to refine their emerging market growth strategies to remain competitive on a global scale.

In fact, as Japan's economy contracted in the fourth quarter of 2010, China now has the world's second-largest economy on an annual basis, according to a Feb. 14, 2011 report in The Wall Street Journal.

U.S. companies will need to shift production as they begin to experience a change in wages, mix of skills and workforces within the emerging markets. It also will become increasingly difficult for U.S. companies to retain the highest value activities such as research, development, design and marketing at home.

As they determine where to locate or relocate processes, U.S. companies will need to consider factors such as the supply and cost of skilled labor, local government incentives and the ease with which they can move capital in and out of a country. These decisions carry significant tax implications that can impact the success of a company's globalization strategy.

Finally, as the markets in China and India continue to develop, companies will rise from within these economies to be world-class players, and they will look to move capital to the U.S. and engage in acquisitions here.

The future of global capital. While the trend towards a global economy...