Companies Speed Up Tax Analysis in Response to Biden Infrastructure Plan
April 06 2021 - 5:59AM
Dow Jones News
By Mark Maurer
Finance chiefs are considering their options to offset potential
cost increases stemming from a higher corporate tax rate and other
tax proposals by the Biden administration.
President Biden last week outlined a $2 trillion infrastructure
plan to be funded in part by raising the corporate rate to 28% from
21% and hiking the minimum tax on U.S. companies' foreign profits.
The plan would also make it tougher for foreign-owned businesses
with U.S. operations to benefit from moving their profits to
low-tax countries.
The proposal, which is aligned with Mr. Biden's campaign
position, would reverse elements of the 2017 tax overhaul that
reduced the federal tax rate for companies from 35% to 21%. Raising
the minimum tax for global intangible low-taxed income, or GILTI,
to 21% also could bring a greater tax burden.
Companies such as railroad operator Union Pacific Corp., insurer
FM Global and technology firm Uniphore Technologies Inc. are
analyzing steps they could take in response to the suggested
changes.
Omaha, Neb.-based Union Pacific expects that the company might
have less money to invest if taxes were to rise, Chief Financial
Officer Jennifer Hamann said. The railroad company is still
evaluating how to offset these additional costs, Ms. Hamann said.
She declined to comment on potential actions Union Pacific might
take.
The company spent $875 million on rents for freight cars and
other equipment for the fiscal year ended Dec. 31, down 11.1% from
the previous year. Union Pacific's effective tax rate was 23.4% in
2020, down from 23.6% in 2019. It expects to allocate about $2.9
billion for capital expenditures in 2021, up 2.1% from 2020, the
company said.
FM Global, a Johnston, R.I.-based mutual insurance company, is
considering deferring a tax incentive known as bonus depreciation,
finance chief Kevin Ingram said. Bonus depreciation allows
companies to immediately deduct a large chunk of the purchase price
of certain assets such as equipment, as opposed to writing them off
over several years.
By deferring bonus depreciation and other incentives, FM Global
can take deductions in future years when tax rates could be higher,
he said. The company isn't considering permanent changes to its
business, he said.
"Our tax planning has taken on an increased pace and increased
sense of urgency now," Mr. Ingram said, referring to Mr. Biden's
newly unveiled plan. Privately held FM Global said it paid a global
tax rate of 19.9% in 2020, compared with 20.3% in 2019. It had
5,548 employees as of Feb. 28.
The proposal, which marks Mr. Biden's first detailed tax
proposal since taking office in January, could be changed or scaled
back as it moves through Congress. Republicans are strongly opposed
to tax increases, saying they could spur slower wage growth and job
cuts. Democrats have very narrow majorities in the House and Senate
and will need almost unanimous backing to advance the package
without Republican votes.
Companies won't know until later which of the proposals actually
comes to fruition. In many cases, they have already modeled Mr.
Biden's plan and are making investments based on forecasts they
have adjusted for potential related risks, said John Gimigliano,
head of tax legislative services at professional-services firm
KPMG.
Palo Alto, Calif.-based Uniphore, which sells software for voice
analysis, is watching closely how the plan could affect its U.S.
taxes and those on its overseas operations, CFO Stephane Berthier
said.
Under Mr. Biden's plan, profit on domestic operations would be
taxed at 28%, while profit on foreign operations would be taxed at
21%. Uniphore, which does business in the U.S., Canada and several
Asian countries, doesn't plan to alter its growth strategy or shift
the location of its operations if the tax proposal becomes law, Mr.
Berthier said.
"I'm not going to try to put in place a very complex tax
structure, which will force me to hire people in a particular
territory, when I don't necessarily need those people," he
said.
Uniphore currently has about 300 employees.
--Nina Trentmann contributed to this article.
Write to Mark Maurer at mark.maurer@wsj.com
(END) Dow Jones Newswires
April 06, 2021 05:44 ET (09:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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