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Potential US corporate tax rate hike clouds the tax agenda
Risk is a given for tax leaders, and more than half (56%) rank the potential for an increase in the US corporate tax rate in the top 3 among the tax-related threats they face. A third (33%) say it’s the biggest.
But other looming issues could hurt the bottom line. Beyond the corporate tax, 44% of tax executives in our October 2024 Pulse Survey put scheduled international tax changes in the top 3. These changes include the rate on global intangible low-taxed income (GILTI), the rate of base erosion and anti-abuse tax (BEAT) and the foreign-derived intangible income (FDIII) rate. These rates automatically increase in 2026 if Congress doesn’t act on expiring provisions of the Tax Cuts and Jobs Act of 2017 (TCJA).
There's more than a bigger tax bill at stake
The prospect of an increase in the US corporate tax rate to 28% is causing concern. Across the C-suite, 75% of respondents, including 73% of tax leaders, agree or strongly agree that their company would significantly reduce investment in the US if the corporate rate increased. The ripple effect could be broader because it would make the combined federal and average state rate the second-highest among OECD countries — behind only Colombia’s 35% — making it harder to attract investment.
56% of tax leaders rank an increase in the US corporate tax rate among top 3 tax-related threats
But concern about the corporate tax rate is just one of the tax issues clouding the nation’s business environment. More than 40% rank the international tax changes scheduled to take effect in 2026 and the US adoption of a Pillar Two compliant per country GILTI regime among the top 3 tax-related issues they face.
While many aspects of the OECD’s global framework became effective on January 1, 2024, guidance continues to unfold. Many jurisdictions around the world have either implemented or released draft Pillar Two global minimum tax legislation, and many more have committed to do the same. Congress has not yet implemented any changes under the global tax regime and is unlikely to as long as Republicans, who have objected to the OECD project, control at least one house of Congress. Even with a Democratic sweep, Congress does not seem likely to enact changes that conform fully to the Pillar Two rules.
What you can do
Run the numbers. Model the potential effects of a rate increase and set expectations within the C-suite.
Corral your data. Work with CIOs and CFOs to streamline Pillar Two compliance, starting with a readiness assessment and an operating model evaluation.
Strategies to mitigate higher US taxes
Tax leaders are considering steps their companies could take to offset the effects of an increase in the US corporate tax rate. Reducing labor costs and relocating revenue-generating activities outside the US are among the options executives are reticent to discuss publicly, but nearly 55% of tax leaders say their companies would consider one or both.
55% would cut labor costs and/or move revenue-generating activities to mitigate a US corporate tax hike
Respondents also rank increasing prices, renegotiating terms with suppliers and accelerating income recognition as measures they would consider to mitigate the effects of a rate increase. The burden would likely trickle down to employees, small businesses in the supply chain and customers paying higher prices. None of these choices will come easily, and a tight labor market and heightened price sensitivity will make any of these options difficult.
Tax leaders should provide insights to the C-suite on how potential tax changes may affect the business and what to do about it. That means engaging with the CHRO on talent and with the COO for operational considerations such as sourcing.
What you can do
Tell your story. Explain to lawmakers the effects an increase in the US corporate tax rate would have on your company and the broader economy.
Start in-house conversations. Align tax strategies with strategic business decisions to help offset higher taxes.
When managing tax risks becomes more than routine
Managing tax risks is an everyday part of the tax leader’s responsibilities. But the high percentage (89%) who say managing new tax risks is either somewhat of a challenge or a significant challenge underscores how complicated the current tax landscape has become. The degree of uncertainty, both global and domestic, is greater than what tax leaders have dealt with in the past. Complying with new legislation and regulations comes in second with 87% of tax executives saying it’s a challenge.
89% say managing new tax risks is a challenge to achieving their priorities
In the United States, Treasury and the IRS in September 2024 issued more than 600 pages of proposed regulations on the application of the corporate alternative minimum tax (CAMT). It will take time to determine how the prospective rules could affect positions taken in past years that were based on interim guidance or interpretations of the statute. Globally, tax executives are still navigating the complexity and costs of complying with Pillar Two and preparing for an uptick in tax controversy. There’s been a surge in tax authority audits and litigation as countries pursue additional revenue.
Compounding the risk is the inability to find and retain the right talent, which 87% of tax executives say is a challenge to achieving their priorities. Diverse skill sets remain in demand to offset the declining number of CPAs entering the profession. Data automation tools and artificial intelligence (AI) can help deliver efficiencies, but 85% say it’s a challenge to use the technology effectively.
What you can do
Rethink your operating structure. Consider a mix of in-house and third-party resources to supplement your team and fill in gaps.
Advocate for your function. Call on your company to invest more to keep pace with regulatory demands and identify other sources of cash flow.
Harness AI responsibly. AI technology can support your human-led workforce by helping them expand capacity and work more efficiently.
Get access to the complete survey responses and data
View the main Pulse survey
Executive takes on Election 2024
About the survey
Our latest PwC Pulse Survey, fielded September 12 to September 19, 2024, surveyed 709 executives and board members from Fortune 1000 and private companies about the current business environment, the risks executives are facing and their company’s strategic plans and priorities. Of the respondent pool, 93 were tax leaders.
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