A&M Taxand CFO Survey

CFO MATTERS:TAX PERSPECTIVES SURVEY HIGHLIGHTS

ALVAREZ & MARSAL TAXAND

Contents

Executive Summary 1

Survey Methodology and Demographics 2

Results and Analysis 3-8

Contact Us 9

CFO MATTERS: GLOBAL TAX PERSPECTIVES SURVEY 1

EXECUTIVE SUMMARY

Amidst political, economic and regulatory change, CFOs say certainty in the tax code has become even more important than a reduction in corporate tax rates, according to a new survey conducted by Alvarez & Marsal Taxand (A&M) A&M Taxand directly reached out to more than 800 financial executives across the U S to solicit their perspectives and priorities with respect to tax competitiveness and tax reform

While CFOs generally believe tax rates should be reduced to ensure the U S remains competitive in an increasingly global economy, when given the opportunity to eliminate or significantly change one aspect of the tax code, most chose to increase certainty in the tax system The vast majority also said that tax considerations have a direct impact on their business decisions They named Texas, Florida and Nevada as the most tax competitive states and California, New Jersey and New York as the least competitive states in which to operate

The following survey highlights tax issues that are top of mind to today’s U S corporate financial leaders

Alvarez & Marsal Taxand would like to thank The Financial Executives Networking Group (FENG) and its members for participating in this survey.

“While the contentious debate over what proper tax reform

should look like drags on, there is no question about what is

most important to the industry. For companies to plan, to invest, to

create jobs and to grow, they must have certainty. In fact, confidence

in knowing precisely what the tax code will require has become more important than how much it

will cost them. As our research reveals, as long as proposed changes remain up in the air,

companies will be forced to continue to burn fuel operating in holding patterns rather than

charting productive courses forward.”

Robert N. LoweCEO, Alvarez & Marsal Taxand

2 ALVAREZ & MARSAL TAXAND

A&M Taxand directly reached out

to more than 800 financial executives

across the U.S. to understand their perspectives

on tax competitiveness, tax department issues and tax reform.

• A&MTaxanddirectlyreachedouttomorethan800financialexecutivesandshared the survey with the members of The Financial Executives Networking Group (FENG) The survey was also promoted in our weekly newsletter (Tax Advisor Weekly), as well as on www alvarezandmarsal com

• A&MTaxandreceived302responses.

• Forthepurposesofclassificationinthissurvey,businesseswithlessthan$1 billion in annual revenue are categorized as “small,” and those with more than $1 billion in annual revenue are categorized as “large ”

• Therespondentstothissurveywereprivatelyownedcompanies(51%), publicandprivateequityowned(49%).

• Businesseswithannualrevenuesoflessthan$1billioncomprise74%ofthe respondents

2011 Revenue Percent

<$1billion 74.00

>$1billion 26.00

Grand Total 100 00

Ownership Percent

CloselyHeld 51.34

EquityOwned 20.47

Public 28.19

Grand Total 100 00

Tax Professionals Percent

<5 86.94

5-10 8.93

10-25 1.37

>25 2.75

Grand Total 100 00

Demographics of Respondents

Employees Percent

<500 58.84

500-1,000 8.50

1,000-10,000 21.77

> 10,000 10 88

Grand Total 100 00

Industry Percent

Energy 4.71

FinancialServices 16.84

Healthcare 6.40

HighTech 12.46

Manufacturing 25.25

Other 20.20

Services 11.78

Transportation 2.36

Grand Total 100 00

HQ Location Percent

Texas 12

California 11

New York 10

NewJersey 7

Massachusetts 7

Illinois 5

Pennsylvania 4

North Carolina 4

Florida 3

Connecticut 3

Georgia 3

Delaware 2

Virginia 2

Minnesota 2

Ohio 2

Other – U S 14

International 7

SURVEY METHODOLOGY AND DEMOGRAPHICS


RESULTS AND ANALYSIS

Q What effective tax rate would make the U.S.

Federal corporate rate competitive with foreign

income tax rates?

Financial executives from both large and small companies view an

effectivetaxrateof20%-25%asnecessary to make the U S federal

corporate rate competitive with global tax rates, while a significant

percentage of small businesses, with generally a higher percentage of domestic income, view an even

lowerrate15%-20%asnecessary.

“The view among CFOs is that we have sat here for the last 20 years and have watched other countries lower their top corporate tax rates

while we have done nothing – thus, impacting our ability to compete effectively in a global economy.

Aligning our corporate tax system with the rest of the developed

world should enable U.S.-based companies to compete effectively

on a global scale and create more business opportunities in the

United States.”

Ernesto R. PerezManaging Director,

Transaction Tax and International Tax

51% of large company CFOs believe a U.S. effective tax rate of between 20%-25% is necessary to allow the U.S. federal tax rate to be competitive with foreign corporate tax rates.

Small company CFOs also most often choose the 20%-25% range as the rate required to make the U.S. rate competitive (34%); however, a slightly smaller percentage (28%) believe the rate needs to be even lower, 15%-20%, to make the U.S. competitive.

2%7%

7%15%

28%

16%

34%

17%

51%

18%

5%

Large Business

Small Business

30-35%

25-30%

20-25%

15-20%

10-15%

30-35%

25-30%

20-25%

15-20%

10-15%

<10%


Q If you could eliminate or significantly change one aspect of the current tax code, what would it be?

While our survey indicates that financial executives believe the U S tax rate needs to be reduced to be globally competitive, CFOs would rather have certainty within the tax system as opposed to a reduction in rates Does this suggest that companies can overcome the complexity and high tax rates of the U S tax system and still be competitive?

“It isn’t surprising that ‘certainty’ ranks so high with CFOs. Significant volatility or unexpected bumps in EPS can be traced to the impact of income taxes. This volatility is more pronounced than ever due in large part to the impact of ASC 740. CFOs are also keenly aware that restatements are often caused by material weaknesses in the area of income taxes. I believe that some of our respondents must think that if the U.S. tax code was built on a bedrock of stability and certainty, then weaknesses in tax internal controls would be greatly diminished.”

James M. Eberle Managing Director, Federal Tax and Research Credits and Incentives

When given the opportunity to eliminate or significantly change one aspect of the current tax code, CFOs most frequently choose to eliminate uncertainty related to tax situations. This response is interesting, given that it tops a reduction in tax rates coupled with an elimination of incentives and credits.

9%

34%

20%

37%

Large and Small Businesses

Eliminate uncertainty

Reduce rates and adopt territorial system

Reduce rates and eliminate incentives /credits

Other



92% of large companies consider tax implications in global business decisions; 48% give tax “major” consideration. In contrast, only 77% of small companies consider tax implications, with major consideration given by just 26%.

8%

23%

51%

44%

48%

Large Business

Small Business

Major consideration

Minor consideration

Not a consideration

Major consideration

Minor consideration

Not a consideration

26%

Q To what extent do tax considerations influence your global

business decisions?

The tax implications of business decisions are consistently

considered by businesses of all sizes As businesses grow

in complexity and increase their global reach, tax increasingly

impacts decision making as financial executives give tax greater

consideration Companies with greater complexity and global reach have more opportunities to include

tax favorable jurisdictions in their operations; generally have greater

pressure to reduce their effective tax rates; and have more tax resources to

develop and maintain complex tax structures

“These results show that it isn’t whether companies are

influenced by their tax cost, but rather the degree to which taxes

impact business choices. Whether it’s hiring, relocation, expansion

incentives, or the tax implications of improvements in the organization,

companies clearly look at all the aspects of tax cost when making

decisions on where to do business. These results confirm that larger

companies view the impact of tax as a significant or major driver of

their business decisions.”

Carolyn ShantzManaging Director,Sales and Use Tax



Q Which states do you view as most competitive from a tax perspective? (Listed in order of most competitive to least competitive)

While many factors may play into financial executives’ perception of state competitiveness, the states generally viewed as having complex tax systems and high tax rates are the three states listed (by a wide margin) as the least competitive states The states regarded as most competitive generally have some formoftaxexclusionornon-incomebased tax systems

“With the states at each end of the spectrum, it will be interesting to see if they modify their tax systems in an aggressive attempt to retain existing contracts and attract new business. When companies look to relocate corporate functions or expand operations, initial credits and incentives may be the most relevant factor from a tax perspective; although, the ongoing tax burden must be considered. Watch for proposals that are positioned as “pro- business” such as lowering statutory tax rates or modifying state apportionment formulas to favor in-state businesses.”

Don Roveto Managing Director,State and Local Tax

CFOs name Texas, Florida and Nevada among the most competitive states in which to operate from a tax perspective, while California, New York and New Jersey are viewed as the least competitive states.



Transfer pricing

Tax audits

Global compliance

ASC 740-10-25

Accounting for income taxes

Other

Global compliance is viewed as the area of greatest risk by large company CFOs, while tax examinations are viewed as the greatest risk for small companies.

2%

15%

10%

23%

29%

20%

18%

10%

32%

8%

30%

Large Business

Small Business

Transfer pricing

Tax audits

Global compliance

ASC 740-10-25

Accounting for income taxes

Other

3%

Q Which of the following areas creates the greatest

risk for your company?

Financial executives of large, global businesses view compliance efforts

as their biggest risk, specifically when it comes to coordination of

global compliance and transfer pricing For small businesses, the

compliance function and resultant review by taxing jurisdictions

(external tax audits and global compliance) are viewed as the

greatest risks

“Interestingly, tax examinations concern small companies to a

much greater degree than large companies. This contrasting view

is likely caused by the attention paid to tax and the availability

of tax resources. As companies grow, do business in multiple

jurisdictions, and leverage both internal and external tax resources

to develop more sophisticated tax structures, CFOs gain greater

awareness and understanding of the tax positions that their

companies are taking. This understanding seems to translate into confidence. Smaller company

CFOs don’t seem to have this same level of confidence,

suggesting that they may need to spend more time talking with

their tax resources.”

Robert Filip Managing Director,

Federal Tax



Yes

No Reform likely, but dependent on 2012 election

No Reform unlikely in planning horizon

No Other

No (blank)

Q In the past two years, members of Congress and the Obama administration have made numerous fundamental corporate tax reform proposals. Do you actively model the effects of these various proposals on your company?

The lack of faith in legislative direction and action leads financial executives to slow efforts to determine the impact of potential proposals Does this response support the view that gridlock is good for business or that greater clarity and leadership by government is required to get business behind tax legislation and reform?

“This response underscores the value executives place on certainty, and emphasizes the hesitancy to take action in the face of obstacles to legislative reform. Even though the reforms under discussion are by any measure fundamental, the impact of these reforms is clearly judged to be too speculative, especially in the face of other more immediate pressures.”

Kent Wisner Managing Director,International Tax

Concern about the lack of certainty in the current tax system is visible in the way financial executives respond to proposed tax legislation. Only 29% of large companies model the impact of tax proposals, while just 15% of small companies do.

17%

23%

24%

29%

Large Business

Small Business

Yes

No Reform likely, but dependent on 2012 election

No Reform unlikely in planning horizon

No Other

1%


30%

39%

22%

15%

CONTACT US

Robert N. Lowe CEO, Alvarez & Marsal [email protected]

Brian Cumberland Managing Director, Compensation and Benefits [email protected]

Laurie DickerManaging Director, Transfer Pricing [email protected]

Don RovetoManaging Director,State and Local Tax [email protected]

Thomas Aiello Managing Director,Federal Tax and State and Local Tax [email protected]

James M. Eberle Managing Director,Federal Tax and Research Credits and Incentives [email protected]

Robert Filip Managing Director,Federal Tax [email protected]

Carolyn ShantzManaging Director, Sales and Use [email protected]

Kathleen King Managing Director,Research Credits and [email protected]

Kent Wisner Managing Director,International [email protected]

Alan Kirschenbaum Managing Director, Business Development and [email protected]

Ernesto R. Perez Managing Director,Transaction Tax and International Tax [email protected]

For complete survey results, please contact us to arrange a private consultation.

About Alvarez & Marsal Taxand

Alvarez & Marsal Taxand, LLC, an affiliate of Alvarez & Marsal (A&M), a leading global professional services firm, is an independent tax group made up of experienced tax professionals dedicated to providing customized tax advice to clients and investors across a broad range of industries. Its professionals extend A&M’s commitment to offering clients a choice in advisors who are free from audit-based conflicts of interest, and bring an unyielding commitment to delivering responsive client service. A&M Taxand has offices in major metropolitan markets throughout the U.S., and serves the U.K. from its base in London.

Alvarez & Marsal Taxand is a founder of Taxand, the world’s largest independent tax organization, which provides high quality, integrated tax advice worldwide. Taxand professionals, including almost 400 partners and more than 2,000 advisors in 50 countries, grasp both the fine points of tax and the broader strategic implications, helping you mitigate risk, manage your tax burden and drive the performance of your business.

To learn more, visit www.alvarezandmarsal.com or www.taxand.com.

www.alvarezandmarsal.com

ALVAREZ & MARSAL®, ® and A&M® are registered trademarks of Alvarez & Marsal Holdings, LLC. © Copyright 2012 Alvarez & Marsal Holdings, LLC. All Rights Reserved.

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A&M Taxand CFO Survey