How CFOs view tax, trade and regulations amid GOP sweep

Overall, the tax reform discussion underscored the significant implications for businesses and the need for CFOs to closely monitor policy developments as the new administration takes shape.

Extending Tax Cut Jobs Act (TCJA) provisions is at the top of the tax issues. There was a consensus that extending TCJA provisions that are set to expire in 2025 will be a top priority for the new administration. However, Wasserman stated that the full US$4.6 trillion price tag associated with extending the TCJA provisions may be too high for some Republicans to support, with the administration focusing more on extending the individual tax cuts, rather than the full package to balance priorities. Other potential priorities mentioned included restoring the state and local tax (SALT) deduction, eliminating taxes on Social Security benefits, and removing taxes on tips.

The discussion at the roundtable shifted to trade policy, focusing on the Trump administration’s proposed tariffs, and China’s economic outlook. Proposed tariffs include a 10%-20% baseline on all imports and up to 60% on goods from China. Hallmark noted that these figures are starting points, with significant negotiations expected to carve out exceptions. He added that the president’s executive authority in this area reduces the need for congressional approval.

Insights on business in China

The EY CFO roundtable discussed China’s economic transition and strategies like brand differentiation and supply chain resilience for doing business there.

Economic transition and low consumer sentiment: A food and beverage CFO highlighted, “The economy is transitioning from an infrastructure-led model to one driven by consumption, but this shift takes time. Key performance indicators suggest that further infrastructure development is limited, and the focus must shift to boosting consumption. Many consumers feel financially secure but are hesitant to spend due to a perceived economic softness. This has led to increased savings and reduced spending, impacting short-term economic performance.” Most CFOs concurred, with another CFO from retail indicating, “Similar to others, we see significant challenges on the consumer front.”

Brand differentiation:

Another food and beverage CFO emphasized the need to distinguish brands from local competitors who replicate products at lower costs. He stressed the importance of adapting business models to stay competitive and focusing on long-term growth despite short-term challenges. He continued, “Despite short-term challenges, growth in China continues unabated, with local competitors expanding aggressively. If you believe in China’s potential, as we do, you can’t afford to slow down. It’s crucial to continually adapt your business model to stay competitive and focus on long-term growth.”

Supply chain resilience:

An electronics industry CFO noted increased competition from emerging Chinese companies in the semiconductor sector. To mitigate risks, their strategy includes protecting their China business while expanding production to Vietnam, Malaysia, India and Mexico. These regions are attracting significant investment as companies seek more resilient supply chains. However, potential changes in tax policies could impact investment decisions.

Throughout the discussion, the CFOs emphasized the importance of maintaining a long-term perspective and adapting strategies to navigate the competitive and evolving landscape in China.

CFOs expressed a new sense of cautious optimism regarding the approval of major M&A transactions under the new administration. 

Regarding antitrust scrutiny, the CFOs had mixed views. Concerns were raised about continued challenges under FTC Chair Lina Khan and the potential for a more aggressive approach. However, some CFOs hoped for a more rational, business-friendly administration that might lead to a more transactional and sector-specific approach to antitrust enforcement, rather than a broad ideological crackdown. This could result in different outcomes for various industries based on their specific circumstances and relationships with the administration.

Insights on global tax claims

The discussion also addressed the impact of government debt and tax policies in the post-COVID-19 era. A CFO from the food and beverage sector highlighted the trend of governments issuing tax claims that require upfront payment, with disputes resolved later. He stated that, “This ‘pay first, argue later’ approach is prevalent in regions like South America, Africa and Asia and can feel like an unjust tactic to extract funds from companies.” Another CFO added to the discourse, “This issue isn’t confined to developing countries. Even mature economies like Australia are adopting more aggressive tax collection practices due to budget pressures. This situation is worsening, not improving. We’re seeing governments take more extreme measures, such as France considering retroactive legislation. This creates significant concerns for large businesses, as we often have to pay substantial amounts upfront and then fight to reclaim them.”

Another top-of-mind issue for CFOs is the EU Corporate Sustainability Due Diligence Directive and its impact on international companies. A CFO from the energy sector highlighted concerns about the directive’s compliance requirements, noting its expected impact and emerging challenges.

A CFO from the food and beverage sector noted: “The amount of work required is substantial. Operating in multiple markets makes data collection and ensuring its accuracy a significant challenge.” He added, “We’ve already started this year with limited assurance reporting. The challenge lies in creating the necessary infrastructure. We now have sustainability controllers in addition to financial controllers, ensuring that our KPIs are auditable. This process involves significant costs and bureaucracy. While compliance is mandatory, the tangible benefits for investors and stakeholders remain unclear. It’s a substantial investment in terms of both resources and processes.”

In closing, the CFOs at the roundtable agreed that preparing for the directive involves extensive planning and resource allocation, highlighting the need for robust data management systems and clear reporting structures to meet the new regulatory requirements.

Summary 

At the EY CFO roundtable, participants assessed the 2024 election’s impact on economic policy, potential changes to the Tax Cuts and Jobs Act, and the complexities of GILTI rules. They discussed challenges in China, including local competition and consumer confidence, and expressed cautious optimism about M&A and antitrust regulation under the new administration. The roundtable also addressed global tax and fiscal challenges, emphasizing the need for strategic advocacy and compliance with the EU Corporate Sustainability Due Diligence Directive, highlighting the importance of robust data management and reporting systems.