corporate capital expenditures: do tax incentives really matter?
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Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals
Corporate Capital Expenditures: Do Tax Incentives Really Matter?
• Understand current trends in U.S. Corporate Capital expenditures
• Discover how companies are leveraging technology to create strategic alignment between Finance and Tax, better manage accounting error risk exposures that impact tax liabilities, and mitigate compliance risk
• Identify opportunities to improve the level of collaboration between the office of the CFO and tax professionals at your company
After attending this event you will be able to:
Learning Objectives
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Welcome to Proformative
Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals
Corporate Capital Expenditures: Do Tax Incentives Really Matter?Dean Sonderegger, Executive Director, Software Segment, Bloomberg BNALarry Martin, Former Chief Tax Officer, AOL
Dean SondereggerExecutive Director Product ManagementBloomberg BNA, Software Segment
Larry MartinCorporate Tax Expert
Tax Consulting Concepts
Who is with you Today
Introduction Key Findings
1 2 3Trends In Capital
Expenditures
72014
Investments & Spending
6 5 4
Policy InfluenceDepreciation Of Fixed Assets
Internal Errors & Audit Scrutiny
Agenda
U.S. businesses ended 2013 with more than $1.6 trillion in cash reserves, leading analysts to believe that 2014 would mark the start of a corporate spending spree.
More than halfway through the year, U.S. capital expenditures remain underwhelming, raising the question: Could the 2013 expiration of two key corporate tax breaks – bonus depreciation and Section 179 expanded expensing – be to blame? According to tax and accounting leaders at large U.S. organizations, it’s not.
Bloomberg BNA, provider of expert software for tax and accounting professionals, commissioned a study conducted by The Blackstone Group, surveying 100 tax and accounting leaders at firms with average revenues of $7.5 billion to understand how U.S. businesses’ capital investment has changed since 2008, and how tax policy changes impact financial decision making at large companies.
METHODOLOGY
Introduction
So what? While most of the business community welcomed these tax breaks, the incentives aren’t viewed as an economic stimulus.
83% of respondents feel the expiration of expanded expensing and bonus depreciations hasn’t impacted their firms’ capex this year
83%
So what? Companies will continue to hoard cash, despite other economic improvements.
37% of respondents expected their firms’ capex to increase by the end of FY2014
37%
So what? Ironically, the policies most closely aligned to CapEx don’t seem to be the ones that truly influence business decisions.
30% of respondents believe the current tax policy climate inhibits their firms’ spending habits
30%
Introduction: Key Findings
3x as many firms have grown investments compared to those who have cut back, but expenditures remain modest.
40% of respondents claim their organizations' annual capital expenditures have increased, compared to 16% that claim their firms’ capital expenditures have decreased.
Asset intensive firms, defined as organizations in which at least a quarter of all assets are fixed assets, prove more eager to invest than non-asset intensive organizations.
49% of respondents from asset intensive firms claim an increase in CapEx since 2013, compared to 29% from non-asset intensive firms.
DecreasedCapEx
IncreasedCapEx
16%40%29%49%Non-Asset intensivefirms
Asset intensivefirms
Capital Expenditures Leave Much to be Desired
According to respondents, few fluctuations are expected for the remainder of 2014.
51% of respondents expect their firms’ CapEx to stay the same, 37% expect CapEx to increase9% expect CapEx to decrease.
Same CapEx
51%9%
CapEx increase
37%
CapEx decrease 2014
U.S. tax and accounting leaders appear content with the status quo.
Only 31 percent of tax and accounting professionals feel that their firms’ CapEx should be greater than they currently stand. Just over one-third (34%) agree that their organizations have more cash on hand than normal.
31% 34%
2014 Investments: A New Normal
These findings suggest that this anemic period for corporate investment is not a passing trend, but a standard. For U.S. businesses, avoiding CapEx presents short-term benefits and long-term challenges.
“ We certainly believe that returning cash to shareholders should be a part of a balanced capital strategy…when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term results. ”
Laurence Fink, Chairman & CEO, BlackRock, Inc., March 2014
Many firms are dedicating cash to paying dividends and buying back stock, a tactic that has increased stock value for a number of businesses.
Failing to invest in new assets could hold firms back in terms of innovation, production and global competition.
PRO CON
Pros & Cons of Modest Spending
While the majority of respondents’ businesses have used incentives like bonus depreciation and expanded expensing in the past, most feel that the expiration of both has not impacted capital expenditures.
83% feel the expiration of these incentives has not impacted CapEx14% feel the expirations have impacted CapEx
CapEximpacted
83%14%CapEx notimpacted
Not surprisingly, asset intensive firms are more likely to sense a connection between tax policy and investments.
19% of asset intensive firms feel the expiration has impacted CapEx, compared to 9% of non-asset intensive firms.
9%19%Non-Asset intensivefirms
Asset intensivefirms
Firms Can Live with and without, Tax Breaks
Thank you for your interest in this presentation. View the on-demand webinar or download the full
presentation at:www.Proformative.com
Corporate Capital Expenditures: Do Tax Incentives Really Matter?
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