Key business tax issues executives needs to be watching in 2016

Ongoing tax reform developments in a presidential election year, greater compliance demands and a continued focus on tax transparency are contributing to a very challenging tax environment for CFOs, board members and tax directors.

In 2016, it is critical for business executives in Minneapolis-St. Paul to stay informed on a number of tax issues in the U.S. and abroad. These international, federal and state tax issues could affect company operations and, potentially, corporate reputations.

To provide the best value for their companies, leaders will need to carefully consider a range of tax scenarios when making near- and longer-term decisions.

Here are some items for business leaders in 2016:

• Keep an eye on business tax reform developments. While prospects for some version of tax reform in 2016 are far from certain, it remains a priority for members of Congress. Business leaders would be wise to keep a close watch on the debate. One area to watch with substantial common ground is the international front. With the presidential election coming into full swing, business leaders should stay engaged and monitor proposals and developments closely, and consider engaging with members of Congress on policy direction.

• Monitor calls for heightened visibility of corporate tax arrangements. The Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) project, focused on developing enhanced tax compliance in the 21st century, is now being implemented. Companies need to watch the steps taken by individual countries to revise their compliance systems and then determine their responses.

Of particular importance will be country-by-country reporting, which will call upon the parent company of multinationals to provide a single report to the government in which they are based and include detailed financial information about their operations in every jurisdiction in which they operate. Companies will also need to evaluate whether the increased visibility of their tax positions may lead to increased audits or create reputational risk and consider how to address any potential concerns.

• Prepare to comply with common reporting standards. During 2015, financial institutions in many jurisdictions made their first reports under the U.S. provisions commonly known as the Foreign Account Tax Compliance Act (FATCA), and obligations under FATCA will continue to phase in during 2016. In addition, multinational enterprises will need to ensure that they are able to comply with their obligations under the OECD's Common Reporting Standard (CRS), which took effect in more than 50 "early adopter" jurisdictions on Jan. 1.

Even though the U.S. has not adopted the CRS, American businesses will need to meet the new standards if they have business dealings in any implementing jurisdiction.

• Watch state tax developments and changes. Elections should make the coming year relatively quiet on the state fronts, at least in terms of major state tax reforms. But business executives should be attentive to some pending developments and changes. In certain states, particularly those that are heavily reliant on oil and severance taxes, fiscal stress may force lawmakers to adopt tax increases or so-called loophole-closing measures.

Additionally, a number of states are considering legislative proposals aimed at forcing litigation over remote-seller sales tax collection responsibilities.

• Stay compliant with payroll tax reporting and withholding rules. Today's mobile workforce makes it harder for companies to track employees working across borders, internationally and domestically, to conduct business.

Neglecting to properly report and withhold income taxes associated with mobile employees can put a company at risk of losing foreign tax credits and corporate deductions; overpaying liabilities; and incurring penalties.

• Think creatively about taxes' growing technology needs. Companies are increasingly recognizing that mining data and insight from their tax functions can provide value beyond a traditional focus on compliance.

Kevin Smith is a tax partner in the Minneapolis office of KPMG LLP. He can be reached at ksmith@kpmg.com.