New regulatory changes and growing financial pressures are pushing many technology companies to take a closer look at tax planning. Often, companies are finding that they want to adapt their tax plan from past years, and there are some complex factors to consider.

Listen to Grant Thornton International Tax Services Partner Christopher H. Summer talk with our tax specialists about how and why tech firms should re-examine their tax plans.

163(j) deduction for interest expense

When the Tax Cuts and Jobs Act amended 163(j) to limit the deduction for interest expense, tech companies took notice — but many hoped that future legislation would revise the change.

That limitation is still in effect, however. “So, as we look to the next tax year, increasing interest rates and maturing debt loads threaten to exacerbate the problem caused by this limitation,” said Grant Thornton Corporate Tax Solutions Senior Manager Trevor Salzmann.

Hear Salzman and Summer talk about what Tech companies should do to refine their tax planning for the year ahead.

8:07 | Transcript

Pillar 2 minimum tax

The Organisation for Economic Co-Operation and Development (OECD) has developed and released the Pillar 2 model rules that include a global minimum tax, with collaboration from 137 member jurisdictions worldwide. “It’s designed to ensure that all companies, no matter where they earn their profits, are subject to a minimum effective tax rate of at least 15%,” said Grant Thornton Washington National Tax Office Partner Cory Perry.

Many technology companies interact with markets around the world, so it’s important for them to understand and prepare for the Pillar 2 requirements that take effect as early as this year in some participating jurisdictions.

Hear Perry and Summer talk about what Tech companies should do to prepare for Pillar 2.

9:30 | Transcript

Section 174

The changes to deductions for research and tangible property have important impacts on tech companies, but recent guidance and legislation have introduced many more considerations. “One impact that comes to mind is the coordination between the research credit and the treatment of those costs under 174,” said Grant Thornton Washington National Tax Office Managing Director Kevin Benton. “This is a unique opportunity for startups to help monetize their tax credit and help with cash flow.”

Some considerations could even influence larger business strategy. “If a taxpayer is looking at their product development life cycle — the process that they use from inception of an idea for a product to production and maintenance at the end, one consideration is identifying whether work’s to be performed internally or externally,” Benton said. “And taxpayers may want to look at who is performing which activities, because that could mean the difference of being able to deduct 100% of those costs in the year that they're paid or incurred versus having to recover them over a 15-year period.”

Hear Summer and Benton discuss some of the emerging considerations surrounding Section 174 for tech companies.

9:42 | Transcript

Transfer pricing

In the technology industry, transfer pricing has become an important issue both because of its complexity and because of increasing IRS scrutiny. “About 12 years ago, the IRS switched from a district-office-centric development of cases for transfer pricing to a nationally led development of cases, and it's taken a long time, but it's begun to make a difference,” said Grant Thornton Washington National Tax Office Managing Director Steven Wrappe. “The IRS is having more wins and partial wins than they've had in a very long time in transfer pricing.”

Hear Summer talk with Wrappe and Grant Thornton International Tax Solutions Principal Samit Shah about emerging concerns for transfer pricing in the tech industry.

5:43 | Transcript

SALT

As the technology industry has quickly evolved, tax regulations in some jurisdictions have struggled to keep pace. “The state and local tax laws were created a really long time ago. States can't keep up, because of the advances in technology that have changed the scope of what businesses are selling today,” said Grant Thornton National Tax Office SALT Solutions Principal Jamie C. Yesnowitz. Recently, some states have instituted changes to update their tax laws, and technology companies need to be aware.

“When we think about the key state and local tax challenges that companies within the technology industry face, we're really talking about things such as controversy, challenges related to the sourcing of electronically delivered goods and services, and indirect tax matters such as taxability of different electronically delivered goods and services,” said Grant Thornton SALT Solutions National Managing Partner Dana Lance.

Hear Summer, Lance and Yesnowitz discuss some of the new state and local tax impacts for tech companies.