Tax Reform: 5 key points that need to be on companies’ agendas

Preparing for tax reform requires a combination of business acumen, prioritization of actions, and advisory support

Although some of the Tax Reform regulations are still being developed and the transition is taking place gradually, companies should already be assessing the potential impacts and the decisions that will need to be made.

The main challenge is not just understanding the new tax system, but translating these changes into actions that benefit the business.

Below are five key points that companies need to consider as the landscape changes.

1. The analysis should not be limited to the tax rate

The impact of the new tax rate is one of the most important factors, but analyzing it in isolation can lead to erroneous conclusions.

Companies in the same industry may experience different impacts depending on their operational structure, supplier profile, ability to generate tax credits, existing contracts, and business model.

Therefore, the assessment must take into account:

• impact on profitability;
• pricing;
• generation and utilization of credits;
• working capital requirements;
• system compatibility;
• contracting models;
• international operations.

2. Contracts need to be on the radar

Contracts may be one of the key areas of focus during the transition. They should be evaluated with particular care:

• long-term contracts, especially those entered into before the Reform;
• contracts with government agencies;
• contracts with fixed prices or limited adjustment mechanisms;
• contracts with low profit margins;
• international contracts, such as intercompany agreements, royalty agreements, and cost-sharing agreements;
• contracts whose profitability depends on certain tax assumptions.

An important consideration for management is to understand how the impact will be absorbed if tax assumptions change during the term of the contract.

This analysis should not be limited to contracts with customers. Contracts with suppliers can also have significant effects, especially given the new dynamics surrounding the use of tax credits.

Companies that anticipate this review will have greater negotiating power and a lower risk of unexpected impacts on their margins.

 

3. Pricing should consider more than just the tax burden

Tax reform will require a review of how companies set their prices. Changes in the tax burden should not be automatically passed on to the customer or absorbed by the company without a broader analysis.

It will be necessary to evaluate:

• the value and timing of tax credits;
• the impact on the effective cost of the transaction;
• supplier behavior;
• current margins;
• commercial terms.

Collaboration among the tax, finance, procurement, and sales departments will be essential.

A business decision made without considering the new tax landscape may preserve revenue but compromise profitability or even competitiveness.

4. Tax credits will also be a financial issue

With the IBS and CBS, tax credits should be analyzed not only based on their value but also on when they will become available.

Companies will need to assess:

• when the credit can be recognized;
• whether the supplier is a taxpayer in good standing;
• how proof of tax payment will be provided;
• whether the payment method used will affect the utilization of the credit;
• whether the systems will be prepared to track this information.

Tax credits are now, even more directly, an integral part of financial management. Depending on the transaction, the timing of payment may affect the timing of the credit and, consequently, cash flow and working capital.

 

5. Systems and processes must be prepared

Tax reform will require more than just new tax rules. It will be necessary to ensure that systems are prepared to automatically capture information, monitor transactions, and support the new processes.

Therefore, it is essential to assess:

• the capacity of the current ERP system;
• the need for new configurations;
• necessary integrations;
• existing manual controls;
• governance of the implementation process.

The risk lies not only in incorrect tax calculations but also in the inability to generate reliable information for decision-making.

For this reason, technology must be treated as a strategic front of the project, not merely as a final step.

 

The transition requires planning and prioritization

The Tax Reform will be implemented in phases. Not all decisions need to be made immediately, but some analyses cannot be postponed.

Companies should prioritize issues such as:

• long-term contracts;
• ongoing commercial negotiations;
• system reviews;
• financial impact studies;
• relevant international operations.

More important than seeking definitive answers to every issue is structuring scenarios and setting priorities.

 

Tax Reform consulting

Domingues e Pinho Contadores supports companies in building scenarios, identifying risks, and defining the steps for a smooth transition to the new tax landscape. Contact us to schedule a meeting with our tax team: dpc@dpc.com.br.