Assessing tax 2015 tax rate benchmarking study for industrial products and automotive sectors Special report The brave new world of taxation: The impact of technology Benchmarking analysis for: Aerospace & Defense Automotive Chemicals Engineering & Construction Industrial Manufacturing & Metals Transportation & Logistics
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Assessing tax 2015 tax rate benchmarking study for industrial products and automotive sectors
Special report
The brave new world of taxation: The impact of technology
Benchmarking analysis for:
Aerospace & Defense
Automotive
Chemicals
Engineering & Construction
Industrial Manufacturing & Metals
Transportation & Logistics
Welcome to the 2015 edition of Assessing tax,
a benchmarking study for industrial products
and automotive sectors. This annual study
provides valuable data and insight into your
tax functions as you evaluate departmental
strategy and performance.
This year’s study begins with a special
report that considers the tax implications
of the accelerated technological changes that
are revolutionizing our world. With rapidly
shifting business models and a changing global
tax landscape, what will the tax function of the
future look like? How can companies prepare
now for what's ahead?
Also included in this year’s report is an
overview of tax rate metrics for 320 companies,
highlighting general trends and the drivers
of these trends across the sectors. A detailed
analysis is provided for the following industries:
Aerospace and Defense, Automotive, Chemicals,
Engineering and Construction, Industrial
Manufacturing and Metals, and Transportation
and Logistics.
We hope you find this latest edition a useful
tool in supporting your organization’s
business strategy.
Table of contents
Special report 1
The brave new world of taxation: The impact of technology 1
Benchmarking overview 5
Tax rate benchmarking for Industrial Products and Automotive sectors 5
Benchmarking by segment 14
Aerospace and Defense 14
Automotive 19
Chemicals 26
Engineering and Construction 32
Industrial Manufacturing and Metals 38
Transportation and Logistics 44
Appendix 50
Source of information and analysis 50
Contacts 51
1 Assessing tax: 2015 tax rate benchmarking study
Special report
The brave new world of taxation: The impact of technology
Technology is having a game-
changing effect on virtually every
aspect of society. But, as everyone
becomes connected to everything
(the Internet of Things), we will
experience exponentially greater
disruptions in the way we live
and do business. Technological
advances are driving changes to
business models and strategic
thinking and mandating an
increasing need for flexibility
in planning for the future.
We are witnessing a rapidly
growing shift in value-creation
from tangible, capital assets
(plant, property and equipment)
to intangible, or software,
assets. Value chains are being
reconfigured as new methods
of manufacturing, such as 3D
printing, bring production
closer to the customer. As
sensors and smart systems
become increasingly integrated
into machines, the value of the
hardware may be less than the
software; i.e., the value may
be greater in the data collected
and analyzed.
These revolutionary changes have
myriad implications for taxation:
How can a company optimize
profit under capital light models?
As 3D printing becomes more
mainstream, how will it change
the tax base? When customers buy
a machine, will they also receive
data, or will that information be
priced and taxed separately?
The answers to these types of
complex questions will impact
businesses worldwide.
Fortunately, while technology is
causing disruptions, it also
provides solutions. Short term,
technology will enable tax
departments to react to the
dramatic changes taking place in
industry. They can begin to
leverage and enhance their
capabilities to enable the tax
function to meet new strategic
demands and help mitigate
increasing risks. Longer term,
technology will reduce the
reporting and compliance burdens
of tax departments through
automation and analytics,
enabling tax to focus on and
provide strategic guidance around
essential business issues. Access
to rich sets of data will enable
real-time tax reporting
capabilities and predictive
analysis of the after-tax impact of
complex, cross-functional
business planning activities.
The tax function of the future
The tax function of the future will
be empowered by technology and
data, greatly enhancing efficiency
and effectiveness. Manual, time-
consuming tasks will be replaced
with automated solutions.
Most tax functions will receive
tax-related information from
enterprise-wide accounting
and consolidation systems or
centralized data warehouses. Tax
data will be shared across all
corporate departments and
integrated into planning for the
company as a whole, aligning tax
more closely with organizational
strategy. Online collaboration
tools will bring global resources
together and serve to automate
document management and
internal controls. Paper tracking
will give way to live data that will
be analyzed with advanced
software using sophisticated
predictive techniques and
compiled on the cloud. Tax
returns will be filed automatically,
transforming the nature of
compliance and tracking.
The use of integrated technology
will enable tax departments to
focus their attention on the tax
impact of broader issues being
considered by the company, such
as changing pricing trends, global
investment opportunities,
outsourcing and co-sourcing an
internal manufacturing process,
as well as moving from hard to
soft assets. Technology will
provide tax departments with the
analytic tools they need to help
model different scenarios to
address these types of critical
business questions.
Assessing tax: 2015 tax rate benchmarking study 2
The tax function of the future will
require a different mix of skill
sets: people with strong
technology skills, data mining and
analytic capabilities, and
specialized tax
advisors who understand
transaction-level detail and the
environment in which the
company operates. With these
skills in place, tax departments
will be able to identify
opportunities in different areas to
optimize their company’s tax
position as well as assist with
corporate planning and strategy
decisions. Fortunately with digital
data, teams will be able to work
virtually, allowing tax
departments to employ talent
anywhere in the world.
The challenges of the present
There are several factors
contributing to the pressure on
tax departments to begin
upgrading processes through
greater automation and increased
use of technology.
Rapidly shifting business models
Operating models are changing
more frequently in response to the
emergence of the digital era and
increased regulatory complexity
around the world. Trade and
investment is shifting to
developing countries with
greater risks and challenges and
differing, sometimes
contradictory, tax regulations.
The buying and selling of
intangible goods is becoming
increasingly important in the
world economy, making it more
difficult to follow revenue streams
and determine when and where
income should be taxed. Tax
departments need to look at
the tax impacts of sourcing in
different jurisdictions and
consider trade agreement benefits
in their analyses.
To address these types
of decisions as well as manage
risk, tax departments need to
coordinate closely with other
functions, such as research and
product development,
procurement, and supply chain
groups, to understand the product
pipeline and related customs
duty obligations and value
added tax implications. They
need mechanisms for collecting
data that will allow them to
perform such sophisticated tax
analyses in support of ongoing
business decisions.
New revenue recognition rules
scheduled for release in 2017
will require a closer look at how
different sales components drive
revenue. The current rules
differentiate between the revenue
recognition of sales for hardware
and software. Under the new
rules, the timing for both types of
sales is likely to be more aligned.
If an asset is sold along with an
information service, a company
will have to determine how and
when it will report revenue
appropriately. To prepare for
these rules, tax departments
should look at what revenues
and related amortization expenses
are being driven by software and
how to collect needed data and
perform the required analysis on
a recurring basis.
3 Assessing tax: 2015 tax rate benchmarking study
Changing global tax landscape
The global tax landscape is
changing rapidly, with tax
authorities demanding greater
transparency from taxpayers.
The 2007-09 global fiscal crisis
put pressure on governments to
control budget deficits and
increase tax revenue. As a result,
tax authorities, particularly from
the G20 countries, have proposed
greater transparency regarding
the tax affairs of multinational
companies. As an example, under
the new “country by country”
reporting requirements of the
Organization for Economic
Cooperation and Development
(OECD), multinational companies
will need to disclose to tax
authorities very detailed
information related to their global
business in every country where
they have a presence – not just for
activity within a particular
government’s jurisdiction.
Governments are also engaging in
unprecedented information
sharing among taxing
jurisdictions to enable them to
better assess audit risk and
compliance by taxpayers. Tax
audits and controversies are
expected to rise dramatically as
many governments seek more
revenue, requiring the tax
function to take a proactive
approach to ensure their
readiness in responding to
inquiries. Tax departments have
to be able to quickly compile,
reconcile and analyze data
requested by various taxing
authorities. The challenge for tax
departments is not just to deliver
the data, but to have an
in-depth understanding of that
data before responding to queries.
Another evolving development is
for tax authorities to pursue
initiatives that encourage real-
time engagement with taxpayers
to achieve immediate and more
certain compliance. The OECD,
for example, is supporting
cooperative compliance strategies
for member countries. In some
cases, tax authorities are
considering gathering general
ledger data directly from
corporations so they can perform
their own analysis of a taxpayer’s
footprint. These types of real-time
engagement efforts between
taxpayers and tax authorities
require tax departments to
maintain a robust tax control
framework with respect to risk
management and compliance, as
well as an ability to perform rapid
analysis of supporting data.
Preparing now for the future
To address the disruptive
forces that will challenge the
tax function as it strives to
meet the increasing demands
of company stakeholders,
practices and processes will
need to be redesigned to leverage
new technology resources.
Today’s manual and inefficient
processes will need to be
overhauled to meet current and
future demands. This overhaul
requires a long lead time,
significant investments and
alignment with finance, IT and
other functions. It is critical that
tax departments obtain budget
approval and corporate buy-in to
support the role of tax as a
strategic partner, to implement
the technology needed to
automate information-gathering
and develop analytics, and to
satisfy evolving talent
requirements needed to support
the expanding role of tax.
An important first step in
preparing for the future is to
assess the current capabilities of
the tax function within the
organization and determine how
to leverage new and existing
technology. For example, which
processes are automated and
which are manual? When data
come into the tax function, are
they already in a tax format ready
for processing and reporting?
Which tasks take significant time
and resources? Is the tax function
easily meeting financial statement
deadlines? Is tax fully supporting
the needs of the business by
responding quickly to planning
and other requests that require
analysis? Are chosen technologies
working in concert with each
other across company functions?
Assessing tax: 2015 tax rate benchmarking study 4
Contrasting the current state of
tax preparedness and
organizational goals with the tax
function of the future maturity
model (see figure below) will help
companies chart a course for
transformation and develop a
documented, strategic roadmap
for integrating technological
solutions. To achieve buy-in from
stakeholders and ensure success
in execution, it is imperative that
tax departments create a tailored
plan with measurable, phased
implementation objectives and
timelines that align with other
company initiatives. This
roadmap should delineate specific
capabilities needed to position the
tax function as a strategic partner
of the finance function and the
organization as a whole.
With the effective use of
technology, tax departments will
be able to address demands for
more taxpayer transparency, as
well as the increase in audits
and reporting complexity and
continual need for real-time
analytics and planning. With
thoughtful transformation now,
the tax function of the future,
through its use of technology and
analytics, will not only manage
compliance obligations, but
emerge as a critical, strategic
business asset.
Tax function of the future maturity model
Look for future PwC publications exploring different aspects of the tax function of the future
Level 5: Optimized
Processes are efficient, based on best practices and continuously monitored for improvement opportunities. Deliverables are high quality and the organization is able to adapt quickly. Integrated portal access crosses functions with advanced automated workflow, embedded controls, analytics and rules with actionable insight.
Level 4: Managed
Processes are actively monitored and deviations are detected in time. Processes are continuously improved in the area of efficiency. Technology tools are aligned with the overall organization and integrated, providing some predictive analytics. Robust controls define the process.
Level 3: Standardized
Processes are standardized, documented and communicated (e.g., through training). Compliance with these processes is still very personal. Deviations from the written procedure may remain unnoticed. Technology includes a mix of licensed software plus a tax sensitized ERP or tax data hub(s). Minimally acceptable internal controls are followed.
Level 2: Informal
Roles and responsibilities are mostly informal and the execution is based on experience within the processes. There is no formal training, communication or standardization. Licensed software is used with limited integration and internal controls are limited.
Level 1: Initial
The organization is mainly incident driven. Issues are addressed and handled at the time of occurrence on an ad hoc basis. Basic software is used but is not integrated and no internal controls are in place.
5 Assessing tax: 2015 tax rate benchmarking study
Benchmarking overview
Tax rate benchmarking for Industrial Products and Automotive sectors
Our tax rate benchmarking
study includes 320 industrial
products and automotive
companies. We analyzed the
effective tax rate (ETR) trends
over the last three years and the
key drivers behind these trends.
The report covers these six
industry sectors: Aerospace and
Defense (A&D), Automotive,
Chemicals, Engineering and
Construction (E&C), Industrial
Manufacturing and Metals
(IM&M), and Transportation
and Logistics (T&L).
Public interest in the amount of
tax paid by large corporations is
growing, and there is a general
perception that some companies
are not paying their “fair share”
of taxes. This has resulted in
demands for greater
transparency and, as noted in
our special report, some
governments are sharing
information among taxing
jurisdictions to enable them to
better assess audit risk. In the
current environment, in which
tax is becoming a reputational
issue, it is critical that tax
departments understand how
their effective tax rates compare
to those of their peer group and
to identify factors that might
result in the differences.
This study provides general
industry benchmarking. A
customized report based on the
publicly available data in this
study can be prepared for any
company interested in assessing
its performance in a particular
year or other period of time.
This kind of information can be
useful in preparing and
reviewing tax strategy and in
communicating that strategy to
a company’s board.
Our study uses publicly available
data for the past three years, up
to and including the year ended
Dec. 31, 2014. Data was sourced
from data providers and from
individual company reports.
Since a large number of
companies in the study are
headquartered in the United
States (143 companies), our
analysis includes specific US
reporting requirements relating
to unrecognized tax benefits,
undistributed earnings and the
statute of limitations.
This study contains a high-level
analysis of key tax ratios, with
no adjustments for one-time
distorting items or losses. While
losses, tax refunds and
exceptional items can serve as
drivers of an individual
company’s tax ratios,
the use of a statistically trimmed
sample serves to minimize the
impact of these drivers.
ETR for all companies
The ETR is the tax provision as a
percentage of the income before
corporate income tax, as taken
from the face of the income
statement. It provides a basic
indicator of the impact of tax on
income results.
We calculated a trimmed
average ETR, excluding extreme
values from both the top and
bottom of the data set. The
upper and lower quartiles
represent the ratios, for which
75 percent and 25 percent of
companies, respectively, fall
below that point (see appendix
for further explanation).
Income tax provisionETR
Income before corporate
income tax
Assessing tax: 2015 tax rate benchmarking study 6
Figure 1 shows the three-year
average ETR was 27.3 percent,
broadly constant over the three
years. The ETR of Quartile 1
showed an increase from 2012 to
2013 and little change from 2013
to 2014. Likewise, Quartile 3 was
steady over the three years. As the
global economy returns to growth,
losses are more limited and have a
less distortive impact on the ETR.
Figure 2 shows the distribution of
ETRs by sectors. Approximately
60 percent of companies’ ETRs for
A&D, Automotive, Chemicals, and
IM&M were between 21 percent
and 35 percent, while 29 percent
of T&L companies ranged
between 36 and 40 percent, which
resulted in the highest average
ETR for this sector. The ETR
distribution for E&C companies
was more volatile due to the losses
in this sector.
ETRs by country
We compared the statutory
corporate income tax rates with
ETRs by country for companies
that were profitable and paid tax
in each of the past three years
(“profitable companies”).
The data were averaged for
countries with sufficient numbers
of companies and applied to
profitable companies to remove
the impact of distorting ETRs
arising from losses in a small data
set (see appendix).
Figure 1 – ETR for all companies
Figure 2 – Range of ETRs by sectors in 2014
34.9% 35.3% 35.0%
26.8% 27.6% 27.4%
17.5%20.0% 20.1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2012 2013 2014
Quartile 3 Average Quartile 1
12% 2% 10% 2% 16% 27% 16% 4% 2% 8%
12% 2% 5% 2% 5% 16% 26% 19% 7% 2% 3% 2%
4% 2% 4% 10% 4% 16% 27% 16% 6% 4% 2% 4%
15% 4% 4% 7% 9% 20% 20% 15% 2% 2% 2%
5% 5% 3% 2% 7% 15% 25% 20% 7% 2% 3% 5%
11% 4% 4% 7% 2% 2% 13% 11% 29% 4% 4% 4% 2%
0
1
2
3
4
5
6
7
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
A&D
Auto
Chemicals
E&C
IM&M
T&L
<0% 0%-
5%
6%-
10%
11%-
15%
16%-
20%
21%-
25%
26%-
30%
31%-
35%
36%-
40%
41%-
45%
46%-
50%
51%-
55%
56%-
60%
>60%
7 Assessing tax: 2015 tax rate benchmarking study
Figure 3 shows a comparison of
statutory and average ETRs by
country for 2014. The number of
companies included in each
average is indicated in the chart
next to the country name. While
Japan, Switzerland, Hong Kong
and Canada had statutory tax
rates that were similar to their
ETRs, South Korea and Sweden
had ETRs that were higher than
their statutory tax rates. The ETRs
were below the statutory tax rates
for the remaining countries,
although the differential was
small for the United Kingdom
(UK), Germany and France.
The differential is more than 5
percentage points for the United
States, Sweden and South Korea.
For the United States and
Sweden, this large differential is
consistent with 2013; there were
insufficient data for South Korea
to allow for a similar comparison.
As expected, companies
headquartered in countries with
statutory rates in the upper half
of the peer group have, on
average, ETRs below the
statutory rates, reflecting the
impact of foreign operations in
jurisdictions with lower rates.
The statutory rates ranged from
39.1 percent to 16.5 percent, a
difference of 22.6 percentage
points. But the ETR range was
smaller, from 34.2 percent to
14.5 percent, a difference of just
19.7 percentage points.
ETRs for US-based and non-US-based companies
Figure 4 shows the average ETR
for US-based and non-US-based
companies for 2012-14. The three-
year average ETR for the 143 US-
based companies was 28.6
percent, compared to 25.9 percent
for the 159 non-US-based-
companies. The US statutory tax
rate was the highest among the
OECD countries (39.1 percent vs.
the average of 24.8 percent), but
the range between the ETRs for
US-based and non-US-based
companies, many in the OECD,
was small (2.7 percentage points).
Figure 3 – Statutory corporate income tax rates and ETRs in 2014
Figure 4 – US-based vs. non-US-based ETRs
14.5%16.3%
21.6%
27.5% 30.6% 27.5%
25.5%30.2%
34.2% 31.0%16.5%
21.0%
21.1% 22.0% 24.2%26.3%
30.2%34.4%
37.0% 39.1%
0%
10%
20%
30%
40%
Hong K
on
g (
6)
United K
ingdom
(5)
Sw
itzerlan
d (
5)
Sw
eden (
7)
So
uth
Kore
a (
6)
Canada
(4)
Germ
any (
17)
Fra
nce
(16)
Jap
an (
31)
United S
tate
s (
95)
ETR Statutory rate
28.2% 29.3% 28.4%
25.3% 26.0% 26.3%
0%
10%
20%
30%
40%
2012 2013 2014
US average ETR Non-US average ETR
Assessing tax: 2015 tax rate benchmarking study 8
ETRs by sectors
Figure 5 shows the three-year
average ETR for all companies
and for profitable companies.
While the three-year average
ETR was the lowest for all E&C
companies, the ETRs for the
profitable companies in this
sector ranked second highest of
the peer group, reflecting the
impact of loss-making
companies. By contrast, loss-
making companies had a limited
impact on the ETRs for the A&D,
Chemicals, and IM&M sectors,
and these sectors have ETRs that
change only minimally with the
removal of loss-making
companies. The T&L sector has
the highest ETRs in the study, a
reflection of this sector earning a
majority of its income in higher
taxed countries
Drivers of the ETR
The difference between the ETR
and statutory rate can be derived
by analyzing the statutory/
effective rate reconciliation
notes disclosed in a company’s
annual report. We categorized
differences into favorable and
unfavorable drivers. A favorable
driver explains a reduction in
the tax provision and, therefore,
accounts for an ETR lower than
the statutory rate; it could be tax
incentives or nontaxable income.
An unfavorable driver, such as
nondeductible expenses,
increases the tax provisions and,
accordingly, results in an ETR
higher than the statutory rate.
Drivers can be both structural
and recurring, such as lower tax
rates resulting from overseas
operations and tax incentives, or
a result of items such as losses,
which may not necessarily recur.
We analyzed the common
drivers and their impacts on
the ETR. The reconciling
items, as disclosed in the
statutory/effective rate
reconciliation, were analyzed,
collated and averaged for the
companies in the study. Single
outlying ratios in the data
were excluded.
Figure 5 – Three-year average ETR for all companies and profitable companies by sector
0% 10% 20% 30% 40%
T&L
IM&M
E&C
Chemicals
Auto
A&D
3-year average ETR for profitable companies
3 year average ETR for all companies
9 Assessing tax: 2015 tax rate benchmarking study
Figure 6 – Drivers of the ETR in 2014
Figure 6 illustrates some drivers
of the ETR and shows how
frequently they appear in
companies’ statutory
reconciliations for 2014. The
bars on the left show the number
of companies reporting the
driver. The 0 percent vertical
line represents the statutory
rate, and the bars originating on
this line show the impact of the
driver, both favorable and
unfavorable. The impacts of
foreign operations, for example,
reduced the ETR of companies
by 1.4 percentage points on
average; nondeductible expenses
increased the ETR by 0.8
percentage points.
1 The majority of the UK companies in the study operate in the A&D sector, which benefits from tax incentives, resulting in a higher average impact.
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