About 600 of GE’s global tax professionals will soon have a new employer: PwC.
The industrial giant and the Big Four firm announced on Thursday the deal to transfer the employees.
The move will enable PwC to expand its tax service line while retaining GE as a client. And it enables GE—which files more than 5,500 tax returns annually in more than 300 jurisdictions—to cut costs and focus on core operations. The agreement, which is renewable after five years, takes effect April 1.
The arrangement could become a model for other companies, particularly those that want to shift fixed employee costs to a more variable model. And it could provide a blueprint for other ways accounting firms can partner with clients.
“It increases our skill set and broadens our competencies, not only in the U.S., but around the globe,” Mark Mendola, vice chairman and U.S. managing partner at PwC, said in an interview. “There are tax issues cross-border every day.”
Global tax strategy is becoming more important for multinational companies as countries seek to prevent their shifting of profits to low-tax jurisdictions.
The Organisation for Economic Co-operation and Development (OECD) has adopted a 15-point Action Plan on Base Erosion and Profit Shifting (BEPS) that requires large multinational enterprises to report income and taxes paid on a country-by-country basis, as well as facilitating automatic exchange of information among tax authorities. All OECD and G-20 countries have committed themselves to requiring country-by-country reporting for multinational companies, and the United States has issued final regulations requiring the reporting, effective for tax years beginning on or after June 30, 2016.
The Treasury Department has also focused on preventing corporate inversions, in which a multinational company based in the United States replaces its U.S. parent with a foreign parent, usually in a low-tax jurisdiction. This effort has resulted in several new rules that impose new compliance and planning obligations on multinational companies.
A growing global reach
North America and Europe are PwC’s biggest regions, accounting for about 78% of the firm’s $36 billion in 2016 revenues. Its divisions outside those markets have blossomed in the past decade.
Revenues from the firm’s offices in Asia and in the Middle East and Africa have more than doubled since 2006. During that time, its revenues increased 70% in South and Central America and 55% in Australasia and Pacific Islands.
Of the 600 workers involved in the GE-PwC transfer, 275 are in the United States. The rest are in about 40 other countries, Mendola said.
PwC has the world’s largest tax practice, which consists of 41,000 tax professionals in 157 countries. The firm’s overall headcount has grown by about 53% to 223,500 employees since 2006. The firm’s tax practice accounted for about 25% of the firm’s overall revenues in 2016. Tax services brought in $9.1 billion in revenues, up 7% from 2015.
On April 1, the 600 GE workers will join that PwC division.
“The agreement allows us continued access to the world-class expertise of global leaders along with the flexibility to scale to the requirements of the changing GE portfolio,” Mike Gosk, GE vice president and senior tax counsel, said in a news release. “We are pleased to advance our longtime relationship with PwC in a way that provides an opportunity for other leading companies to tap into the world’s best tax team while providing outstanding career opportunities for those legacy GE professionals.”
GE proposed the transfer to PwC about a year ago, Mendola said. At the time, he thought of it as a one-off arrangement. But he now thinks there’s a chance that other clients, and other firms, will try to adopt similar models.
In this case, PwC acquires professionals with intimate knowledge of the company. And that expertise could also be applied to other clients in the future.
“There’s only one GE tax department with its scale and quality,” Mendola said. “These are high-end lawyers and CPAs that we would have loved to have had individually, and we were fortunate to get them in aggregate.”
—Neil Amato (Neil.Amato@aicpa-cima.com) is a JofA senior editor. JofA Senior Editors Jeff Drew and Sabine Vollmer, Editorial Director Jack Hagel, and JofA Editor-in-Chief, Tax, Alistair M. Nevius contributed to this article.