The 2018 restructuring of the US corporate tax code illustrates a long-standing principle in tax policy: The more things change, the more complex they become. In the end—despite discussions of tax simplification during the tax reform debate—Capitol Hill turned out legislation that accomplished the opposite. “The rules already were complex,” explains John Caviness, vice president, corporate tax, at Eastman Chemical Company. “Congress kept those rules and layered more on top.”
Caviness and his team are well prepared for the new tax environment, though, aided by the fact that Caviness served on an advisory committee to the Business Roundtable that gave input to legislators. While he didn’t participate in drafting any portions of the legislation, he did glean at least some insight about what was to come.
As recommended by participants on the advisory panel, the tax reform measure eliminated a major disincentive for multinational companies to repatriate earnings by reducing the tax rate. “It’s a path other major economies have taken,” Caviness says. “I think you are going to see more investment in the US as a result.”
As a lawyer with considerable experience in M&A, joint ventures and partnerships, and other complex corporate transactions, Caviness developed a fascination with how taxes impact business performance and gravitated to the field. He will be the first to admit that it’s an unusual passion. “Taxes are mysterious to most people, and they would just as soon keep it that way,” Caviness says.
“To be a good attorney and a good tax person, you need to have a good deal of curiosity and a drive to understand how things work and why.”
Taxes, though, affect an abundance of key aspects for a business—profitability, international strategy, acquisitions, IP licensing, and product pricing, to name a few. “Taxes are some of the largest expenses borne by businesses,” Caviness says. But the high stakes are part of the fascination. So too is embracing the challenge of complying with complex regulations and analyzing their ramifications on the business. “To be a good attorney and a good tax person, you need to have a good deal of curiosity and a drive to understand how things work and why,” Caviness continues, adding that the field also demands strong intellect. “I get to work with some of the brightest people I’ve ever met.”
Today, tax specialists are not simply confined to a back-office role. Instead, they are vital contributors to strategic initiatives, Caviness says. For example, an initiative to exploit a new patent could be aided by tax incentives. Some countries, states, and cities offer tax credits for employers to expand in their jurisdictions. A company might reap considerable benefits by opening a new factory in certain locations, and tax experts can help select a site with those advantages. In such a case, the location’s overall tax structure would have to be examined. If the location is overseas, for instance, tax analysts will factor in how local taxes—corporate income and value-added taxes—impact profits, along with US tax rules governing how foreign earnings are taxed.
Tax policies in multiple jurisdictions—local, state, federal, and international—intertwine and impact one another. “It can be like three-dimensional chess,” Caviness says. For example, a corporation operating in Europe, where many countries impose corporate income taxes and value-added taxes, has to account for proper transfer pricing. That occurs when making intracompany transactions, such as when one subsidiary provides materials and supplies for another. For accounting and tax compliance purposes, these transactions must replicate what a third party would pay for the items. That’s just one component, however, of the tax structure that also includes corporate taxes on earnings and taxes on sales of finished products, plus the fact that countries may tax similar transactions differently.
To perform well, tax specialists need to have confidence, as well as competence, Caviness explains. “Because of the complexity, you have to ask a lot of questions and not be concerned about giving the appearance of not knowing something,” he says. The subject matter is far too complex for anyone to have all the answers, anyway.
Another critical component of the role is to be able to make clear the impacts of tax issues to executives in other departments. “You have to be able to explain what the value drivers are and prioritize what matters most,” he says.
Caviness’s experience as an attorney immersed in many types of corporate transactions in Silicon Valley, as well as a return to school for an advanced degree in taxation, prepared him well for a tax specialty career path. He was exposed to many areas of business strategy, and he supplemented that experience with online and live courses, including “mini-MBA” programs.
When the technology sector suffered in the early 2000s, a former employer reached out to Caviness with an offer to lead its legal tax practice. As lead internal legal adviser on all tax matters, Caviness bolstered his expertise by participating in strategic international tax planning and transactions, M&As/divestitures, FIN 48 and tax provision, tax controversies and audits, and legislative/regulatory activities. While most executives in similar roles come from a financial setting, Caviness’s legal expertise provides some advantages.
“Law is a good background for identifying and analyzing risk and setting policy,” he says. His perspective is conducive to planning and looking for creative solutions, sometimes more so than a traditional compliance background focused on reporting, he adds.
Caviness has translated this point of view to how he manages his thirty-person team. He’s breaking down barriers between work groups and using technology to automate basic reporting functions. “We’re getting away from manual work, using automation more to free people up for higher level work,” he says. Previously, much of the reporting was performed manually on spreadsheets, Caviness explains. Now, most of this work is handled by a global instance of SAP with linked provision and reporting systems using more direct data feeds.
By removing distinctions between work groups, he’s been able to diversify roles. For instance, rather than having some people dedicated to federal taxes and others to state tax reporting, he’s melded those roles. This is a better allocation of resources, he says, as there are different deadlines for federal and state reporting. It’s now easier for workers to share the workload more evenly during the various tax reporting crunch times.
“We’ve also been changing the focus from local countries or regions to a global view and role for all our tax practitioners,” he says. The vision is to embrace globalization of the tax services function as much as Eastman has done in its strategic approach.
When combining that with Caviness’s initiatives to make his department a more proactive participant in business strategy, one obtains a view of a unit that is much different than a tax group grounded in traditions. The contributions go far beyond accounting and ensuring compliance with tax laws, to include methods and analysis that have a significant impact on business performance.