| Optimizing the Legal Entity Structure
Companies that perform little or no structural planning for their legal entities risk increasing its state income tax liability. This problem is further exacerbated when companies grow through acquisitions and choose to add the target company's legal entities to their existing structure. Unless organizational options are considered at the time of acquisition, companies might be burdened with unnecessary tax filings and an overall higher state tax liability. Though this problem is easily identified, analyzing and determining an optimal legal entity structure has traditionally been an extremely difficult—often impossible—task. Limited by traditional tools (such as spreadsheets), tax professionals often forego an analysis of modifying the corporate structure simply because they lack the tools needed to thoroughly analyze all of the material data and all possible permutations.
Liquid Engines changes all that and finally makes accurate and thorough legal entity modeling a reality. Smart Modeling Wizards and Optimization technology provide a quick and accurate method to evaluate restructuring opportunities in the existing structure, or as the need arises, such as during an M&A transaction. Liquid Engines STx enables the tax department to quickly perform a thorough analysis of potential structures and determine if there is a reduction in its state income tax liability. In addition to calculating the potential benefits, STx can automatically create organization charts reflecting the new legal entity's organizational structure, saving hours of valuable time. Leveraging STx, today's tax professional is equipped to model structural changes for:
By optimizing a business' legal entity structure, tax departments can reduce compliance costs and audit risk, while gaining greater predictability over a wider range of financial results. Using STx's Smart Modeling Wizards, tax professionals are able to model potential legal entity structures and accurately measure the effectiveness of each structure across a range of financial results.
In addition to the Wizards, Liquid Engines Optimizers can be employed to evaluate thousands of potential entity structures in a matter of minutes. Armed with this advanced mathematically-based modeling capability, users of Liquid Engines Optimizers are able to efficiently identify legal entity structures that meet their dynamic business requirements and offer them the best possible tax position.
For each acquisition, the corporate tax department must analyze the impact to the company's state tax liability, including impacts on existing tax positions. With the due-diligence phase of the average acquisition spanning only a few weeks, analysis of the merged structure is rarely done on an in-depth basis.
Using STx to add the acquired company's legal entity structure to the existing structure, users can compare the multi-year tax liability between the two structures across a range of financial forecasts. Alternate structures can be easily evaluated across multiple years using Smart Modeling Wizards and Optimizers—all in a fraction of the time it would take to analyze the initial tax liability models for a single year using a spreadsheet model. With STx, tax professionals are able to examine restructuring options at the right time—when they have the most flexibility to make structure changes at the time the merger or acquisition occurs.
Similar to acquisition analysis, measuring the impact of a divestiture also requires a complex two-phase analysis process. The first phase addresses the impact of the divestiture with no additional structure changes, and the second phase looks at alternate structures for the remaining entities.
With STx, the impact of a divestiture can be assessed in a few simple steps and the results can be compared with those of the original structure. In addition, alternate structures can be easily created and analyzed using the STx Smart Modeling Wizards and Optimizers.
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