Reacting to what it sees as increasing uncertainty about tax rules in the United States and the rest of the world, PwC will hire more than 600 lawyers and public accountants from General Electric’s tax team and incorporate GE’s tax technologies and processes. In exchange, GE will get to shed salaries while still benefiting from the expertise of its legacy team.
“This arrangement will enable us to continue providing our clients with the very best tax services in an increasingly volatile and uncertain environment,” said Mark Mendola, PwC vice chairman and managing partner, in a press release. At first, PwC intends to establish the new, integrated tax team as a service provider for the team’s former employer, Mendola told CFO in an interview.
After that, PwC hopes to parlay the team into a billion-dollar business serving the tax needs of other corporate clients, each on an enterprise-wide basis.
Although President-elect Donald Trump and the new Republican-led Congress have both pledged to reform the U.S. tax reform, the exact nature of the reforms has yet to be worked out. “The varying impact of U.S. tax reform on different sectors — from pharmaceuticals to big-box retailers to financial services companies — requires a very deep bench among tax practitioners,” Mendola wrote in a blog about the arrangement.
“The GE team includes policy experts who are connected in Washington, D.C., Brussels, and beyond,” he added. “Adding their abilities to our current tax policy practice will greatly enhance our ability to help our clients more efficiently manage their way through the current, and changing, global regulatory maze.”
For its part, GE sees the unusual arrangement as a way “to scale to the requirements of the changing GE portfolio,” Mike Gosk, a senior tax counsel for the company, said in a PwC press release. For the last year and a half, GE has been transforming itself from an infrastructure and financial services giant into an “industrial internet” company.
As part of that effort, the company has been selling off most of its GE Capital unit in order “to focus on continued investment and growth in our industrial businesses,” it said in a public filing last year.
Although GE declines to say what costs it will shed in the deal, Gosk said in the release that the company is “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.”
Under the five-year agreement, which is slated to take effect April 1, PwC will be adding accountants, lawyers, and other tax professional from GE’s corporate division and the company’s other businesses, including GE Capital. About 20 corporate tax employees will stay on at GE to work on consolidated financial reporting, mergers and acquisitions, and other strategic efforts, along with managing the PwC relationship. An additional 250 tax employees will remain with company to service GE’s individual businesses.
The arrangement was struck after GE “looked to reevaluate the optimum delivery of these critical global tax services now and into the future,” the PwC press release said. “The new Global Enterprise Tax Solutions team will sit within PwC Tax and will provide managed services not only to GE but also to other PwC clients as well.”
Insisting that the arrangement “is not an outsourcing,” Mendola noted that no cash was exchanged between GE and PwC. The accounting and tax services firm is boosting its global tax skill set in 42 territories, including 275 new professionals in the United States, and the bulk of the remainder in the United Kingdom, Germany, India, and Asia, he added.
The new team will provide expertise in such areas as tax controversies and transfer pricing, according to Mendola.