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Tax by Industry: Aerospace & Defense

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Aerospace and defense (A&D) companies face challenges and opportunities in the wake of a global economic recovery. Globalization of business, growth in developing economies, strong competition, increased merger, acquisition and divestiture activity, and uncertainties in US defense spending will factor into industry growth trends. While growth in US defense may slow or even decline in the coming years in light of the recent focus on burgeoning US budget deficits and the drawdown of US forces from Iraq and Afghanistan, anticipation exists for a sustained upswing in commercial aircraft demand driven by expected growth in global air travel and demand for new aircraft in developing economies. Unique challenges, many with tax implications, accompany these global transformations and US defense spending cuts for the A&D sector.

Careful consideration of tax planning and compliance issues can help A&D companies continue to meet earnings targets, growth, and profit objectives. For instance, companies implementing a global tax strategy in alignment with a new, refreshed, or continuing global business strategy can achieve integrated goals for both tax and treasury purposes and beneficially impact a company’s worldwide effective tax rate and earnings per share. Companies revamping business processes and rationalizing supply chains, or engaging in merger, acquisition and divestiture activity, should also pay special attention to tax transparency and compliance with FASB's Accounting Standards Codification 740 or IFRS’s International Accounting Standard 12, as appropriate.

Because of the high level of scrutiny placed on A&D companies by investors, analysts, regulators, and their government customers, A&D companies require tax systems, technologies and processes that evolve as they do and can handle the tax implications of global, multi-national, joint venture and multi-divisional business operations and activities, including cross border transactions, complex export controls and mergers, acquisitions and divestitures. Likewise, if product innovation is reinforcing a core business focus, domestic and global production and domestic research and development incentives can offer savings—if you know the rules and have the technical know-how to maneuver within them.

How can you manage these issues along with the ongoing challenges of government and long-term contracting? Rely on the team with deep industry experience, specialized tax knowledge and broad consulting resources—the Deloitte Tax team.

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