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In the 24 hours after PricewaterhouseCoopers LLP announced it will hire more than 600 General Electric Co. tax department employees, the accounting firm’s vice chairman said he received about a dozen calls from clients interested in making similar moves.
The arrangement allows GE to reduce its overhead as it sells off its financial services units to focus on its core industrial technology businesses. GE has a five-year contract with PwC to conduct its tax services and PwC can use its new employees on work for other clients. The renewable agreement is effective April 1.
“We’ve built the platform of tax practitioners of GE’s caliber around the world,” Mark Mendola, PwC’s vice chairman and managing partner, told Bloomberg BNA Jan. 13. “We believe other clients will want to build on that.”
The deal reflects a broader trend of companies relying more heavily on accounting, consulting and advertising firms, where the cost of the fee is less cumbersome than hiring the staff in house. But the scale of this deal is grander than any other comparable arrangement Mendola is aware of, he said.
This could be a good setup for large companies that already have close ties with their accounting firm, said Robert Willens, a tax consultant in New York.,
“GE is famous for their tax focus and sophistication,” Willens said. “Other companies pay close attention to anything GE does and ask if they should be doing the same thing.”
Pharmaceutical companies, such as Pfizer Inc. and Merck & Co. Inc., and banks, including Citigroup Inc. and JP Morgan Chase & Co., have tax departments that deal with complicated international tax issues, which would make them candidates to consider following GE’s lead, Willens said.
Few other corporations have a tax team as large, as sophisticated and as global as the one GE has amassed. More than 600 tax professionals don’t constitute a department, but an “army,” said Edward Kleinbard, a business and law professor at the University of Southern California.
About 270 of the 600-plus employees to be transferred to PwC are U.S-based. The others are scattered among 42 countries, Mendola said.
PwC is interested in pursuing other similar arrangements, Mendola said. The firm won the GE deal through a competitive bidding process that included some other “Big Four” accounting firms, he said. The top tier of U.S. accounting firms are PwC, Ernst & Young LLP, KPMG LLP and Deloitte LLP.
When the arrangement was announced Jan. 12, “I’m sure the other firms woke up pretty upset,” Mendola said. PwC is better positioned to advise clients on changes that could result from an overhaul of the U.S. tax code and tax revamps worldwide, he said.
“By us adding additional skill sets to a firm—so more transfer pricing people, more international planners—we think the timing is perfect,” Mendola said. “We’re right on the cusp of tax reform, not only here in the U.S. but around the world.”
To contact the reporter on this story: Laura Davison in Washington at lDavison@bna.com
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