The Internal Revenue Code limits the amount of foreign tax credits (FTCs) that partners of global partnerships can claim. As global law firms become more profitable outside of the US and their partners pay more foreign taxes, the tax rate on their income outside the US can become greater than the US rate, causing excess credits. PricewaterhouseCoopers works with partnerships to:
- Analyze sourcing of revenue to determine how revenue is allocated to countries where the services are performed
- Analyze foreign tax returns filed to identify appropriate potential foreign tax opposrtunities
Develop a system to analyze overhead cost allocations to foreign offices
Since the mid-1990s, many general partnerships have considered converting to Limited Liability Partnerships (LLPs). However, not all countries recognize US LLPs, so firms contemplating a transition need to consider how LLPs operate within each country and the different implications of the transition. PricewaterhouseCoopers looks at the structure of a firm, where and how they operate, and their current tax issues in order to assess and mitigate potential tax issues in each jurisdiction where they operate.
As law firms expand their global presence and serve an increasing number of international clients, local experience is critical to working effectively overseas. A firm considering expansion through merger or acquisition needs to consider its tax and structural issues to facilitate a smooth transition. PricewaterhouseCoopers leverages its international network of tax professionals to help firms manage the structural and tax implications for all countries.
International law firms develop and strengthen their multinational experience by encouraging qualified lawyers across their network to practice together, gaining experience and contacts in other countries and building a common culture for the firm. However, before sending employees overseas, a firm should establish an equalization or protection policy for foreign assignees' pay and benefits that allow it to offer compelling and attractive packages without adversely impacting profitability. In addition to policies for assignees, a firm needs to consider the unique requirements for partners when establishing foreign assignment packages and policies for partners accepting foreign assignments. PricewaterhouseCoopers works with clients to develop a plan for assignees and partners, to implement the plan across their network, and to prepare US and foreign returns.
Retirement planning for partners has evolved during the last 20 years. For various reasons, law firms have been migrating from retirement systems based on unfunded deferred compensation plans to qualified retirement plans that allow partners to fund their own retirement without adversely affecting other partners. The focus today is on allowing partners to fund their own retirement plans instead of having younger or newer partners pay for retired partners. To help address this issue, PricewaterhouseCoopers has designed the Lawyer Equity Optimizer (LEO) plan to help partners to self-fund their retirement without negatively impacting current profits. LEO helps firms to:
- Lessen the impact on profits caused by unfunded deferred compensation plans
- Achieve a more rational and modern approach to retirement planning for partners
Firms that build or make improvements to their office space are required to depreciate leasehold improvements over a period of 39 years. Because of the long depreciation period, the partners that pay for the improvements seldom realize the tax benefits from the depreciation. Employing a retroactive cost segregation study or a current cost segregation study, PricewaterhouseCoopers helps law firms identify assets that can be depreciated over a shorter period. Our team of accountants and engineers coordinate to identify personal property embedded in the leasehold improvements, so that they can be separately depreciated over 5, 7, or 10 years.
For fiscally responsible partnerships concentrating on reducing the "days outstanding" to reduce working capital needs and bank borrowings, the process of tracking, identifying, and reconciling payables and receivables is critical. PricewaterhouseCoopers has experience working with law firms to analyze and, if necessary, reengineer, their accounting procedures and administrative policies to better manage payables and receivables.
Many law firms participate in mergers and acquisitions as a way to expand their practice and stay competitive. If your law firm is considering this route, you should also consider due diligence prior to the transaction. In addition to help with the structure of the transaction, PricewaterhouseCoopers helps clients analyze the target to:
- Determine if the financial statements are fairly stated
- Determine if the proper accounting systems and controls are in place
- Identify potential tax exposures or opportunities from prior year returns
In the information-intensive world of law firms, knowledge management initiatives can provide a competitive advantage in growing business, improving attorney productivity and associate satisfaction, and improving client service quality and consistency. However, calculating your firm's return on investment and facilitating long-term use is often difficult. Some firms have invested significant time and money in previous forms, brief banks, and research repositories only to find that their attorneys could not agree on the objectives to be served, the content to be developed and maintained, or the organization strategies. The challenges of creating a structure and governance to meet current and future needs demand a formalized strategic knowledge management plan and a clear quality assurance program. PricewaterhouseCoopers' law firm services is experienced in helping clients implement a knowledge management function designed to enhance attorney productivity and client satisfaction.
