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Tax Reform — Closer to a Reality?
In President Obama's speech to the US Chamber of Commerce on 7 February, he urged businesses to support his message delivered to Congress in his State of the Union address, where he encouraged Republicans and Democrats to work together to reform the current tax system. The President asked businesses to join him in an effort to change a "burdensome" corporate tax code, calling for "something smarter, something simpler, something fairer." "You've got too many companies ending up making decisions based on what their tax director says instead of what their engineer designs or what their factories produce," Obama said. "And that puts our entire economy at a disadvantage." How high profile our US tax directors have become! The tenet of the President's reform would centre on making the US more competitive by lowering the corporate tax rate. Of course, the President also indicated that doing this without increasing the growing federal budget deficit would require eliminating "various corporate loopholes and carve-outs."
The call for reform of the corporate tax code is not new to this administration, but given that it appears to be a shared goal of the Executive Office and Republican House, are we closer to it becoming a reality? Taxand US reviews the financial statement considerations upon a change in tax law or rate.
What should tax directors do at this juncture? It's clear that our C-suite friends read the Wall Street Journal and see articles such as the one that described multibillion dollar earnings charges for some large US companies resulting from the revaluation of deferred tax assets due to a reduction in the corporate income tax rate. A famous football coach once said, "The best defense is a good offense." If you as a tax director have not warned your fellow C-suite executives of the positive or negative tax consequences of a lower corporate tax rate on your company's financial statements, it may be time to beef up your modeling capabilities and start analysing the impact under alternative tax scenarios so that you're prepared when that inevitable call comes.
Furthermore, if you happen to toil in one of the administration's targeted industries, or have attributes that would make the revaluation of your deferred tax assets and liabilities more tedious, such as loss carryforwards or carrybacks or unremitted earnings, you may want to enhance your models so that you're equipped to analyse new proposals as they occur.
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