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Taxes in Uncertain Times

28 Feb 2012

Interesting times are usually uncertain times, and the unprecedented uncertainties we're now facing in US tax policy are transforming this curse into reality. How is your tax department dealing with the uncertain tax situation today? Many tax directors tell us it's becoming more difficult to provide management with a forecasted effective tax rate or to determine how taxes will impact the hurdle rate for an investment. Meanwhile, non-tax executives within the company don't understand why the tax department can't provide a simple answer. You frequently hear the US President and both sides of the aisle in Congress seeming to agree that the corporate income tax rate should be lowered, but are you ready to explain to your CFO or board of directors what this would mean for your company and how to increase the potential benefit and reduce the potential cost? How can we as tax professionals best anticipate our customers' (internal and external) needs given today's uncertain tax situation? Taxand US explores tax uncertainty today and what can be done to mitigate it in these uncertain times.

Despite the daunting tax uncertainty of our interesting times, tax directors and CFOs should begin taking steps now to mitigate the uncertain tax situation today. Proactive tax directors and CFOs have several options to consider.

  • Tax departments should develop awareness of the issues and legislative / policy proposals and become more active in the political process, either directly or through trade organisations and other business groups
  • After understanding the tax implications of proposed tax legislation, it is important to communicate these issues to your company
  • Tax departments should also consider tax modeling, worst-case scenarios, and either developing or hiring key resources

Tax departments also have opportunities to improve the outcome from the likely reduction of corporate income tax rates and the expansion of the tax base that could be enacted as early as 2013:

  1. Minimise deferred tax assets (DTAs)
  2. Maximise deferred tax liabilities (DTLs)
  3. Maximise favourable permanent differences in 2012.

Taxand US discusses how businesses can prepare for taxes in uncertain times

Taxand's Take

Don't be caught unprepared! The current tax uncertainty should be no excuse for inaction. In fact, there are already some glimmers of future certainty among all of the current uncertainties. Take advantage during 2012 to best position your company to increase the potential benefits and reduce the potential costs of the tax changes that lie ahead in these interesting times.

Your Taxand contact for further queries is
Jose Lamela
T. +1 305 704 6710


Taxand's Take Author