The uproar and uncertainty surrounding U.S. tax reform is mounting.
The op-eds of well-known business publications feature more and more calls (and proposals) for tax reform. And it seems clear that the issue will play a pivotal role in our presidential elections next year. Related arguments about lagging U.S. business competiveness, “fairness,” and tax-code complexity also compete for our attention.
What should a tax department to do amid all of this contentious uncertainty? The question coursed throughout many of the presentations and offline discussions at last month’s Tax Council Policy Institute (TCPI) conference in Washington. The annual event - this year’s theme focused on the globalization of tax policy and its implications for U.S. economic growth and investment – attracts many of the country’s top tax executives, legislators, policy makers, tax consultants and academics. (TCPI is a non-profit and non-partisan public policy research and educational organization.)
Of course, all domestic tax reform discussions must now take place in the larger context of the OECD's BEPS initiative. Several speakers noted that despite the OECD's desire to have "generally harmonized" policies across the 40-plus countries now participating, a few countries have already adopted new policies or are in the process of doing so.
Although the presentations covered a wide range of tax topics, a couple of points related to potential tax reform cropped up frequently. One universal point of agreement was that our current tax code is a mess. I am sure this doesn't surprise you.
As U.S. Representative Kevin Brady (R-TX 8th District) pointed out in a keynote (“Economy, Budget, and Taxes”) an extremely high portion of our current tax rules exist in temporary provisions of the tax code. This means that legislators and policy-makers must continually debate whether or not these provisions (e.g., tax credits for research and development) should be extended - and whether or not previously extended provisions should be extended yet again.
The temporary and volatile nature of a large portion of our tax code fuels the planning-kryptonite that every company desperately seeks to avoid: uncertainty. This perplexing uncertainty explains why another point – the growing likelihood of corporate tax reform – worked its way into so many conference discussions. Despite the fact that tax reform seems uncertain, there are steps that tax functions can take to address the potential for tax reform:
- Continue to manage effective tax rates;
- Prepare to manage reputational risk; and
- Elevate the priority of tax scenario planning.
In my next post I will drill down into each of these topics further. Until then, here are some recent articles where tax reform is debated:
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.