Enhancing shareholder value in uncertain times.

• Author: Perry, Joseph J.
• Position: Cash Management

With the 2001 and 2003 tax cuts again set to expire at he end of the year, new corporate tax proposals under serious consideration and $1.2 trillion in federal spending cuts due to kick in, businesses face myriad challenges in tax planning.

The potential changes to the 2012 tax landscape, and what may be applicable in 2013 and beyond, are so important that management must assess all its options to enhance shareholder value in the coming months.

Focusing on shareholder value requires focusing on corporate tax matters. After all, the more money a company pays in tax, the less is available for the most important stakeholders: the firm's shareholders. Conversely, if corporate tax rates decrease or tax incentives are applied, additional cash may be distributed to shareholders or reinvested in the company, thereby increasing shareholder value.

Toll for Individual Taxpayers

For individual taxpayers, the highest marginal federal individual income tax rate on ordinary income is scheduled to increase to 39.6 percent from 35 percent in 2013. Likewise, the tax rate on long-term capital gains and qualified dividends is scheduled to rise to 23.8 percent in 2013 from the current maximum rate of 15 percent, which includes a new Medicare tax surcharge. The tax rate on dividends is also scheduled to rise to 43.4 percent inclusive of all surcharges, the highest rate since 1986.

While there are no scheduled corporate tax rate changes for 2013, numerous proposals continue to drift through Congress that would impact how companies are taxed, how they are structured and ultimately how and from where they conduct business.

Most proposals call for decreasing the corporate tax rate while reducing deductions to broaden the tax base. On the international tax front, many proposals are calling for the adoption of a territorial tax system that would tax worldwide income subject to an allowance for foreign tax credits.

Some proposals also call for a second "one time" repatriation holiday for foreign earnings at a reduced rate of 10 percent versus the current top corporate tax rate of 35 percent--with the expectation that the repatriated cash will help create jobs and stimulate taxable expenditures in the U.S.

Considering the level of uncertainty in the corporate tax world, financial executives face many challenges at the end of this year when it comes to tax planning for their companies and shareholders. Fortunately, these challenges also create opportunities for savvy executives to optimize corporate and shareholder tax consequences as part...