Do you have a projection and plan of tax expenditures that is consistent with the business model?
Tax planning means a set of all procedures and activities of the taxpayer that are calculated to minimize and optimize tax liabilities of various forms, without violating tax regulations. Tax planning can be done by all taxpayers, both individuals and companies and other legal entities.
The importance of tax strategy and tax planning is best reflected in the fact that:
- tax strategy and tax planning have long been one of the most important parts of the overall strategy and planning of multinational companies, which often resort to aggressive tax policies to minimize tax expenditures.
- the world's most developed countries, through the OECD, have adopted a strategy and plan on how to counter aggressive tax policies, all with the aim of greater tax coverage and increasing their revenues.
Tax strategy and tax planning can be defined and implemented at:
- international level (multinational companies)
- at the level of individual states
International tax planning involves organizing the commercial or personal transactions of an entity in a way that minimizes its tax liability on world income.
International tax planning is done at three levels:
- Tax planning in the country of investment (it is necessary to consider taxation system, what are the tax rates, whether certain reliefs or incentives can be realized, etc.)
- Tax planning on the way from the country of investment to the country of residence of the investor (it is necessary to consider how much is the withholding tax on income transfer, whether there are double taxation treaties and what are the benefited tax rates, etc.)
- Tax planning in the country of residence of the investor (it is necessary to consider the conditions for taxation of income of the investor in the country of his residence in order not to cancel the effects of savings on the previous two levels)
Tax planning at the level of individual countries implies the organization of commercial or personal transactions of an entity in a way that minimizes its tax liability on income earned in that country.
Below are examples of state-level tax planning:
- Selection of form of organization (entrepreneur, limited liability company, etc.)
- Selection of business financing methods (borrowed or own funds)
- Selection of method of procurement of funds (operational or financial leasing)
- Selection of profit payment method (bonuses, dividends, etc.)
- Possibility to use tax reliefs and incentives
- Tax consolidation (in case of a group of companies)
If you have any questions, feel free to contact one of the WTS tax experts.