Tax planning is a targeted legal action by the taxpayer aimed at reducing its costs of paying taxes, fees, duties and other mandatory payments. Reducing the tax burden of both the holding as a whole and the individual enterprise, carried out through the use of certain tax instruments and mechanisms, such as: special tax regimes and benefits, as well as other legal and economic methods permissible in specific cases.
Tax optimization and business protection are still the two most popular requests from business representatives. Minimizing tax costs can be achieved by absolutely legal methods. At the heart of optimizing the tax burden and minimizing tax costs is the ongoing planning of tax costs. Many mistakenly mix such different concepts as tax planning, minimizing them and of course optimizing them, as well as tax evasion.
It should be taken into account that a reduction in tax payments does not always lead to a reduction in costs and an increase in the profit of the enterprise. At the same time, such a connection is often not direct and indirect. Thus, a reduction in one tax or levy may lead to an increase in other and in addition to the application of financial sanctions by the regulatory authorities.
Tax planning services – reducing tax payments, distribution of tax burden. Determining tax risks.
The need for tax planning
It is embedded in the tax legislation itself, which provides specific tax regimes for different situations, allows a variety of methods to calculate the tax base and offers taxpayers various tax benefits if they act in desirable directions to the authorities.
The essence of tax planning is the recognition of the right of the taxpayer to apply all legal means, techniques and methods (including gaps in the law) to minimize their tax liabilities.
In the implementation of tax planning, the organization creates a certain scheme under which it plans to carry out financial and economic activities. The main task of the organization is to properly apply and group the tax planning tools used in order to build a system that allows to realize the objectives of tax planning in the best way possible. The tax planning scheme is the optimal structure of the business organization of the business entity, developed in accordance with the relevant requirements of the legislation as an option to optimize taxation according to the set goals.
It is necessary to take into account the probability of changes in tax legislation, which may be related to trends in the development of tax policy, the establishment of new forms and regimes of taxation, adjustments to tax rates, the abolition of tax benefits, etc.
Types of tax planning
By types, tax planning is divided into corporate (for enterprises) and personal (for individuals).
- Planning the tax burden of the company as a whole
- Costs of a particular tax in general
- Planning tax costs as part of a specific transaction (contract)
Tax planning for businesses is an integral part of strategic financial planning for business and business plan. One of its main goals is to minimize tax payments by using all features of tax legislation.
In practice, tax management includes three steps:
- Organizing a reliable tax accounting;
- Control over the correctness of tax calculations;
- minimizing taxes under current legislation.
Principles of tax planning
The principles of tax planning can be figuratively presented by the following statements and provisions:
1. “Tax planning that does not violate the law is a common practice of business around the world.Tax planning credo is to focus on logic, not time holes in legislation” (John Pepper).
2. “You have to pay taxes. But wisely” (B.A. Ragozin). Namely:
- Only the minimum amount of taxes must be paid. To fully use the entire set of tax benefits.
- You must pay taxes on the last day of the deadline.
- Tax planning is inseparable from the general business activities of the economic entity.
3. Taxes cannot be “mechanically” minimized, they need to be optimized because:
- reducing some tax payments may increase others;
- minimizing taxes by assigning cost costs reduces financial results and hinders business development;
- mechanical tax cuts can lead to the superiority of form over the substance of the transaction and its challenge by the tax authorities.
According to A.N. Medvedev, “it is necessary to fight not against taxes per se, but for profit as the ultimate goal of any business activity.”
4. “The goal of tax minimization is not to reduce any tax per se, but to increase all financial resources of the enterprise.If the tax minimization is incorrect, the fines will exceed the planned effect of minimization many times. Tax minimization is only part of the larger challenge facing financial management. The main task of financial management is financial optimization, i.e. choosing the best way to manage the company’s financial resources” (R.F. Galimzyanov).
Tax planning stages
The tax planning process consists of several interconnected phases, which should not be seen as a clear and unambiguous sequence of actions that necessarily guarantee a reduction in tax liabilities. This is due to the fact that tax planning combines elements of science and art analytics.
Tax planning process:
- Formulating the goals and objectives of new education, production and treatment.
- Deciding the issue of the most advantageous location of the company and its divisions.
- Choosing an organizational and legal form of business activity.
- Formation of the tax field, the definition of all the benefits provided by the tax legislation for each of the taxes.
- Analysis of all possible forms of transactions and the formation of a contractual field, compiling a journal of typical business operations.
- Analysis of various economic situations taking into account possible tax risks, decision on the rational placement of assets and profits of the company.
- Tax management, including the use of internal control technology for tax settlements.
- The first step is the emergence of the idea of organizing a business, formulating goals and objectives, and addressing the possible use of tax incentives provided by the legislator (for example, for small enterprises engaged in material production).
- The second stage is to choose the most tax-advantageoused location of the company’s production facilities and offices, its subsidiaries, subsidiaries and governing bodies.
- The third stage is the choice of the legal form of the legal entity and its relationship with the resulting tax regime.
The following steps relate to the current tax planning, which should be organically included in the entire management system of the economic entity.
- The fourth stage involves the formation of the so-called tax field of the company. A tax table characterizing the tax field is drawn up, in which each tax is described using certain indicators (parameters). The tax benefits are analyzed. At the end of the phase, a detailed plan is drawn up to use the benefits of the selected taxes.
- The fifth stage is the formation (taking into account the already formed tax field) of the company’s contractual relations system and the compilation of a journal of economic operations, which serves as the basis for accounting and tax accounting.
- The sixth phase begins with an analysis of various tax situations, a comparison of the financial indicators obtained with possible losses due to penalties and other sanctions. Further, taking into account the maximum financial results, the most tax-efficient placement of assets and profits of the enterprise is carried out.
- The seventh stage is directly related to the management of taxes in enterprises and organizations. Tax management includes the organization of reliable tax accounting and control over the correctness of tax calculations. The main way to reduce the risk of errors may be to use the internal control technology of tax settlements.
Benefits of the service
- Reducing the tax burden, reducing tax liabilities, choosing the optimal tax regime of the company or group of enterprises.
- Identify systemic and individual errors in business processes.
- The ability to avoid negative consequences in the form of tax credits.
- A specific list of corrective actions used to minimize risks, including the subsequent one.
- Tax planning services – reducing tax payments, distribution of tax burden. Determining tax risks.
- Optimization of tax payments, minimizing tax losses on a particular tax or tax aggregate
- Increase in the company’s working capital.
- Additional opportunities for maximizing the profitability of financial and economic activity and for further efficient development of production.
1. tax audit, verification of applicable tax schemes
2. A general tax and tax-expenditure model is being built
3. Development or modification of the contractual framework, internal organizational documents, internal control systems
Develop or modify accounting policies or elements
5. Eliminating systemic errors of tax accounting, ensuring the quality of tax documents
6. Develop mechanisms for regulating the size of tax
1. applicable tax cost optimization scheme with descriptions and references to legislation, package of documents of a certain transaction (contracts, applications, etc.)
2. opinion on controversial tax and unresolved legal issues
3. recommendations on how to calculate and pay taxes and fees
4. recommendations on the elimination of double taxation in the implementation of VED
5. Risk assessment when using recommended optimization schemes
The best use of all tax optimization options;
7. Determining the legal implications of tax optimization,
Determining how to respond to changes in existing legislation and to the actions of fiscal authorities;
Determining the degree of complexity in managing, applying and implementing tax optimization;
Determining resilience to external and domestic fiscal factors
11. Reducing possible negative effects
We will advise you, help you organize accounting support, choose a tax system, and if necessary – check the processes of organizing your business on legal, accounting, tax, as well as financial issues. And believe me, your money will certainly come back to you.
Call! +38 (050) 676-34-45, +38 (098) 028-08-51.