Do You Have a Tax Expenditure Projection and Plan Aligned with Your Business Model?

Tax planning refers to the set of procedures and activities undertaken by a taxpayer aimed at minimizing and optimizing various tax liabilities, without violating applicable tax regulations. Tax planning can be carried out by all taxpayers — individuals, companies, and other legal entities.

The importance of tax strategy and tax planning is best illustrated by the following facts:

• Tax strategy and tax planning have long been an integral part of the overall strategy and planning process of multinational companies, which often employ aggressive tax policies to minimize their tax burden.

• The world’s most developed countries, through the OECD, have adopted strategies and action plans to counter aggressive tax policies, with the aim of increasing tax revenues and broadening the tax base.

Tax strategy and tax planning can be defined and implemented at:

• the international level (multinational corporations)

• the domestic level (within a single jurisdiction)

International Tax Planning

International tax planning involves structuring a person’s commercial or personal transactions in such a way as to minimize their global income tax liability.

It is typically carried out at three levels:

1. Tax planning in the country of investment – assessing the tax system, applicable tax rates, and the availability of reliefs or incentives.

2. Tax planning in the flow of income from the country of investment to the investor’s country of residence – considering withholding tax rates, the existence of double tax treaties, and applicable preferential rates.

3. Tax planning in the investor’s country of residence – reviewing domestic tax rules to ensure that the benefits achieved at the first two levels are not negated.

Domestic Tax Planning

Domestic tax planning involves structuring a person’s commercial or personal transactions in a way that minimizes the tax burden on income earned within that country.

Examples include:

• Choosing the most suitable business structure (sole trader, limited liability company, etc.)

• Selecting the optimal method of financing (debt vs. equity)

• Deciding on the form of asset acquisition (operating lease vs. finance lease)

• Determining the method of profit distribution (bonuses, dividends, etc.)

• Utilizing available tax incentives and reliefs

• Implementing tax consolidation (in the case of a group of companies)

If you have any questions, feel free to speak with one of WTS’s tax experts.