The tax burden is an important part of any business analysis. Making such calculations is a necessity not only at the microeconomic level but also at the macroeconomic one. This is due to the fact that the tax burden is intended to meet the requirements of the state and taxpayers.
The basic principles of tax burden allocation include:
- Information on a person’s ability to pay when assessing taxes.
- Availability of equivalence between taxes paid and funds received from the state.
As practice shows, the level of the tax burden is an indicator of a company’s performance as well as the possibility of its further development. It is also of interest to a number of government agencies and the tax authorities.
Tax planning is a set of actions by the taxpayer aimed at reducing the tax payments of the enterprise, as well as reducing the costs of other mandatory payments. It is one of the most effective tools through which a company can improve its productivity. It is important to note that the right to reduce one’s tax obligations with the help of planning may be exercised by any entrepreneur.
Tax planning is particularly effective when it is used in the early stages of business development and sometimes in the process of registering a new business project.
Tax planning is an important part of a company’s financial plan. It should be noted that it may not only be individual, but may also apply to a wide range of business entities.
Tax optimisation is a process which helps to increase a company’s profits by saving money on tax costs. In addition, tax and fee increases in comparison to company profits can also be addressed in this way.
Features of the procedure
Tax planning is an orderly process, which is a series of actions, procedures and methods carried out in a certain sequence:
1. Study and formation of the main tax risks. These are possible financial losses of the company that may be related to such a procedure as tax planning. Tax risks include control by tax authorities, increased tax amount, probability of liability for unlawful optimisation schemes.
2. Problem analysis, problem definition. This stage implies an in-depth analysis of existing tax problems in the enterprise and setting goals for their solution. Analysis of tax problems includes implementation of measures such as
- Searching for specific features of the company’s financial and economic activities.
- Drawing up a list of tax payments, rates and amounts to be transferred to the budget.
- Analysis of existing agreements with counterparties.
3. Identifying the best tools for tax planning. Among the main tools are the following:
- Tax incentives under current legislation.
- Optimisation of the consequences provided that various forms of contracts with counterparties are used.
- Optimisation of transaction costs.
- Use of separate taxation elements.
- Application of special tax regimes in accordance with the law.
- Use of incentives based on double taxation treaties.
- Dealing with certain elements of accounting for tax purposes.
4. Drawing up an action plan. This stage involves the development of a scheme on the basis of which the company’s tax planning will be carried out. It is important for specialists to consider possible changes in the current legislation, according to which amendments will be made to the regime and forms of taxation, as well as changes in tax rates. It is important to note that it is often necessary to make certain changes to the organisation’s policy.
5. Implementation of financial and economic activities based on the developed scheme. It should be noted that in the initial stages of tax planning it is mandatory to calculate the tax burden. In case the amount of tax payments does not exceed 15 % of the annual profit of the company, such organization does not need urgent planning and forecasting.
As practice shows, the use of a tax planning system is relevant for small and medium-sized businesses; these are companies with a tax burden of more than 30% of net profit.
Who deals with taxes
Some organisations have a dedicated staff member who deals exclusively with tax payment monitoring. Larger companies can afford to set up a tax control and accounting department, whose staff are also involved in forecasting the tax burden.
If the tax burden of a large company exceeds 40%, tax planning becomes a particularly acute issue: there is a high risk of losing market share or going bankrupt. In such a situation, the management of the company needs to take serious care of building a forecasting system, with the work of specially trained people.
Many people wonder what the purposes of tax planning are. The main purpose of tax planning is to reduce the burden on the company through the use of tax reliefs which are provided for in the current Tax Code of the Russian Federation as well as in a number of other regulations. In addition, there is strict control over the timely payment of taxes and levies; if necessary, adjustments are made to the organisation’s accounting policy, which makes it possible to exploit gaps in legislation to the company’s advantage.
General principles of tax planning
Before setting up the process, it is important to understand the specifics of tax planning. Following certain principles will allow the company’s management not only to achieve their goals, but also to reduce the likelihood of risks for the business:
- Compliance with current legislation. Any actions aimed at optimising taxes must be carried out strictly in accordance with the requirements of the law.
- An integrated approach to solving the problem. Planning actively involves not only the norms of the tax law, but also other areas of law.
- Timeliness. Forecasting should be carried out in advance and all reactions to possible changes in the legislation or the structure of the business project should be as quick as possible.
- Rationality of each action undertaken. The results achieved should always cover the costs incurred.
- Justification of all actions by means of legislation. This is necessary to protect the company in the event of a claim from the controlling authorities.
- Professional approach. It is important to entrust the implementation of tax planning recommendations only to qualified specialists with the appropriate experience.
- Planning information should only be available to a limited number of people.
Forms of tax forecasting
All activities aimed at forecasting for tax optimisation are based on comprehensiveness. The work is usually carried out in forms such as:
- Thorough monitoring of existing legislation. Collecting information.
- Compiling the optimal scheme of financial and economic activities of the company.
- Monitoring the implementation of measures and the use of planning tools.
It is important to note that the legislation is regularly reviewed in the course of work; this is necessary to respond to possible changes in a timely manner. In the case of an increase in the tax burden, special measures are often introduced to help reduce the negative effect of various issues.
Areas of tax planning
Tax planning areas are the basis on which the optimisation of a company’s tax burden is made. In the forecasting process, it is particularly important to carry out a thorough work on each of the following areas:
- Selection of the optimal legal form. It is recommended to do this before the state registration of the business project.
- Determination of the most profitable taxation regime.
- Establishment of the taxation object.
- Formation of the structure of financial and business activities, as well as the determination of the various business units.
- Selection of the place of the company’s registration. It is important to consider the special features of the Federal Tax Service in each region, as well as the proximity of the company’s assets and its belonging to tax exempt zones.
- Careful analysis and use of existing legislation in order to maximise the application of benefits.
- Allocation of the company’s income to reduce the fiscal burden.
Tax planning methods
The principle of comprehensiveness, the basis of planning, involves the use of various methods and ways of reducing the tax rate in order to increase the profitability of the enterprise. All methods available for work are divided into two categories: external and internal.
The sphere of tax planning using external methods is rather limited; however, when properly structured, they can bring tangible results by significantly reducing company costs: change the subject of taxation, change the activity or jurisdiction. It is important to understand that all external changes have consequences.
The consequences of internal methods are less tangible: there are many more such methods and their possibilities are much wider.
Internal tax optimisation methods
Tax planners have a wide range of internal methods to reduce the burden and improve the efficiency of an enterprise. The main methods include:
- Formation of an accounting policy, which is approved in each organisation on an annual basis. Setting up an accounting policy is an important element of forecasting; it is possible to re-evaluate the resources of a company and thus legally reduce income and property tax payments.
- Analytical-calculation method involving analysis of tax indicators for the past period. Qualitatively conducted work will make it possible to determine the optimal areas for making changes, allowing to reduce the tax rate. The analysis will make it possible to make adjustments to the new business plan with respect to the volume of work, services and goods, the size of assets and the list of employees.
- The balance sheet method is necessary to create a model of a particular economic situation using balance sheet figures. The method is particularly useful in determining the company’s financial needs and sources of funds. This applies not only to the internal processes of a company but also to the close interaction between related organisations.
- The normative method is used for preparing a tax payment plan in accordance with current norms and rates. This approach allows for precise calculation of figures for the purpose of forecasting the taxpayer’s expenditure.
- Optimization of plans and solutions. The process of tax planning implies the existence of several scenarios, the forecasts for each of which will allow making a choice in favour of the most favourable one.
Types of tax planning
As practice shows, tax planning in an enterprise can be both current and strategic. Strategic planning is a set of activities such as:
- Reviewing draft regulations and forecasting possible tax scenarios.
- Studying and forecasting of business turnover and court practices.
- Forecast of tax liabilities of the enterprise.
- Drawing up a schedule of the company’s obligations.
- Assessing the risk of working with various tools, finding possible reasons for deviations from the estimated figures of the organisation’s activity.
- Forecasting the efficiency of the tools used for optimisation.
The current system of tax planning in the organisation consists of a number of specific activities:
- Monitoring of regulations.
- Forecasting of the company’s tax liabilities.
- Consequences of planned transactions.
- Creation of a timetable for matching the fulfilment of tax obligations and changes in the company’s assets.
In addition, there are several other types of tax planning:
- Classical. Organisation and control of the settlement of liabilities on the basis of legislation, forecasting.
- Optimisation. Making the most of gaps in the law in favour of the company.
- Illegal. Taxpayer’s evasion of obligations, which entails criminal liability.
- Long-term. Drawing up a development strategy for the company and minimising the burden for the next few years.
It is important to note that a business entity must have a legal system that is updated at least once a month to implement each of the measures.
Tax planning is one of the most important factors in the development of a company. As practice shows, tax forecasting and optimisation services are particularly relevant for companies with a high level of expenses relative to net profit.
It is possible to minimise tax payments on the basis of current legislation, provided there is a professional approach to the task at hand and there are no risks in relations with representatives of the Federal Tax Service and other controlling bodies.
Often, outsourcing specialists are invited to help resolve the issue of tax optimisation, which is an excellent alternative to making changes to the staffing table.
Key forms of tax burden optimisation
Tax optimisation is a procedure that involves reducing the fiscal burden on the territory of a particular economic entity.
Fiscal payments represent a rather large expenditure item for any enterprise. If this burden becomes too high, it leads to the bankruptcy of the company. Nowadays every taxpayer has a possibility to conduct tax planning by him/herself as well as to optimise the taxation procedure according to the specifics of a business project.
Some entrepreneurs mistakenly believe that optimisation will allow them to avoid paying fees and taxes altogether. However, refusal to make payments entails administrative and criminal liability.
Tax optimisation schemes
In order to successfully carry out tax optimisation, entrepreneurs are advised to use standard methods that are available to all categories of taxpayers.
The most popular methods for conducting tax optimisation include:
- Using benefits, relieves, and other exemptions provided by the current legislation.
- Restructuring, deferral of payments, which allows to avoid payment of taxes for a certain period of time.
- Modification of the fiscal burden, optimization of the taxation system.
- Operation of a company in an offshore zone.
However, there are also individual ways of tax planning:
- Withdrawal of property assets. When establishing a new legal entity, the company transfers part of the property in the form of registered capital. The transfer is formalised as an instalment sale, followed by a lease agreement. In this way it is possible to reduce the property payments as well as the taxable profit base.
- Conclusion of a loan agreement on behalf of the company founder or manager. Such capital is not taxable.
- VAT deferral. As a rule, VAT is due in the accounting period in which the goods are shipped. In case of several shipments, the deadline for payment is set for the last one. Counterparties may agree to split the deliveries, allowing VAT to be deferred until the second quarter.