Types of tax planning

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Tax planning plays a significant role in the company’s profit-making activities. The essence of tax planning is to maximize the company’s income by reducing the tax burden. Proper use of certain techniques allows to postpone or reduce some tax liabilities, thus making make the company’s work more successful.

The concept and essence of tax planning 

In practice, tax planning refers to the actions of a company carried out in accordance with the current legislation, which are aimed at a cumulative reduction of the tax burden. The methods provided by the Tax Code of the Russian Federation, including particular benefits, allow to achieve a certain reduction in payments without coming into conflict with the Federal Tax Service. 

The concept of tax planning is complex, including such elements as the type and result of activity. It becomes an essential task of the financial and accounting services of the company, and, having the appropriate qualifications, understanding the features and types of tax planning, it is possible to reduce taxes or postpone its payment. 

The purpose of this type of company’s strategic and operational financial management is to create a model of interaction with the Tax Service that will allow to optimize the tax burden in absolutely legal ways. At the same time, it is necessary to remember that even legal methods, for example, splitting a business into several operating companies, can be recognized as an aggressive type of tax planning and its detection during tax inspections will lead to additional charges, penalties and fines. Studying the experience of other companies and tax practices will help to avoid such risks.

Types of tax planning 

When developing a strategy for reducing the tax burden, it is necessary to thoroughly study all available opportunities. Types of tax planning can be classified by the following grounds – period, purpose, resources used, variability.

By period, it is divided into:

  • short-term, for 1-2 tax cycles;
  • long-term, for a long time or for the entire cycle of the economic life of the company.

The types are distinguished by the goal:

  • strategic, similar to long-term;
  • operational, usually short-term.

Each of these types of classification can be disclosed in more detail. Within the framework of long-term tax planning of economic entities, when drawing up a strategic plan, it is customary to distinguish a number of elements:

  • organizational and legal form of the company;
  • place of registration of the company and/or its founders;
  • tax regime;
  • type of activity to be subsidized.

Within the framework of operational planning, the tasks of current economic activity are solved:

  • development of an optimal accounting policy;
  • revaluation of fixed assets;
  • optimization of relationships with counterparties;
  • use of benefits, deferrals, loans.

According to the source, tax planning may be:

  • internal;
  • external.

Differentiating the tax planning into internal and external is based on whether strategic tasks are solved by employees of the company, or are assigned to consultants-auditors, consulting companies, tax lawyers, international law firms.

By variability:

  • classical;
  • optimization.

Classical tax planning means the use of opportunities provided by the legislator in the passive version, while optimization means demonstrating an active position, entering into relations with the Federal Tax Service, obtaining investment tax credits and other preferences.

Separately, there are 2 additional subtypes:

  • illegal;
  • aggressive, related to the abuse of the rights provided by the law.

In the first case, prosecution is inevitable, in the second – it will depend on the position of the court in the process of challenging the tax audit act. Knowledge of all types of tax planning will help to develop an effective strategy for its application.

Elements and stages of tax planning

Tax optimization activities should begin before the beginning of the next year, some opportunities, for example, the transition to a simplified accounting and reporting system, if the financial indicators of the company allow it, can be implemented only before the beginning of the next tax period. The main stages of tax planning require time for their implementation. Therefore, the work should consist of the following stages:

  1. Determination of the actual tax burden.
  2. Study of the current regional legislation, some opportunities for minimization are provided at the level of the subjects of the federation.
  3. Study of federal legislation, identification of current opportunities for optimizing payments, for example, an investment tax credit.
  4. Selection of techniques applicable to a particular company. 
  5. Development of a step-by-step plan for the implementation of the selected technique. At this stage it is optimal to get some advice from an audit company in order to verify the compliance of the selected measures with the legislation.
  6. Implementation (transition to a different tax system, re-registration of a legal entity, negotiating with the Federal Tax Service on granting a deferral or installment plan, benefits, other measures).
  7. Control of the results.
  8. Development of a plan to improve the chosen strategy.

Within the framework of tax planning, economic entities may often face different risks, even if the chosen measures meet the requirements of the current legislation, it is not always possible to accurately assess whether the strategy will be adopted by the Federal Tax Service. If a violation is found, the company may face financial losses, including additional taxes, penalties and fines, sometimes excessively aggressive planning can cause the company to go bankrupt or reduce the confidence of buyers and suppliers in it.

The main task at the stage of analyzing the actual tax burden is to study the taxes that are being paid at the moment. 

Afterwards, it is necessary to study the opportunities provided by the legislator, including the following:

  • special tax regimes;
  • federal and regional benefits;
  • subsidies and opportunities for obtaining tax credits;
  • options that arise in the process of optimizing tax policy;
  • opportunities arising from the use of agreements on the avoidance of double taxation with foreign countries;
  • optimization of the corporate structure;
  • the possibility of obtaining deferrals and installments for payment.

This analysis will allow to create an up-to-date technique that will work for companies of all types and forms of ownership. On its basis, an implementation strategy is created that solves two types of problems:

  • strategic, determining the work of the company for a long period of time;
  • tactical, within the framework of which decisions are made that are valid for one or more tax periods.

In any case, tax planning is part of the general financial planning, designed to optimize income and expenses, to ensure the effective use of the company’s funds.

Rules and risks of tax planning 

When starting work, it is necessary to clearly formulate the principles within which tax planning is carried out. They should be built in such a way as to avoid risks of various nature to the greatest extent. The main risk is the involvement of tax, administrative and, in critical cases, criminal liability. If a company bears only financial risks, in the form of additional payments to the budget and sanctions (fines), then its leaders may themselves be subject to fines, or be under investigation under the Article 199 of the Criminal Code of the Russian Federation. The company itself may be on the verge of bankruptcy if it does not repay the identified arrears in a timely manner, does not pay fines and penalties.

Therefore, the following basic principles of tax planning can be identified:

  • legality;
  • rejection of aggressive forms;
  • complexity;
  • use of all the opportunities provided by the law.

It can be concluded that tax planning is based on the use of all the opportunities provided by the law and is ultimately aimed at increasing the income of the company, improving its financial indicators. Work in this direction requires high qualifications, study of legislation, explanations of the Ministry of Finance of the Russian Federation and the Federal Tax Service of the Russian Federation, judicial practice. In difficult cases, it becomes necessary to turn to professionals.