Intro To Strat Tax MGMT

STRATEGIC TAX liability;
INTRODUCTION TO TAX PLANNING

Difference between tax planning and tax evasion and tax avoidance
Tax Planning – is the process of analyzing a company’s financial plan
from a tax perspective with the aim to ensure maximum tax
Tax Tax Avoidance Tax Evasion
efficiency.
Planning
- Analysis of financial situation/plan from a tax
perspective Legality Perfectly Legal illegal
- Ensure tax efficiency legal
- An important part of a financial plan – reduce tax
liability
Purpose Ensure tax Minimize tax Not pay tax
- Arrangement of one’s financial affairs to avail
efficiency
exemptions, deductions, concessions, relief and
rebates permitted under the law.
Nature Use the Avail loopholes Employ
Why do we need it? law to in the law illegitimate
- To maximize cash inflow, minimize cash outflow reduce tax means
- Increase profitability liability
How can it be exercised? exercise Done Done before tax Done after
- Before the accrual of income before tax liability tax liability
- Should be resorted at the source of income liability
- Choice of organization
- Choice of location Impact Penalty or Penalty or
- Residential status of a person imprisonment (if imprisonmen
- Choice to lease or buy an asset rules are t
- Capital structure (debt:equity) violated)
Tax Avoidance
Tax Management
- is an art of dodging tax without actually breaking the
- Refers to the compliance with the statutory
law. It is a method of reducing tax incidence by
provisions of law;
availing of certain loopholes in the law. The
- It includes maintenance of accounts, filling of return,
expression tax avoidance will be used to describe
payment of taxes, deduction of tax at source, timely
every attempt by legal means to prevent or reduce
payment of advance tax. Etc
tax liability which would otherwise be incurred, by
- While tax planning is optional, tax management is
taking advantage of some provision or lack of
mandatory;
provision in the law.
- Poor tax management may lead to levy of interest,
- It excludes fraud, concealment or other illegal
penalty, prosecution, etc. In some cases, it may lead
measures. In other words, it is a device which
to heavy financial loss if proper compliance is not
technically satisfies the requirement of the law but in
made. E.g. If a loss return is not filed in time it will
fact it isn’t in accordance with the legislative intent.
result in a financial loss because such loss will not be
Tax Evasion allowed to be carried forward.
- When a person reduces his total income by making Meaning of Tax Management
false claims or by withholding the information
Tax planning is a broader term which requires
regarding his real income, so that his tax liability is
management of affairs in such a way that results in the reduction in
reduced, is known as tax evasion.
minimization of tax liability. Tax planning is not possible without tax
- Tax evasion isn’t only illegal but it is also immoral,
management. It refers to the compliance of statutory provisions of
anti-social and anti-national practice. Therefore,
law.
under the direct tax laws provisions have been made
for imposition of heavy penalty and institution of
prosecution proceedings against tax evaders.
Tax Avoidance VS. Tax Evasion
Tax Avoidance Tax Evasion

- Is the legal and ethical means - Is an illegal activity in which a
of reducing tax liabilities; person or entity deliberately
avoids paying a true tax
Difference between Tax Planning and Tax Management Comparison of General Rules and Special Rules – Required
Documentation
Advantages of Tax Management
- Minimize tax liabilities

- Ensure economic balance
- Leverage productivity
TAX PLANNING STRATEGIES
1. Maximize allowable deductions

2. Take advantage of available tax credits
3. Proper treatment of non-taxable income
4. Monitor unappropriated retained earnings
5. Avail incentives from tax treaties
6. Ensure proper documentation and consistency in reporting
Maximize allowable deductions
OSD vs Itemized Deduction

Take Advantage of Available Credits
OSD Itemized Deductions
- 40% of gross income - allowable deductions under  Check available excess credits other than MCIT from
Section 34 of the Tax Code, as
amended.
Itemized Deductions:
1. Expenses
2. Interest
3. Taxes
4. Losses
5. Bad debts
6. Depreciation/Depletion
7. Charitable and other contributions
8. Research and Development
9. Pension Trusts
RR No. 9 -2020 dated April 7, 2020
Qualified Donations
 Cash
 Critical or needed healthcare equipment or supplies (PPEs,
medical supplies, tool and consumables like alcohol,
cleaning materials, common medicines, testing kits, etc.)
 Relief goods (food packs, water, etc.) previous taxable year.
 Use of property, whether real or personal (shuttle service,  Maximize deductions from CWTs received from customers.
use of lots/buildings)  Ensure compliance of CWTs to properly claim as tax credits
 Check available excess MCIT and foreign tax credits, if any,
to be applied to the current taxable year.
Proper Treatment of Non-taxable Income
 Gain on sale of real property and shares of stock not listed

in the stock exchange subjected to CGT
 Interest income and other income subjected to FWT
 Dividend income
Monitor Unappropriated Retained Earnings
 Monitor unappropriated retained earnings to avoid being

subjected to Improperly Accumulated Earnings Tax (IAET)
 10% IAET
Avail Incentives from Tax Treaties
Double taxation agreements with other Contracting States

covering the following:
 Dividends
 Interest
 Royalties
 Profits of shipping and air transport in international traffic
 Remitted branch profits
Ensure Proper Documentation and Consistency in Reporting
 Ensure that expenses claimed are properly supported with

sales invoices and official receipts dated within the taxable
year.
 Comply with the retention of records policy of the BIR as
prescribed by RR 5-2014
 Ensure consistency of information reported in the AFS and
tax returns.
SALIENT PROVISIONS OF CREATE BILL

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STRATEGIC TAX liability;

INTRODUCTION TO TAX PLANNING

Tax Avoidance VS. Tax Evasion

Tax Avoidance Tax Evasion

Advantages of Tax Management

- Minimize tax liabilities

TAX PLANNING STRATEGIES

1. Maximize allowable deductions

Maximize allowable deductions

OSD vs Itemized Deduction

RR No. 9 -2020 dated April 7, 2020

 Gain on sale of real property and shares of stock not listed

Monitor Unappropriated Retained Earnings

 Monitor unappropriated retained earnings to avoid being

Avail Incentives from Tax Treaties

Double taxation agreements with other Contracting States

Ensure Proper Documentation and Consistency in Reporting

 Ensure that expenses claimed are properly supported with

SALIENT PROVISIONS OF CREATE BILL

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