Taxing times: How companies can plan their strategies

Filling out a tax form in France Corporations use many different tax strategies

Companies spend much time and money on their tax strategies, not just to legally minimise their liabilities, but also to ensure business essentials, such as the continuity of cash-flow.

Transfer Pricing

This happens when two companies that are related to each other (usually a parent and subsidiary) in different countries trade with each other. When the companies establish a price for the transaction they are engaging in transfer pricing. The amount of tax payable can be determined by where the company and subsidiary are based, and can help lower the tax bill.

Take advantage of government schemes

Many governments offer incentives that provide tax relief. For example, new legislation in the UK called "Patent Box" allows for the taxing of a company's worldwide profits attributable to patents at 10%, rather than the UK's corporate tax rate which is more than double. Another example would be the lack of a withholding tax on royalties in the Netherlands, a reason music stars like Bono and the Rolling Stones have some of their businesses there.

Debt

It is often cheaper, from a tax point of view, for companies to finance themselves with debt rather than equity. Some companies look to "park" their debt in the United States, because it's seen as being more tax efficient. However, Congress is discussing ways to change this.

Timing

Buying for the business at the right time can bring forward any related tax relief. For example, if expenditure (for example on building repairs) is planned at the start of a company's year, by moving that expenditure forward to the end of the previous year, any tax relief can be realised earlier.

Making the best of losses

Losses in one year can often be set against profits in previous years and a company might then be eligible for a tax refund. Obviously there are time and monetary value limits, but this sort of tax planning can improve a company's cash-flow.

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