Managing tax effectively — are you proactive enough?
(As originally published in the Financial Post, April 2013)
By Ron Voyer, National Leader, Entrepreneurial Services, Tax, EY
The ever-changing tax landscape has a significant impact on strategic planning for family businesses. Whether the focus is on investments, financing and liquidity, or plans for growth or expansion, tax law factors heavily in the decision-making process.
Personal taxation has never been so multi-faceted, and failing to consider all the elements could prove costly to your family and your business. Tax liability can arise in a number of different countries on the basis of residence, location of assets, nationality or domicile. A holistic approach to your tax planning will help mitigate problems, both now and for future generations.
The creation and implementation of tax-efficient business structures needs a proactive approach. Whether you’re restructuring the business, making an acquisition, refinancing or simply focused on mitigating risk, you’ll need to identify the most efficient tax structures.
Aligning your tax function closely with strategic decision-making will help your business take full advantage of available tax credits and subsidies. From debt restructuring to supply chain optimization, tax planning and structuring play a big part in ensuring your business is increasing opportunity and reducing potential risks.
Stay up-to-date on global tax and legal changes and their implications for your business. This will help you take advantage of available fiscal stimulus and climate change program tax credits, as well as other tax incentives, including corporate rate reductions, relief for losses and “green” research and development initiatives.
International issues and transfer pricing
You’ll need a clear strategy for cross-border tax controversy and risk management which is in line with your performance improvement and expansion plans.
Start by conducting tax compliance and risk assessments for your current (international) tax situation, and proactively seek information on potential tax policy changes and international disclosure agreements that may affect your current and future international footprint.
Governments are focusing more than ever on getting their fair share of increasing global tax revenues. Many tax administrations are adopting new policies and approaches to improve compliance through both service and enforcement; they have also responded to increased globalization by accelerating international cooperation and collaboration.
Because global tax and legal changes and regulations will affect your profits, it’s important to understand how all of your subsidiaries affect your enterprise. Ensuring subsidiary losses are being utilized in the most tax-effective manner; exploring opportunities to reduce indirect taxes, such as customs and duties or variable annuity (VA); reviewing foreign exchange exposure and hedging issues; exploring cash repatriation strategies or tax supply chain modifications. These are just a few of the considerations that can significantly affect your bottom line.
Family trust management
It’s important to proactively manage your tax planning and give careful consideration to succession-planning options to be able to better reduce your tax burdens and exposure to tax controversy and costly litigation. The tax benefits offered by trusts can be attractive, but strict rules need to be followed to ensure that the transactions are not challenged by tax authorities.
Tax controversy can arise in many circumstances, but especially in estate transfer and succession. This can stem from complex tax laws, or from issues with a range of answers, such as valuation or allocation methods. Tax controversy costs can rapidly escalate, not only because of costly litigation and representation (e.g., tax advisors), but also because of penalties.
Incorporating international tax controversy and risk management into your strategic planning can pay dividends, as well as deliver greater certainty and flexibility. You may be able to release cash, reduce your tax compliance costs and prevent your staff from spending valuable time managing complex tax controversies and litigation.
With tax authorities across the globe seeking to maximize revenues, understanding and managing the tax implications of your business decisions, as well as the structure, processes and policies related to tax controversy and risk management are imperative.