Tax Planning

Harley Wickstead
Mind Map by , created over 6 years ago

Aberystwyth University Taxation Mind Map on Tax Planning, created by Harley Wickstead on 05/10/2013.

Harley Wickstead
Created by Harley Wickstead over 6 years ago
Tax Chapter 12
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Tax Planning
1 How taxes affect business activities
1.1 Investment Decisions Returns on assets are taxed differently
1.1.1 1. Returns to different assets are taxed differently
1.1.2 2. Returns to similar assets in a different jurisdiction taxed differently
1.1.3 3. Similar assets in the same jurisdiction from different organizational form (corp vs. part)
1.1.4 *4. Similar asset, same jurisdiction, same organizational form, returns on asset taxed differently from other factors such as operating history, returns to other asset, characteristics of owner.
1.2 Finance Decisions
1.2.1 Capital Structure made up of debt and equity
1.2.2 Tax effects the cost of financing a firms activities
1.2.3 Tax effects whether finance is made up of debt, equity or hybrid and all the groups in 4.*
2 Effective Tax Planning
2.1 All Taxes
2.1.1 Investment and financing decisions need to consider explicit and implicit. (HIDDEN TAXES)
2.2 All Parties
2.2.1 Tax implications of a proposed transaction are considered for all parties. Avoid operating at competitive disadvantages, need to know how changes in tax rule affect behavior of the shareholders, investors, customers, their employees, their suppliers and competitiors
2.3 All Costs
2.3.1 Taxes only represent 1 among many business costs. Put into effect some tax plans, may mean costly restructuring of the business. Tax considerations and info-related transactions often have conflicting implications. Sometimes tax considerations dominate and sometimes info-related transactions dominate, both important and there has to be a trade-off made.
3 Non-Tax Costs
3.1 Info related transaction costs
3.1.1 Symmetric Uncertainty All contracting parties are equally informed but still uncertain about future cash flow
3.1.2 Strategic Uncertainty Or information asymmetry is where contracting parties are not equally informed about future cash flows Hidden Action/Moral Hazard is where one party has control over action choice that affects future cash flow and unobserveable by other parties Hidden Info/Adverse Selection is where 1 party observes a characteristic that can't be controlled but affects future cash flows and is hard to be seen by other parties
3.2 Agency Costs
3.2.1 if a company decides to joint venture with a more profitable entity or set up as partnership due to effects influencing organisational form, can create serious conflicts between parties
3.3 Unfavorable Financial Reporting
3.3.1 trade-off between tax benefits/savings and costs arising for low income or high leverage ratio. Lower profits lower corp tax, but need high profit to attract shraeholders
4 Tax minimsation
4.1 May introduce significant non-tax costs
4.2 Trade offs between tax and non-tax costs
4.3 Different uncertainty results in planning strategies that sacrifice tax minimisation
4.4 Result in organizational form choice conflicting with intersets (agency costs)
4.5 Strategies can lead to unfavorable financial report
5 Efficent tax planning requires non tax costs of any tax plan to be identified and weighed against the tax benefits

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