Tax Planning

Related Content: International Tax Planning;

It is both lawful and sensible to arrange business and personal affairs in such a way as to attract the lowest possible incidence of tax. The widening scope of tax laws, the complexity of their provisions, and high tax rates make it more necessary than ever for business enterprises and individuals alike to plan their taxable events with considerable care.

For a commercial or industrial enterprise, an unnecessarily increased tax burden represents a business waste that not only reduces its distributable profits but may well make it uncompetitive.

In the case of an individual, the net return from personal endeavour and the investment of capital is in most countries so severely reduced by the Revenue that the failure to take advantage of potential tax minimisation benefits may have a considerable effect on his spending power and accumulated wealth. The omission to anticipate death duties and inheritance taxes will frequently cut an unnecessarily deep wedge into his estate.

Know your Offshore Terms:

Cost-Plus Method

A method employed for transfer pricing purposes by reference to the supplier’s cost to which an appropriate profit mark-up is added or to which a suitable profit loading factor is applied.

Bond Washing

Bond washing is a device similar to dividend stripping whereby a high rate taxpayer owning securities in respect of which interest is due shortly thereafter agrees to sell such securities to a low rate or exempt taxpayer with the right to repurchase the securities after the accrual of the interest. Bond washing is often subject to anti-avoidance provisions, and could thus require careful attention in the design of any such tax plan.

Risk Shifting and Risk Distribution

Before an insurance payment can be classified as a premium, two essential factors must be present: risk shifting and risk distribution. To shift the risk, the insured must transfer it to another who has the financial capacity to make good the losses.

Joint Ventures Incentives

Favoured treatment may be accorded to companies engaged in certain joint ventures where they carry on such activities through the medium of limited partnerships or other tax-efficient partnerships. Joint ventures incentives may play a role in an international tax plan, since they may contribute toward closing the gap between high tax jurisdictions and tax havens or international offshore financial centers (IOFCs).

Fair-Dealing and Self-Dealing

Under the “self-dealing” rule, trustees should not place themselves in a position where their duty and interest may conflict. A trustee should not profit from the trust. If a trustee sells trust property to his or herself, or sells his or her own property to the trust, the transaction is voidable.

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