The importance of taxation has always had a dual side. While the state is interested in increasing its budget revenues by influencing taxability, taxpayers are interested in reducing their tax ...obligations. In this regard, the concept of tax optimization has different meanings depending on the interests of the parties concerned. This paper presents a literature review on tax optimization issues and highlights opportunities or challenges associated with tax mechanism. Tax compliance methods, tax avoidance or fraud are subjects of particular attention. Topics such as the impact of taxation on business organization forms, complexity of regulations, tax havens, cryptocurrency and transfer prices are competing to clarify the meaning of tax optimization and to receive theoretical approaches and practical examples of interest to both scholars and professionals involved in tax practice.
The evolution of taxes and the increasing role of public financial resources in the life of modern society have contributed to the transformation of taxation into an important, complex, specific area ...of activity with their own laws of development. First of all, these include the classical principles of taxation – equality, neutrality, convenience, simplicity, etc. Last but not least, the principle of non-taxation takes place in this list. Since the state’s existence is not limited by any calendar, let alone tax terms, the state still has a constant need for tax revenues and is obliged to take into account the need to renew its financial resources in the future, recognizing that this is real only if there is normal production. By re-taxing the economy today, the state is depriving itself of future revenues with all the ensuing consequences. Therefore, a competent definition of the boundaries of the tax burden involves the development of production and ensuring conditions for the growth of tax revenues. Oppressing the economy, suppressing the taxpayer, the tax destroys its own foundation and itself. The ongoing reformation of the tax system as a whole today in the conditions of the modern Ukrainian economy is the desire of the state systems to determine the optimum limits of the tax burden, which can satisfy the financial interests of the state and not break the delicate fragile balance of social and economic conditions of modern society. The aim of research is determining the features of tax planning formation for tax optimization purposes and to improve the economic management system at the enterprise through the use of special optimization schemes and the use of accounting tools. Methodology: the theoretical justification is based on observations, groupings, analytical work in determining the organization of tax planning. Methodological and general scientific principles of complex researches became the theoretical basis. The scientific importance of the work lies in the fact that results is the systematization of theoretical and practical provisions of tax optimization of the enterprise. The value of the research is that the materials of the conducted research will be useful for further study of the specifics of tax optimization at enterprises.
We study the roles of the head office (HO) and the business units (BUs) of a multinational corporation (MNC) in reducing income tax and tariff payments through internal transfer prices in ...international trades. Using confidential transfer price data of a large MNC, we analyze how the different elements of internal transfer prices set by the HO and BUs vary differently from external prices with income tax rates, tariff rates, and the tradeoff between the two. Absent severe agency conflicts, we find that the BUs contribute more to tax planning than the HO, despite that explicit incentives to do so are not included in the compensation schemes. The roles of the HO and BUs vary with product market competition, the risk of conflicts with tax and customs authorities, and agency problems within the firm. Moreover, we provide evidence of strategic trade cost allocations among BUs to reduce income taxes.
•Actual internal trade and transfer price data from a multinational corporation•Different components of the transfer price are used for tax and tariff planning•Cost prices already reflect tariff planning, head-office markups tax planning•Price adjustments by the business unit lower taxes and tariffs•Strategic allocation of trade costs via incoterm choices to reduce taxes
This paper examines the influence of tax rate differences and international transfer pricing regulations on the profit-maximizing location strategies of a multinational firm (MNF). We show how a MNF ...that sells its products in multiple markets and manufactures multiple inputs used for its own production can optimize its tax strategy by jointly selecting the location of input production and the transfer pricing method. We find that a production technology with multiple complementary inputs results in a close connection between national and international transfer prices. Selecting different location choices enables the MNF to base international transfer prices on different arm’s length standards. The optimal location strategy and transfer pricing approach balances the gains from profit-shifting to the low-tax country with the losses that occur due to distorted quantity choices. The MNF’s trade-off between the gains or losses can be moderated by adjusting domestic transfer prices for transactions between the divisions in the high-tax country.
•A multinational firm (MNF) serves markets using multiple complementary inputs.•MNF chooses location of input production to shift profits to low-tax country.•Location strategies induce different arm’s length approaches and transfer prices.•MNF’s tax-optimal location strategy is driven by input mix and per-unit costs.
Policy makers offer fiscal incentives to encourage companies to invest in renewable technologies. This work considers generation companies that take advantage of fiscal incentives to minimize income ...tax. Thus, a novel mixed-integer linear optimization model that minimizes total tax payments of a company owning a portfolio of energy projects is designed. The model strategically manages depreciation, tax loss carryforward, and tax incentive use for minimizing discounted income tax. A set of revenue scenarios was employed to analyze model results. The proposed model yields tax savings between 8.2% and 19.2% of the company's taxes. Tax savings are significantly larger for companies with a large generation portfolio; which represents a clear advantage over small generation companies. The proposed model can also be employed by policy makers to adjust future ITA policies by taking advantage of the anticipative knowledge of the optimal tax strategies implemented by generation companies.
The debate regarding the willingness of enterprises to use transfer pricing for tax optimization is one with significant history (the first OECD report on transfer pricing dates from 1979). In the ...last fifteen years, this topic gained great traction as globalization became a key word in all economic undertakings. In 2013 the OECD/G20 officially launched the BEPS project, aimed at identifying and closing any loopholes present in the taxation system used by companies to optimize their tax burden. The work was finalized in 2015 by issuing the BEPS Package. However, the fight against base erosion and profit shifting did not end, as the OECD/G20 periodically monitors how the measures are implemented. Considering the importance of the IT sector in Romania, it is significant to investigate if the BEPS Package is an efficient tool in helping Romanian tax authorities prevent aggressive tax optimization in this industry. To provide a tentative answer, a statistical analysis was performed, aimed at comparing the profitability of related and non-related Romanian IT companies. Although the BEPS Package is not the only factor influencing the behavior of taxpayers, the work of OECD/G20 is one of the main forces shaping the Romanian taxation environment. Following the analysis, no significant differences were identified between the profitability of related and non-related companies, leading to the conclusion that local taxpayers are not inclined to engage in aggressive tax optimization, which is also a consequence of the way in which the legislation was drafted, influenced by the BEPS Package.
This article develops a new strategy for the (tax) optimization of foreign direct investments in the U.S. This strategy is particularly favorable for natural persons. By using a foreign upstream ...hybrid partnership, a substantial tax optimization of the current taxation of profits as well as the taxation of capital gains can be achieved. In addition, current and final losses may also be offset cross‐border to a certain extent in the case of an exemption under treaty law. This tax structuring idea is presented by way of example and explained on the basis of the country constellation U.S./Germany.
This article shows for the first time that the cross-border change of legal form can be used for tax-optimized profit repatriation. By means of a cross-border change of legal form of the foreign EU ...corporation prior to distribution into another foreign EU corporation with subsequent dividend distribution after the cross-border change of legal form has taken place, the taxation of dividends with withholding tax can be avoided. This study develops and discusses this strategy for the first time and transfers it specifically to U.S. shareholders of European corporations. Moreover, this strategy is relevant in general for all shareholders of European corporations, irrespective of their residence, to get tax-optimized profit repatriation of dividends (retained earnings) and to avoid the problem of treaty shopping, which has been significantly strengthened by the introduction of the ATAD/BEPS principal purpose test (PPT) in all EU Member States. The study extends the state of knowledge in the area of international taxation, international mergers, finance and strategy.
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