Savant

framework
Phoebe Keith Inoc
BSMA- 4
 Managers do things like buy, sell, rent, lease, and recapitalize.
If managers structure transactions such that each is value-
maximizing, then by year-end the sum of such transactions will
have maximized firm value. However, note that each transaction
has an uninvited third party: the government. In strategic tax
management, when a firm chooses transactions, it keeps tax
management in mind. This transactions approach—the SAVANT
framework.
 SAVANT FRAMEWORK: a
transaction approach to tax
management

STRATEGY ANTICIPATION

VALUE-ADDING

NEGOTIATING TRANSFORMING
STRATEGY
❑ Key ingredient of any successful organization

❑ Overall plan for deploying resources to establish a

favorable position

❑ Often referred to SWOT (Strengths, Weaknesses,

Opportunities and Threats

❑ Typically detailed in operations-level, corporate-

level, and international-level strategies
International strategy
 Example:

▪ Suppose the government announces the 20% income tax deduction for
purchasing new equipment. Both a firm and its biggest competitor are
thinking about acquiring new equipment. The firm is in the 35% tax
bracket; the competitor will be in NOL situation for several years. If you
are the firm what will be your strategy to gain an advantage over your
competitor?
ANTICIPATION
❑ Firm anticipates its future tax status and chooses
the timing—this year or a future year—of the
transaction. Since the effects of transactions often
span more than one year, the firm projects tax
effects into the future, using current and expected
future tax rates and rules, and factors in
management’s expectations as to the future tax
status of the firm

❑ Anticipate the actions of competitors, markets,

and governments
 Anticipation and certain tax changes
(example)

▪ What if a company is considering replacing its computer system? The new

system would cost 500,000 and would generate first year depreciation
deductions of 70,000. Suppose the firm is currently in the 35% tax
bracket, but next year it expects to go into the 0% tax bracket (say, due
to various tax credits and losses). When will be the best time for the
company to acquire equipment?
 Anticipation and price effects (example)

▪ Imagine that demand drops due to an import tax on computers. Market

prices drop, too, so part of the tax increase is passed on to computer
suppliers via lower prices. What will happen in the marketplace? Because
more computers will be demanded, prices will go up, and part of the tax
credit will be bid away to suppliers in the form of higher prices.
Anticipation and price effects (example)
 RESOURCES

karayan_strategic_business_tax_planning.pdf
SAVANT Framework
Presented By: Miho Jean Bismark Iwaya
 SAVANT
• S - Strategy
• A - Anticipation
• V - Value
• A - Adding
• N - Negotiating
• T - Transforming
 VALUE ADDING
• Look at expected net cash flows, administrative costs,
and risks to maximize the after-tax value

• most measures of value-adding are derived from the

firm’s financial statements.
 NEGOTIATING
• Work with other parties to the transaction to shift benefits
and burdens, and negotiate with the government to
increase your tax savings.

• Effective tax planning involves negotiating tax benefits,

both with tax authorities and with other entities involved
with the firm in a taxable transaction
 Example
• Suppose a firm is selling an office building with a market
value of $2 million, of which tax benefits (through
depreciation) are worth $300,000. If the selling entity is in
a nontaxpaying situation (e.g., a nonprofit organization
that is exempt from U.S. income tax), the tax benefits are
worth nothing, so the firm should be willing to sell for less
than $2 million. A taxable purchaser should be willing to
pay up to $2 million.
 TAX SHIFTING
• The ability of firms to pass on the burden of a tax.
 TRANSFORMING
• Convert income and expenses into categories with the
most favorable tax treatment.

• Firms attempts to minimize tax cost by transforming

transactions being considered into one with more
favorable tax treatment.
 Summary
• Strategy – Look at the big picture. Don’t deter from your overall strategy just to minimize
your taxes. Get your tax consultant involved in the process as soon as possible.

• Anticipation – Anticipate future changes in market conditions and tax rules.

• Value-Adding – Look at expected net cash flows, administrative costs, and risks to
maximize the after-tax value.

• Negotiating – Work with other parties to the transaction to shift benefits and burdens, and
negotiate with the government to increase your tax savings.

• Transforming – Convert income and expenses into categories with the most favorable tax
treatment.
 Tax Management
• Effective tax management means employing the SAVANT
principles to every important transaction. It also means
periodically scanning the environment to see what has
changed that would require new tax-management
strategies.
 Involvement in Transactions
• important business transactions are structured without
considering taxes. Subsequently, tax specialists are
brought to see how taxes can be saved (if at all), given
the already agreed-on form of the transaction. Instead,
managers should consider taxes simultaneously with all
other costs.
Scanning the Changing Tax Environment
• First, such scanning might necessitate a transaction that
requires tax management.

• Second type of scanning is for tax-law or tax-rate

changes.
 REFERENCES
• http://accounting-financial-tax.com/2009/05/savant-concept-a-transaction-approach-to-tax-management/
• https://richardwellingllp.com/s-a-v-a-n-t-strategic-tax-management-for-investors-and-managers/
• karayan_strategic_business_tax_planning.pdf
• https://www.slideshare.net/obsession56/savant-13887612
Thank You!

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