STRATEGIC

TAX
PLANNING
What is Tax Planning and Tax Management?

Tax planning is all about making sure you take advantage of every
legal deduction and credit to minimize your tax bill.

Tax management, on the other hand, is about reducing the taxes

you owe each year. It's more proactive than reactive, you work to
keep your taxable income as low as possible, so you owe less.
What is Tax Management?
Tax management refers to the management of finances, for the purpose of
paying taxes. Tax Management deals with filing Returns in time, getting the
accounts audited, deducting tax at source etc. Tax Management helps in avoiding
payment of interest, penalty, prosecution.

Importance of Tax Management in an Organization

Strategically managing tax involves financial analysis and decision-making

while proactively controlling your organization’s tax position so that legal
requirement are met.
What is Tax Planning?
Tax planning is the analysis of a financial situation or plan to ensure that
all elements work together to allow you to pay the lowest taxes possible.

Tax planning should be an essential part of an individual investor's

financial plan. Reduction of tax liability and maximizing the ability to
contribute to retirement plans are crucial for success.

A plan that minimizes how much you pay in taxes is referred to as tax
efficient.
Importance of Tax Planning

Tax planning’s importance is evident in the amount of money

that can be saved by taking steps to minimize the tax burden.
Those steps will change as a business grows or a person advances
in a career. However, the need to strategic tax planning remains
from beginning to end.
FEATURES OF TAZ PLANNING:

Reduction in tax liability.- one of the most important features of tax planning is to reduce tax liability. Every
individual has done his financial plan so he can reduce his tax amount and can save for his future plans.

Advance planning.- one has to arrange his tax plans at the beginning of the financial year because no one
can plan to reduce his tax liability day before filing an income tax return.

Investment in the right direction.- with the help of tax planning one can invest his money in the right
direction by choosing the right policy. Investment in any assets or policy will not help in saving money from
taxes, for this right investment should be done.

Dynamic in nature.- tax planning has to be done every year because of the new implementation of policies
introduced by the government. One has to modify his tax plans at the beginning of every financial year.
METHODS OF TAX PLANNING:

Short-range Tax Planning - short-range tax planning involves year to year planning to complete some
specific and limited objects.

Long-range Tax Planning - unlike short range tax planning, long-range tax planning are those activities
undertaken by an assessee, which does not pay off immediately. This starts at the beginning or the income
year to be followed around the year.

Permissive Tax Planning - a strategy that helps you plan your tax saving investments such that you can claim
the maximum permissible deduction limit under different sections of the Income Tax Act, 1961.

Purposive Tax Planning - involves using tax-saving instruments with the specific purpose of getting the
maximum tax benefit by making correct investment selections, suitable replacements of assets, and
diversifying income and business activities.
AREAS OD TAX PLANNING

For implementing tax planning one can use different ways to save his tax money. There are some areas
where we can plan to reduce our tax liability:

Reducing Taxable Income .- one can use government schemes and programs to reduce his taxable income,
it will directly reduce his tax liability. One should try to minimize his taxable income to reduce his tax
amount.

Deduction planning.- there are many deductions provided by a taxation law. One should implement and
plan those deductions. The major area of the deduction is available under Sec.80C where one can claim a
deduction for life insurance, mutual funds, home loan interest and many more.

Investment in tax planning.- assessee can invest in policy for future plans and save his money from tax.

Year-end planning strategies.- one can reduce his tax liability for the next year by prepaying those
expenses which will be imposed next year and can make a strategy before starting the new financial year.
Tax planning is an essential part of any financial plan for individuals, families or businesses. Proper planning allows you to
understand which tax benefits you qualify for. You might be able to take advantage of:

Deductions: Tax deductions allow you to reduce your taxable income. They’re usually expenses you incur throughout the
year, which you can subtract from your total income. A deduction might include a charitable donation.

Rebates: Rebates are a form of a refund, which occur after a retroactive tax decrease. Congress sometimes offers rebates
to help stimulate the economy during financial recessions. They’re also used to incentivize environmentally friendly
practices.

Credits: Credits allow you to subtract from the total you owe. If you’re a student, a low-income family or you have
children, you may qualify for a tax credit.

Concessions: A tax concession is a government reduction in the amount a certain group of people owes. They’re usually
used to incentivize certain behavior.

Exemptions: Exemptions reduce or eliminate someone’s responsibility to pay. Dependent-related exemptions allow you
to reduce your taxes by a certain amount for each child or other relative under your care.
DIFFERENT TYPES OF TAX PLANNING:

Federal income tax planning: It’s wise to plan your federal income taxes. Federal income tax deductions might
include student loan interest, college savings and charitable donations.

Retirement tax planning: With proper planning, you can reduce your tax liability and maximize your income
post-career. This involves best utilization of an individual retirement account or 401(k) plan and careful
calculation of your Social Security benefits.

Estate tax planning: When someone passes away, their estate may be subject to federal estate taxes. Those
who fall into this category require estate tax planning to preserve their estate’s value. Some states also
demand an estate tax, sometimes at lower value thresholds.

Small business tax planning: Small business and self-employed workers have unique tax responsibilities.
Applying the right deductions is critical. For instance, if you work out of a home office, you may be eligible for
a deduction. You might also deduct the cost of vehicles, office equipment, travel and other business-related
expenses. If you’re starting a new business, it’s important to take advantage of any tax relief.
SAVANT FRAMEWORK

SAVANT is an acronym for strategy, anticipation, value-adding, negotiating, and

transforming. For a transaction to be properly tax managed (and thus best increase firm
value), managers should consider all of these aspects.

THE SAVANT PRINCIPLE

To add value to each transaction, decision makers need to stay focused on the
firm’s strategic plan, anticipating tax impacts across time for all parties affected by
the transactions. Managers add value by considering the impacts when negotiating
the most advantage arrangement, thereby transforming the tax treatment of items
to the most favourable status.

Ultimate aim is to maximize shareholder’s value.

 ANTICIPATION NEGOTIATING

STRATEGY TRANSFORMING

VALUE - ADDING
The overall plan for deploying resources to establish a favourable position
and to achieve short-term and long-term objectives of an entity, consistent
with the ultimate aim of adding value to the entity.

OPERATIONAL STRATEGY – short-term (day to day operation)

CORPORATE STRATEGY – long-term (5 years from now)

INTERNATIONAL STRATEGY – plans to adapt to the changing environment of

business focused more on international business expansion.
 Thinking and/or talking about something ahead of time, and
either taking action in order to be prepared or being ready to
respond a the time the unforeseen circumstances, unexpected
result, abrupt changes in legislation, and envolving trends
keeping in mind the value to be added to the entity.
Bargaining or discussing an issue (tax or otherwise) until an
agreement is reached, preferably upon the terms and conditions
which add value to an entity:

Example: Shifting of taxation:

Forward shifting – from seller to buyer

Backward shifting – from seller to supplier
Onward shifting – the combination of forward shifting and
backward shifting
 Taking the appropriate (and legally feasible) courses of
action with the view of changing the nature, function,
condition, and ultimately, the tax effects of certain
transactions, to one which would add more value to an
entity.
 TITLE I
ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE

SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of
Internal Revenue shall be under the supervision and control of the Department
of Finance and its powers and duties shall comprehend the assessment and
collection of all national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines connected therewith,
including the execution of judgments in all cases decided in its favor by the
Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to
and administer the supervisory and police powers conferred to it by this Code
or other laws.
A. TAX REMEDIES
(1) On the part of government, theses are courses of action
provided by or allowed in the law to implement the tax laws or
enforce tax collection;

(2) On the part of the taxpayer, these are legal actions which a
taxpayer can avail of to seek relief from the undue burden of
oppressive effect of tax laws, or as a means to check possible
excesses by revenue officers in the performance of their duties.
B. Assessment Process
Tax Audit or Investigation
The BIR conducts an audit by issuing Letter of Authority (LOA).

Letter of Authority
- Is an official document that empowers a Revenue Officer to examine and scrutinize a taxpayer’s books of
accounts and other accounting records, in order to determine the taxpayer’s correct internal revenue tax
liabilities.

Persons Authorized to issue LOA

Taxpayer
• Under the jurisdiction of the National Office
• Under the jurisdiction of the regional offices

Person Authorized
• Commissioner of Internal Revenue (CIR)
• Regional Director
ISSUANCE OF NOTICE OF DISCREPANCY (NOD)

Notice of Discrepancy (NOD)

Under RR 22-2020, if a taxpayer is found to be liable for deficiency ta

or taxes in the course of investigation conducted by a Revenue Officer, the
taxpayer shall be informed through a NOD. The NOD aims to fully afford
the taxpayer with fair opportunity to present and explain his side on the
discrepancies found.
ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE (PAN)
Preliminary Assessment Notice (PAN)
A PAN is a communication issued by the Regional Assessment Division or by the
Commissioner or his duly authorized representative informing a taxpayer who has been
audited of the findings of the revenue officer.

Remedy of the Taxpayer

The taxpayer has 15 days to reply contesting the finding in the PAN.

Effect of failure to reply

The taxpayer is considered in default and the BIR will then issue a Final Letter of
Demand (FLD) and a Final Assessment Notice (FAN) calling for payment of the taxpayer’s
deficiency tax liability, inclusive of the applicable penalties (RR 18-2013).
ISSUANCE OF FORMAL LETTER OF DEMAND (FLD) AND FINAL ASSESSMENT NOTICE (FAN)

The FLD/FAN shall be issued by the Commissioner or his duly authorized representative.
The FLD/FAN calling for payment of the taxpayer’s deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the assessment is based;
otherwise, the assessment shell be void (RR 18-2013)

When Issued?
1) The taxpayer failed to respond to the PAN; or
2) The reply to the PAN was found to be without merit.
Remedy of the Taxpayer
1) File a protest to the CIR or his authorized representative within 30 days from date of
receipt of the FAN.
Types of Protest
• Request for Reconsideration
Refer to a plea of re-evaluation of assessment on the basis of existing records without need
of additional evidence. It may involve both a question of fact or of law or both.
• Request of Reinvestigation
Refer to a plea of re-evaluation of an assessment on the basis of newly discovered or
additional evidence that taxpayer intends to present in the reinvestigation. . It may involve
both a question of fact or of law or both.

2) Submit all supporting documents within 60 days from filing of protest (in case of request
for reinvestigation under RR 18-2013).
FINAL DECISION ON A DISPUTED ASSESSMENT (FDDA)
If the BIR do not agree with the protest, then a Final Decision on Disputed Assessment (FDDA) will be issued,
where the taxpayer has the right to elevate the case to the CTA.

REMEDY OF THE TAXPAYER

DENIAL OF PROTEST
WAYS TO DENY PROTEST
1) Direct denial of protest
2) Indirect denial of protest – If the CIR or his duly authorized representative fails to act on the taxpayer’s
protest within 180 days from date of submission, the protest may be considered denied.

DENIAL OF APPEAL BY THE CTA AND SC

REMEDIES OF THE TAXPAYER
If the appeal to the CTA Division is denied, file an appeal to the CTA en banc within 15 days from the receipt
of the decision.
If the appeal to the CTA en banc is denied, file an appeal with the Supreme Court (SC) Division within 15
days from receipt of the decision, then, finally, to the SC en banc.
C. COLLECTION
The BIR may avail of the remedy of collection when the assessment becomes final, executory
and demandable.

METHODS OF COLLECTION
The BIR can collect delinquent internal revenue taxes through the following means:
1) Distraint – the seizure by the government of government of personal property, tangible or
intangible to enforce the payment of taxes.
a. Actual Distraint – personal property is physically seized by the BIR and offered for sale at
public auction. The property is sold to the highest bidder and the proceeds of the sale are
applied to the payment of the tax due.
Garnishment - is the distraint of bank accounts.
b. Constructive Distraint – the person in possession of personal property is made to sign a
receipt, undertaking that he will preserve the property and will not dispose of the property
without the express authority of Bureau of Internal Revenue (BIR).
2) Levy – the seizure by the government of real properties
and interest in or rights to such properties in order to
enforce the payment of taxes.

3) Judicial proceedings
a.Filing of civil case for collection
b.File a criminal case (TAX Evasion)
D. COMPROMISE
GROUNDS
1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

All criminal violations may be compromised except:

3) Those already filed in court; or
4) Those involving fraud

MINIMUM AMOUNTS
5) For cases of financial incapacity, a minimum compromise rate equivalent to 10% of the basic assessed tax; and
6) For the cases, a minimum compromise rate equivalent to 40% of the basic assessed tax.

INSTANCES WHEN APPROVAL OF THE EVALUATINO BOARD ID REQUIRED

7) Where the basic tax involved exceeds one million pesos; or
8) Where the settlement offered is less than the prescribed minimum rates

COMPOSITION OF THE EVALUATION BOARD

9) CIR
10) Four Deputy Commissioners
E. ABATEMENT OR CANCELLATION OF TAX LIABILITY
GROUNDS
1) The tax or any portion thereof appears to be unjustly or excessively assesses; or
2) The administration and collection costs involved do not justify the collection of the
amount due.

F. SUSPENSION OF THE RUNNIG OF THE STATUTE OF LIMITATIONS

The prescriptive period for assessment and the beginning of distraint or levy or a
proceeding in court for collection of any tac deficiency may be suspended under the
following situations:
3) taxpayer’s request for reinvestigation was granted;
4) Taxpayer cannot be located in the address given in the return;
5) No property of the taxpayer can be located; or The taxpayer is out of the country
G. CIVIL PENALTIES
In addition to the basic tax assessed on the taxpayer, the following civil penalty also be collected:
1) Surcharge
2) Interest
• Deficiency Interest
• Delinquency Interest

H. REFUND OF TAXES
REQUISITES:
1) A tax was erroneously or illegally collected by the BIR;
2) The taxpayer should file a written claim for refund or tax credit with the CIR within 2 years from the date
of payment of the tax or penalty; and
3) If the claim for refund is denied by the CIR, file a petition for refund with the CTA:
a. Within 30 days from receipt of the denial; and
b. Within two years from the date of the payment of the tax or penalty