Introduction to

SAVANT Framework
SAVANT Framework

● Is a set of principle that can help fundamentally shape tax rules

● Techniques that helps in reducing the tax burden generated by various

transactions that can be classified into groups of tax strategies

● The goal is to reduce taxes while not excessively intruding on the organization’s
overall operations

● Balance the benefits against the risks and costs.

Reporter: Turtoga
The ultimate aim of SAVANT Framework is to
Maximize Shareholder Value

● Decision makers need to stay focused on the firm’s strategic plan;

● Anticipate tax impacts across time for all parties affected by the transaction;

● Managers then add value by considering these impacts;

● Negotiate the most advantageous arrangement; and

● Thereby transforming the tax treatment of items to the most favorable status.

Reporter: Turtoga
SAVANT Framework

STRATEGY ANTICIPATION

VALUE-
ADDING

TRANSFORMIN
NEGOTIATION
G
STRATEGY
• Key ingredient of any successful organization
▸ Tax management should work to enhance the firm's strategy and should not cause
the firm to engage in tax minimizing transaction that deter it from its strategic plan.
▸ The firm's business level strategy is typically detailed in operations level, corporate
level and International level strategy.
▸ At the operation level, the firm's strategy involves gaining advantage over
competitors to create value for its customer through its product and services.
▸ Corporate strategy focuses on the diversification of the business.
▸ International strategy focuses on taking advantage of corporate and business
strengths in global market.

Reporter: Atillo
STRATEGY

Reporter: Atillo
ANTICIPATION
• Firms operate in a dynamic environment in which they must attempt
to anticipate the actions of their competitors, markets, and
governments.

• Tax managing firms adjust the timing of transactions in anticipation

of expected tax changes.

Reporter: Lorete
Anticipation and Certain Tax Changes

 Effectively anticipating a tax rate change can benefit a firm by

decreasing the federal tax.
 Firms can shift income into a lower tax rate year and deductions
into higher rate years.

Effects of Net Operating Losses (NOL)

o If the firm generates an NOL in the current year, the loss can be
carried back and used in its entirety in the previous years.

Reporter: Lorete
Anticipation and Uncertain Tax Changes

• The tax managed firm can anticipate tax changes before they become
official.

Anticipation and Price Effects

• Firms should attempt to anticipate price effects resulting from tax changes.
These include the elasticities of supply and demand and whether additional
supplier can enter the market.

Reporter: Lorete
VALUE-ADDING
Effective tax management is no different from any other aspect of
management insofar as any transaction should at some point be
expected to add value. Ultimately, most measures of value-adding are
derived from the firm’s financial statements. Related to accounting
earnings are the firm’s cash flows. If the net present value of cash flows
from a transaction is positive, then, over time, this will translate into
positive financial earnings. Both typically enhance shareholder value and
increase management compensation.

Reporter: Mariñas & Misa

Maximizing Value-Adding and Potential Conflicts
Maintaining (or improving) value-adding is implicitly a contract between the manager and the firm’s
shareholders. Closely related are explicit contracts based on financial accounting information. The
company may have debt covenants tied to certain financial ratios. Therefore, a transaction, while
saving taxes, might be detrimental overall if it results in financial rations that violate these covenants.
For example, suppose a transaction saves P100,000,000 in taxes. However, it is financed with debt
that, when added to the firm’s existing debt, causes the debt-to-equity ratio to exceed the maximum
specified in debt covenants. If it costs the firm over P100,000,000 to renegotiate the debt, the
transaction should be rejected. Other contracts based on financial accounting could be with managers
(e.g., bonuses), customers, or suppliers.

Reporter: Mariñas & Misa

Value-Adding and Transaction
Costs
Tax management requires that the tax savings exceed the related execution
costs in any transaction. Transaction costs might include brokers’ fees or legal
and accounting costs. Some examples of transactions costs are:
• Stock broker fees on the sale of stock
• Attorney, accountant, and investment banker charges on mergers,
acquisitions, and recapitalizations
• Lobbying costs to obtain favorable tax structures prior to locating a new
plant
• Temporary loss of funds when paying an expense in December instead of
January

Reporter: Mariñas & Misa

VALUE-ADDING

Reporter: Mariñas & Misa

NEGOTIATION
Effective tax planning involves negotiating tax benefits, both with tax authorities and with other
entities involved with the firm in a taxable transaction. Negotiating,” the firm seeks to shift
more of the tax burden away from itself (and potentially, onto the other entity) by negotiating
the terms of the transaction.
Opportunities for Shifting Taxes to Other Parties:

Shift taxes Shift taxes

backward forward
Suppliers Firm Customers
through lower through
prices higher prices

Shifts taxes backward

through lower wages

Workers

Reporter: Dealinas
TRANSFORMING
Tax management also includes transforming certain types of income into gains, certain
types of expenses into losses, and certain types of taxable income and nontaxable income.
Regarding the latter, losses on sales of capital assets (raw land, financial instruments) are
deductible only to the extent that the firm would like to transform capital losses to
ordinary losses.

In general, tax management seeks these transformation:

Taxable income (or gain) Tax-exempt income (or gain)

Ordinary income Capital gain income
Non-deductible loss (or expense) Deductible loss (or expense)
Capital losses Ordinary losses

Reporter: Estrada
TRANSFORMING

One significant example of gain transformation is the sale of stock. If the corporation sells
appreciated assets and then distributes the proceeds of shareholders, the corporation pays
taxes on the gain, and the shareholders have the ordinary income on the dividend. Instead,
if the corporation liquidates, the appreciation is taxed to the corporation, but the
subsequent distribution shareholders likely is liked to them as capital gains. If the
shareholder is an individual (as opposed to corporate parent), the maximum tax rate on the
gain is 15%. This transformation method can save the shareholder a significant amount of
taxes.

Reporter: Estrada
TRANSFORMING

Reporter: Estrada
This chapter discusses how the managers engage in transactions and increase the firm value. 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, each transaction has an uninvited third party: the government. In strategic tax management,
when a firm chooses transactions, it keeps tax management in mind.
The firm anticipates its future tax status and chooses the timing-this year or a future year-of the
transaction. Then taxes are negotiated between the firm and the other entity. The firm then attempts to
minimize tax costs by transforming transactions being considered into ones with more favorable tax
treatment. After taxes the value is added to the firm. The time value of a transaction, after taxes and
transaction costs, is what increases firm value in the future. One aspect of a transaction that affects
value-added comprises transaction costs such as sales commissions or attorney fees. A key ingredient
of any successful organization is a sound and successfully implemented strategy.
Tax management should work to enhance the firm’s strategy and should not cause the firm to engage
in tax-minimizing transactions that deter it from its strategic plan.
End of Report. Thank you!