In business, there are options, and often decision-makers have a choice to make which decides the fate of the business. Taxation being one of the integral parts of the business have its own option mechanism embedded in it. Taxes could make or break a business. It is up to the business and its driver to prioritize the aspects of taxation in their eco-system. There are 3 faces of tax function in any organization, which are as follows:
- Tax planning and structuring: Tax Evasion and Avoidance are bad tax practices, however, tax planning is perfectly legal and legitimate way of mitigating tax risks and optimizing tax payouts. Any business before initiating any commercial transaction should plan well in advance for its impact of taxes on a structure. There could be certain means and incentives provided in law for a particular structure that could assist a business to save taxes. Such planning helps in bringing down the MNC group’s Effective Tax Rate (look out for a detailed discussion draft on ETR)
- Compliance: Compliance remains the heart of taxes. The timely filing of returns and declarations keeps a company healthy and in shape. Compliance is the four corners of the law in which a taxpayer pays taxes, declares such payment and provides information about the business. Compliance leads to transparency and assists in exchange of information.
- Representations: Representations are interactions with the tax authorities and the tax courts. If a transaction is well planned, documented and compiled for, then such representations are smooth and help in laying down the foundation stone of a Company’s impression with the tax authorities. If a transaction is not well planned or not complied with then the risk of penalties and tax adjustments increases, which leads to litigation in the country. Representations could also be used in planning a transaction where an advance ruling regime exists. Here, the taxpayer upfront in advance informs the tax authorities about the transaction and seek clarity on the taxation aspect of such transaction.
As a business, one has to give appropriate attention to all the above mentioned 3 pillars of taxes, through which you can achieve ease of doing business yourself.
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