business tax costs control

1. BUSINESS TAX COSTS
PREPARED BY:
HARDIK BHANDARI 10020241057
SANDEEP BILWAL 10020241058
SUMANT BHATNAGAR 10020241121

2. Tax management and the shareholder value
• According to PWC study, tax management is vital if
companies want to reduce cost in their broad
business planning.
• ETR or effective tax rate is a corporation’s tax charge
as a proportion of Pre-tax profits. ETR can change
depending on how effectively a company is able to
manage its taxes.
• Effective tax management can prove to be a better
tool in increasing the shareholder’s value as evident
through a model study by PWC which shows that a
1% reduction in the cash tax rate yields a 1.4% to
2.3% increase in shareholder value while companies
would need to increase sales by 12% to 15% to
achieve the same increase in shareholder value.

3. Study method for PWC
• A statutory tax rate has been taken which
include the local and federal tax rates.
• Comparison has been made in between
the companies which have negative tax
rate i.e. the effective tax rate is less than
the statuary tax and the companies which
have positive tax rate i.e. effective tax rate
is higher than the average statutory rat ,In
order to determine correlation between
the way companies approach their taxes
and the level of their tax charges

4. Tax planning in companies
• It is to be known from the survey that the in companies
where the effective tax rate is low, the tax management
dept. has wide powers and accessibility to the top
management.
• This enables to incorporate tax saving plan into each
aspect of business e.g. projects etc.
• Tax departments primarily do four functions in the
company i.e. advisory, managing compliance centre ,
managing profit centre as tax saving centre and
involvement in business decisions.

5. Breakup of in-house tax budget
• Companies of low ETR normally dedicate 57% of their in-house tax
budget to compliance. Break down of this compliance spending is:
local 22%;
federal 17%;
international 5%;
Indirect 10%;
employee taxes 3%.
• Planning activities account for 43% of the in-house tax budget.
Here, the spending breakdown is:
local, 8%;
indirect, 12%;
international, 16%;
federal,5%;
employee taxes, 2%.

6. Methods of tax payment
• Advance payments
under new IRS rules.
• Broadened deferrals
• Tax payments when
company if the company
does not have
“applicable financial
statements”.

7. Employee telecommuting and federal
income tax laws
• Federal income tax laws
applicable in case of
telecommuting:
• Write-offs for the office
equipment
• Reimbursed expenses
• Employee’s home-office
deductions
• Non-federal tax
considerations

8. Conclusion
Through relevant tax
planning companies
can reduce their tax
expenses
substantially, but for
this they need to
have a tax-saving
strategy in place,
which will be
constantly monitored
by the top-
management of the
company.