While you may think tax planning is a quiet avocation done quietly behind the scenes, the discipline has actually been in the new quite a bit over the last few years. Corporations worldwide are merging and restructuring themselves to take advantage of (“arbitrage”) the differences in corporate tax rates and tax codes between countries.
Here are just a few well-known companies who have hit the headlines for moves they have made to minimize their American tax obligations.
- Google set up their Intellectual Property Division in Ireland to take advantage of their extremely low corporate tax rate. Their annual tax savings have been estimated at over $6 billion annually.
- Drug Giant Pfizer pursued a merger with AstraZeneca in part to move its headquarters to London, gaining tax benefits Pfizer estimated would be over $1 billion annually.
- Salix Pharmaceuticals sold itself to Canadian firm Valeant Pharmaceuticals, in part to harvest a tax windfall. Canada also has a low corporate tax rate, and doesn’t tax income earned outside of Canada, unlike the U.S.
There are a lot of moving parts to the issue of corporate tax avoidance, and the chess match between Congress, the U.S. Treasury and the corporations keeps the situation fluid. The government has been moving the goalposts to close off loopholes and retain billions of dollars in tax revenue that would otherwise “go overseas.” But opportunities to take advantage of the tax code still exist, and savvy and persistent proactive tax planners are the professionals you will want to work with to find them.
Tax Benefits Exist for Every Business
What has this got to do with the small businesses? The lion’s share of enterprises in the U.S. do business only within our borders, and are not going to merge with a Canadian or Mexican company to invert their tax position.
Tax inversion may not apply, but the tax code is riddled with other benefits companies can use to reduce their taxes, and smaller businesses do find and apply those favorable tax laws to their situations. While the savings are not in the billions, they can amount to millions.
You Just Have to Know Where to Look!
Congresspeople may write tax breaks into law with a particular constituent in mind, but usually make the law broad or vague enough that the target of the tax break cannot be clearly identified. This creates an opportunity for any other similar business to grab the same tax benefit.
The only difference between a large corporation and a small business is access to resources. Big companies have tax planners and strategists on staff who work all day on the tax code finding angles for saving money. You don’t have that advantage, but you do have access to qualified tax planners who work on a value-based billing structure.
This gives you a big pot of expertise to tap into: Tax planners find those specific sections in the code that best benefit their clients. Plus, with all the forums and continuing education that we pursue, we match, and in many cases surpass, the skill and strategic perspective that those corporate tax planners offer.
Think more like a large company and invest some time in proactive tax planning. Chances are very good that tax benefits you did not know about can be identified and used to increase your bottom line.
Our bottom line: If we can figure out how the tax code can best work for your business, and you can legally take advantage of it, doesn’t it makes sense to do it?