While there are millions of articles online pertaining to tax planning strategies for corporations, the vast majority of them concern corporate income tax strategies. In valuation practice, business tax planning strategies center not on income taxes but on transfer pricing and business valuation—which in turn, impact business tax strategies associated with income, property, and other taxes.
This article presents an overview of valuation and transfer pricing tax planning strategies for companies, and tells how they each make a meaningful impact on the bottom line.
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Corporate Tax Strategies Related To Transfer Pricing
Transfer pricing plays an important role in income tax planning strategies for multinational companies. If, for example, a company sources goods from a subsidiary in a low-cost market, it may be able to maximize after-tax profits and reduce customs costs with an effective transfer pricing strategy.
Key to transfer pricing strategy is determining which transfer pricing method is most appropriate and beneficial for each type of transaction. While multinational companies are required to conform to OECD BEPS regulations, the guidelines allow each company to use any—or all—of the five methods for determining transfer pricing in calculating values for different types of intercompany transactions.
A transfer pricing consultant can help your company take advantage of opportunities to boost after-tax profits with the right transfer pricing strategy for your situation—while also ensuring that you remain in compliance with OECD regulations. Having an expert in your corner is also helpful in case of a dispute involving reporting or compliance.
Using Valuations To Support Tax Planning Strategies For Corporations
Business valuation can serve many roles including restructuring, financing, and financial reporting, among others. When we talk about business valuation in relation to tax strategy, we usually talk about corporate restructuring and property tax. The valuation of business assets can provide insight and guidance on what the financial impact and tax implications of restructuring are. In the case of property tax, it may uncover areas of over-assessment by tax authorities or provide peace of mind that your assets are being fairly assessed. A professional valuation can provide insight and support for tax savings through making informed decisions. For property tax, an appraisal of your business or assets can serve as evidence in the case you are overassessed and need to challenge the valuation.
Valuations of assets can also have big tax implications with change of ownership of a business. For example, if the business owner gifts shares in the business or exits the company there will be an exchange of closely-held stock. A valuation will likely be required to set the price and has effects on any potential income tax or estate tax liability. A professional valuation of the business can also be important to executors and heirs upon the death of the business owner. An appraisal compiled by a credentialed business valuation expert protects the business and everyone involved by providing an independent opinion of value that can be audited or support tax filings.
As the past year has proven, nothing that relies on a future forecast is ever certain, and there are limitations to corporate tax planning as well. But by taking a global view of business tax strategy rather than focusing narrowly on income taxes, companies can also optimize transfer pricing opportunities and reduce property taxes—both of which can have a measurable impact on after-tax profits.
Need valuation or transfer pricing assistance to support your business tax strategy?
Valentiam has helped companies in a variety of industries optimize their transfer pricing strategies and attain accurate enterprise and asset valuations. We have extensive experience in performing valuations, and our transfer pricing specialists are recognized as some of the best in the world.
Contact us to see how we can help your company with its valuation and transfer pricing needs.
Topics: Transfer pricing, Business valuation
