Strategic Tax Planning

1
Strategic Tax Planning

• Financial Statement Analysis
• Chapter 12

2
Firms Decision Making

• Interplay between financial accounting
  information and taxes
• Internal accounting segmental analysis
• External accounting tax-related footnotes in
  competitors financial statements

3
Segmental Analysis

• Managers analyze whether a component should be
  retained or discontinued
• One component of cost is taxes

4
Other Tax Aspects in Segmental Analysis

• Taxes and Fixed assets
• When disposed, gain or loss may occur
  depreciation will also be lost
• Net Operating Losses
• NOL tax shield is lost if segment is disposed
• State and Local Income Taxes
• If segment operates in a different state, then
  relative tax rate of the segments state and
  other states must be considered

5
Other Tax Aspects in Segmental Analysis

• Foreign Operations
• Effect on firms taxes is negative if it operates
  a segment in a country with a higher tax rate
  than the rest of the firm

6
SAVANT and Segmental Analysis

• Strategy
• Is there an important strategic presence impact
• Anticipation
• Could a loser segment be turned around
• Value-adding
• What risk is associated with the return
• Negotiating
• Can a tax reduction be negotiated

7
Strategic Analysis Using Competitors Tax Note
and Segmental Data

• If public company, competitor must file a 10K
  with SEC
• Audited financial statements
• Information on segment performance
• Footnotes on pertinent information

8
Segmental Data

• From the 10K, managers can acquire competitive
  intelligence on firms operating in the same
  markets

9
Tax Footnote Information

• 10K includes a note that reconciles the firms
  statutory worldwide income tax rate to its actual
  effective tax rate
• Indicates whether firm is in a tax-paying
  situation
• For international markets, indicates the extent
  of its worldwide effective tax rate differs from
  its U.S. rate
• Other significant individual transactions