Strategy is the direction and scope, which the company intends to take in a long time perspective to achieve their goals and gain competitive advantage.
Subject of tax strategy
The subject of tax strategies of company are expenses resulting from having to pay the tax burden and to keep records and accounts. Moreover, it is necessary to take into account the expenses associated with resolving tax problems and tax risk reduction.
Types of tax strategies
Selection of conduct in the performance of obligations and responsibilities imposed by fiscal law is the starting point in formulating and implementing tax strategies. The taxpayer in principle has the choice between two extreme positions:
- Conservative strategy - all actions are limited to fulfilling the obligations arising out of the scope of taxation. Main goal it to avoid disputes with the tax administration. The essence of this strategy is focus on ensuring the safety of the company by identifying the correct tax liability and error-free determination of tax liability. The taxpayer does not take pre-emptive action aimed to determine the effects of fiscal decisions, and is not looking for ways to minimize the tax burden.
- Aggressive strategy - involves fulfillment of fiscal obligations but in the same time it seeks any possible chances of minimizing the tax burden. Adoption of this strategy is determined by the overall business strategy. Minimizing the tax burden is not an autonomous goal of an enterprise. Tax goal is subordinated to other goals of company and can not limit them. Managers should choose such a way of proceeding, that the main objective of company is achieved at the lowest possible tax burden. Filing tax obligations and the various actions to minimize tax expenditures, taking into account the purpose of business and tax risks makes an aggressive strategy typical for companies that effectively manage taxes.
- Shackelford, D. A. (2001). Taxes and Business Strategy: A Planning Approach. Journal of the American Taxation Association, 23(2), 80-80.