What Is Tax Structuring?

The realm of tax structuring includes activities that are related to planning and strategizing to minimize taxes. Tax structuring is often referred to in terms of business taxes, as tax payments can represent a significant portion of the costs of running a business. As such, businesses of all sizes use structuring to keep tax payments as low as possible and maximize deductions.

An important part of tax structuring is deciding how to set up a business before commencing operations. A business may run as a sole proprietorship, general partnership, limited partnership, corporation, or limited liability company. Each type of business entity has both advantages and disadvantages. Often, business owners seek structuring services to help them choose the best option for their businesses, develop tax plans, and avoid common taxation pitfalls.

International tax laws are another important consideration in tax structuring. Many businesses have operations in a foreign country. This can lead to taxation both in the business owner’s country of residence and in the country in which the business is operated. Fortunately, many countries have foreign tax laws that help businesses avoid double taxation. For example, following certain rules, a corporation may be taxed only in its country of residence, enjoying exemption in the country in which it operates.

Value Chain Transformation (VCT) is often a vital part of tax structuring. Its focus is on transforming business operations, in everything from day-to-day strategy to customer delivery, to providing for the most tax-advantaged scenario. VCT may integrate value-based and supply-chain management, as well as the management of market and customer sectors. It encompasses the alignment of tax and operational models, as well as the alignment of profits and reorganized company processes. VCT is also concerned with attaining and maintaining structural tax improvement and increasing shareholder value.

Tax structuring may be particularly important for tackling the complexities of mergers and acquisitions. It can also be critical for joint ventures, business restructuring, and estate transactions, as well as in a wide variety of other situations that require careful, strategic planning. In such situations, structuring involves gaining an in-depth understanding of tax law and potential consequences and using this information to implement viable solutions and plan for the future.