CORPORATE TAXA BRIEF OVERVIEW

CORPORATION DEFINED

• A corporation is a separate legal entity that has been incorporated either directly through legislation or through a registration process established by law.

CORPORATION DEFINED

• LEGAL ENTITY: As far as the law is concerned, corporations, are legal persons, and have many of the same rights and responsibilities as natural people do.

CORPORATION DEFINED• Corporations can exercise human

rights against real individuals and the state, and they can themselves be responsible for human rights violations.

• Corporations can even be convicted of criminal offenses, such as fraud and manslaughter.

CORPORATION DEFINED

LEGAL BENEFITS:• Protection of personal assets.• Transferable ownership.• Raising funds through sale of stock.• Durability.

TAX• A tax is a financial charge or other levy

imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law.

TAX

• Functional equivalents (expenditures on war, enforcement of law and public order, protection of property, development of economic infrastructure, subsidies)

• A nation's tax system is often a reflection of its communal values and/or the values of those in power.

PURPOSE AND EFFECTS

TAX

• Taxes in India are imposed by the Central Government and the state governments. Some minor taxes are also levied by the local authorities such as the Municipality.

• The Gross Collection of Corporate taxes from April to October 2013-2014 financial year has increased by 8.23 percent and stood at 209622 crore rupees. But the Gross Collection of Corporate taxes was 193679 crore rupees in the same period of financial year 2012-13.

TAXATION IN INDIA

TAX

1. Taxes on income: Ex. Income tax, Capital gains tax, Corporate tax.

2. Taxes on property: Ex. Property tax, Inheritance tax3. Wealth(net worth) tax.4. Taxes on goods and services: Ex. Value added tax (Goods and services tax), Sales taxes, Excises, Tariff.5. Other Taxes: Ex. License fees , Poll tax.

KINDS OF TAXES

TAXATION OF CORPORATIONS• Corporations may be taxed on their

incomes, property, or existence by various jurisdictions. Most jurisdictions tax corporations on their income. Generally, this tax is imposed at a specific rate or range of rates on taxable income as defined within the system

TAXATION OF CORPORATIONS

• Some systems have a separate body of law or separate provisions relating to corporate taxation. In such cases, the law may apply only to entities and not to individuals operating a trade.

TAXABLE INCOME• Taxable income can be

generally defined as the gross income minus allowable deductions.

• Most systems impose income tax at a specified rate of taxable income as defined in the system.

• The allowable deductions vary markedly from country to country.

TAXABLE INCOME

• Most systems tax their resident corporations (generally those organized within the country) on their worldwide income, and nonresident corporations only on their income from sources within the country.

Country of Tax Residency

CORPORATE TAX RATES• Many systems have graduated tax rate

systems under which corporations with lower levels of income pay a lower rate of tax. (Ex: US)

• Some systems have near uniform tax rates (Ex: India)

• Some countries have sub-country level jurisdictions that also impose corporate income tax. (Ex: Mass.)

THE DIRECT TAXES CODE, 2010

• It was unveiled on 12 August 2009 to replace the Income Tax Act that dates from 1961 and became effective on 1 April 2012

THE DIRECT TAXES CODE, 2010CORPORATE TAX • The corporate income tax rate

for all the companies (domestic and foreign) are set at 30% excluding surcharge or cess.

30 %

THE DIRECT TAXES CODE, 2010CORPORATE TAX • In addition, a 5% surcharge,

and a 3% cess is imposed. This results in an effective corporate tax rate of 32.445% on the total income.

32.5 %

THE DIRECT TAXES CODE, 2010BRANCH PROFIT TAX• Besides the corporate tax,

Foreign companies will be also liable to 15% branch profits tax, regardless of whether the income is repatriated

THE DIRECT TAXES CODE, 2010MAT(Min. Alternate Tax)• Companies will have to pay

MAT at a rate of 20% of adjusted book profits when the tax liability is less than 20% of their book profits

THE DIRECT TAXES CODE, 2010Dividend Distribution Tax• Resident companies will be

subjected to DDT at a rate of 15% of dividends declared and corresponding dividends will be exempt from tax in the hands of the recipient.

15 %

THE DIRECT TAXES CODE, 2010TAX ON CAPITAL GAINS

• The Income Tax Act also prescribes special tax rates for taxation of capital gains.

TAX ON CAPITAL GAINS SHORT TERM GAIN LONG TERM GAIN

DOMESTIC COMPANIES

NR COMPANIES

30 %

40 %

20 %

20 %

FEDERAL TAX RATESBelow $50K Over $18,333K

15 % 35 %

TAX RATES OVER THE WORLD

35 % U.S.A Federal Rate

TAX RATES OVER THE WORLD

15 % CANADA

TAX RATES OVER THE WORLD (EU)

21 % UK

TAX RATES OVER THE WORLD (EU)

30 % GERMANY

TAX RATES OVER THE WORLD (EU)

6 %

TAX RATES OVER THE WORLD

20 % RUSSIA

TAX RATES OVER THE WORLD

25 % CHINA

TAX RATES OVER THE WORLD

30 % INDIA

TAX RATES OVER THE WORLD

17 % Singapore

CORPORATE TAX

• Purpose of tax planning -To discover how to accomplish all of the elements of a financial plan in the most tax-efficient manner possible.

TAX PLANNING

CORPORATE TAX

Benefits-• Minimizes tax liability.• A sources of working

capital.• Increased distributable

profits.• Enables to face competition

from Multinationals.• Maximizes market value.

TAX PLANNING

TAX PLANNING

1. Accounting Methods 2. Inventory valuation

methods 3. Equipment Purchases 4. Benefits plans and

investments

General Areas

TAX PLANNING

Cash basis - Recognize income and expenses according to real-time cash flow. • It is possible to defer taxable income by delaying billing so

that payment is not received in the current year. • It is possible to accelerate expenses by paying them as

soon as the bills are received, in advance of the due date.

Accounting Methods

TAX PLANNING Accrual basis -Recognize income and expenses in the period to which they apply • Revenue is recorded when it is earned, rather than when

payment is received, and expenses recorded when they are incurred, rather than when payment is made.

Advantage - More accurate picture long-term business than cash basis method.Disadvantage - More complex than the cash basis, and income taxes may be owed on revenue before payment is actually received.

Accounting Methods

TAX PLANNING • Accrual basis of accounting is required for all businesses

that handle inventory.• Other businesses generally can decide which accounting

method to use based on the relative tax savings it provides.

.

Accounting Methods

TAX PLANNING

FIFO• Items purchased the earliest are the first to be

removed from inventory.• FIFO values the remaining inventory at the most

current cost.• Preferred during periods of deflation or in

industries where inventory can tend to lose its value rapidly.

INVENTORY VALUATION METHODS

TAX PLANNING

LIFO• Items purchased most recently are the first to be

removed from inventory• LIFO values the remaining inventory at the earliest

cost paid that year.• Preferred inventory valuation method during times

of rising costs

INVENTORY VALUATION METHODS

TAX PLANNING

Inventory valuation is important because businesses are required to reduce the amount they deduct for inventory purchases over the course of a year by the amount remaining in inventory at the end of the year• For example, a business that purchased $10,000 in

inventory during the year but had $6,000 remaining in inventory at the end of the year could only count $4,000 as an expense for inventory purchases, even though the actual cash outlay was much larger.

INVENTORY VALUATION METHODS

TAX PLANNING

Companies are allowed to file Form 970 and switch from FIFO to LIFO at any time to take advantage of tax savings. However, they must then either wait ten years or get permission from the IRS to switch back to FIFO.

INVENTORY VALUATION METHODS

TAX PLANNING

Businesses are allowed to deduct a certain amount in equipment purchases during the year in which the purchases are made.

Equipment Purchases

TAX PLANNING • Employee benefit programs can provide a business with

tax deductions, such as contributions to life insurance, health insurance, or retirement plans.

• Investments can shift tax liability to future periods, e.g. treasury bills, bank certificates, savings bonds etc.

• Companies can avoid paying taxes during the current period for income that is reinvested in such tax- deferred instruments.

BENEFITS PLANS AND INVESTMENTS

Baharin

Luxembourg

Hong Kong

Singapore

Switzerland

TAX HAVEN• A tax haven is a state, country or

territory where certain taxes are levied at a low rate or not at all.

• Individuals or corporate entities can find it attractive to establish shell subsidiaries or move themselves to areas with reduced or nil taxation levels relative to typical international taxation.

• This creates a situation of tax competition among governments.

TAX HAVENS

QUESTIONS ?

THANK YOUSHOURYA DEEPAK