Lawful tax planning: what it is and what it is not
Paying less tax can be perfectly legal — provided it stays within the rules. The line between lawful savings and evasion lies in the form and timing of the decisions.
Avoidance vs. evasion
Tax avoidance is the lawful arrangement of operations to reduce the tax burden, taking advantage of regimes, incentives and accepted positions. Tax evasion is the concealment or fraud used to avoid paying a tax that is due — and it is unlawful. Serious planning always operates in the first field.
Where planning typically operates
- Choosing the appropriate tax regime (Simples, Presumido or Real — the simplified, deemed-profit and actual-profit regimes);
- Structuring the company and the operation;
- Taking advantage of credits and incentives provided for by law;
- Reviewing past payments to identify amounts unduly paid.
Why timing matters
Planning is most effective when done proactively, before the operations take place. Structures set up merely to simulate a reality that does not exist tend to be disregarded by the tax authorities.
Frequently asked questions
Is tax planning legal?
Yes, when it is based on options and structures provided for or accepted by law. What is unlawful is fraud, simulation and the concealment of taxable events.
Can any company do tax planning?
Yes. Companies of any size can organize their operations more efficiently, in compliance with the legislation applicable to their case.
Need guidance on this topic?
This article is informational. For guidance on your specific case, talk to our team.