If the main objective of accounting remains to provide useful information so that its users can make economic decisions based on it, it is certain that one of the objectives of the preparation of the accounts is to determine the taxable income and the amount of taxes payable on the profits of the entities.
Tax legislation imposes rules for determining the result that often differ from good accounting practices in accordance with the applicable accounting standard. These differences will cause a tax result not coinciding with the accounting result, we may have permanent differences or temporary differences, which can be reversed over time. Thus, entrepreneurs and preparers of company financial statements should be very attentive to this issue, so that they can judge in a timely manner the best accounting and tax options, so that the financial statements are prepared with the objective of providing useful information to a wide range of users, but also so that the tax impact is as small as possible!
Tax planning
Talking about Tax Planning is not necessarily synonymous with tax evasion or anything like that, but rather thinking in a timely manner how the company will manage some relevant aspects in this matter, such as:
- Ensuring that you meet all your reporting obligations on time predicts how you will do in cash terms, not paying taxes can be much more expensive than getting interest-bearing credit to do so.
- Determination of taxable profit / tax loss in a predictable way and analyzing the deviations monthly, it is not at the end of the year that the tax result and its differences to the accounting result should be determined. This work begins with the budget and the monthly calculation of the result, so the company can anticipate surprises and try to minimize the differences between the accounting and tax result according to the options available. The analysis of the main adjustments of Table 07 of the Model 22, a map where the main differences between the accounting and tax result are evidenced, becomes mandatory at the time of the monthly income statement.
Tax Planning | Main differences/concerns of Model 22 that should be constant:
- Tax regime for depreciation and amortization, the tax useful life of assets does not always coincide with the useful life for accounting purposes, which implies a careful analysis so as not to miss any fiscally accepted expenses.
- socially useful achievements, the tax rules relating to these actions (internal or external) are not always appropriate to the management choices of the various companies. Before decisions related to this matter, the tax impact in terms of tax deductibility and/or possible tax cost increases must be analyzed.
- Impairment losses, whenever an asset may have a recoverable amount (by sale or use) lower than its carrying amount, the entity should perform impairment tests, whenever there is confirmation of a decrease in the carrying amount, an impairment loss should be recognized. This is not always relevant for tax purposes. In the case of impairment of receivables there are very clear rules in the CIRC (Corporate Income Tax Code) that should be known in a timely manner, see the need for evidence of attempted collection, for example.
- Correction to the transfer value of real estate, whenever there are real estate sales operations, whose sale value is lower than the VPT (Taxable Patrimonial Value) of the said property, for the calculation of the result, the value to be considered will always be the higher of the two, so at the time of sale the company should see the tax impact of the transaction so that it does not have surprises later.
Most common expenses subject to Autonomous Taxation
Autonomous Taxation (AT), nor does it make sense that AT can be considered as income tax, when in fact they are tax on certain expenses. The CIRC provides that some expenses beyond the limitations in their acceptability for tax relevance purposes are subject to autonomous taxation. Depending on the type of expenditure, we may have different rates. Check out the most common expenses subject to Autonomous Taxation:
-
- (i) Undocumented Expenditure;
- (ii) Representation expenses;
- (iii) subsistence allowances and compensation for journeys by own vehicle not billed to customers, and
- iv) Expenditure on passenger cars. For each of these expenses there are specific rules and rates, as well as some alternatives that will allow some savings.
Tax Benefits
There are several Tax Benefits that can and should be taken advantage of by companies, and the Benefits related to investment are usually quite relevant when calculating the tax, so it will be very useful to know the rules related to these investments and to adapt/anticipate some of the investments that qualify. However, attention should be paid to the rules for the accumulation of tax benefits, being able to better plan the temporal suitability of their use, in order to maximize efficiency.
Tax Losses
Tax Losses, companies can deduct from their tax profit a part of their tax losses obtained in previous years, the term and conditions of use of these losses have undergone many changes over time. It is therefore important to know which losses are available and what the conditions of use are, so that some operations can be planned from a temporal point of view.
This article is not intended to provide an exhaustive analysis of the differences between accounting and tax results, but only to reflect on the importance of tax planning and how relevant it can be to study these matters throughout the year, so that management decisions also take them into account.
José Pedro Farinha - Chairman | BTOCNET
