Tax expert shares ways to maximize tax savings

MANILA, Philippines - Taxation is a very technical field; one that needs much studying, planning and forethought. As such, it would not be amiss for anybody to seek the advice of a well-respected accountant or tax lawyer—be it on a personal capacity or as the financial arm of a multinational company—particularly if the potential risk involved is quite substantial.

For lawyer Benedicta ‘Dick’ Du-Baladad, managing partner of BDB Law—the country’s first law firm that combines the expertise of tax lawyers with certified accountants in one firm—she revealed that there are certain things people need to remember in minimizing one’s exposure to taxes and fully maximizing one’s tax savings.

“There are actually two ways of minimizing one’s taxes – one is tax avoidance which is lawful while the other is tax evasion which is unlawful. There is a clear but very thin dividing line between the two. When tax avoidance crosses the line of tax evasion, it becomes unlawful and criminal. Tax planners should be very careful not to cross this line,” explained Du-Baladad.

She said that with tax avoidance, for instance, taxpayers can advance the consummation of a transaction if a tax imposed on the transaction is applicable after a specified date in the future—this is lawful. Willfully under-declaring the sales or overstating one’s deductible expenses, however, is considered tax evasion and is highly illegal.

“This is the reason it is a good idea for taxpayers, particularly large taxpayers, to seek the advice of a tax advisor before they enter a new transaction or a large undertaking. The tax advisor can study and recommend ways to improve their tax efficiency without exposing themselves to the risk of penalties and imprisonment,” she added.

Tax planning is also essential as it is a study normally conducted to determine the most tax efficient way of doing a transaction or business by taking into consideration the existing laws, rules and regulations and practices applicable to that particular transaction. “For example, taxpayers would want to undergo tax planning to properly structure the compensation packages given to their employees with the objective of giving them a bigger take home pay through reduced taxes,” said Du-Baladad.

In the same vein, businessmen can benefit from tax planning because they will be able to better determine the most efficient structure for their businesses.

But on a more personal level, Du-Baladad said that older citizens who own large estates would do well to undergo an ‘estate tax planning’ so they can ensure that the tax burden imposed on the transfer of their properties to their heirs will be at a reduced rate. 

Meanwhile, for multinational companies, they have to undergo even more complicated tax planning as it involves ‘international tax planning’ because of the differences in the tax rules in the various countries where they operate.

Singapore and Hong Kong, for instance, have lower income tax rates compared to the Philippines. Thus, income attributable to a business in the Philippines may be shifted to a related company located in HK or Singapore by way of higher prices in the transfer or sale of goods or services. The differences in tax laws of different countries and the string of tax treaties we have with other countries offer opportunities for tax savings for the whole group.

“Tax planning would enable people to maximize their tax savings, be apprised of potential tax exposures and be able to plan ahead. It gives you peace of mind and it saves you from the trouble of facing the BIR or going to litigation later on,” said Du-Baladad.

The bottomline, concluded Du-Baladad, is to pay the right taxes due to the government. “In return, you, as a taxpayer, have every right to expect the government not to collect more than what is due from you.”