PREFACE

Tax is an unrequited payment made to local statutory bodies (like-NBR) for operating business within
circumference of area to which the statutory body deployed to collect tax on behalf of government. This
outlay is most often seems unsolicited to firm because it drains their profit at the brink of assessment
year. Truly speaking; everyone in the world staggering for protecting their own interest and exhibiting
thrifty demeanor whenever issue of expenditure arises.

Today the world became a single market due to unfettered overhauling communication system,
advancement of technology and conducive polices regarding foreign trade and commerce. Subsequently
many company engage in diversification on the basis of geographical location as an important instrument
of corporate strategy to minimize cost(minimize tax liability , reduce labor cost) , explore new market
(when existing market had been covered fully ), revive fortune in new product for new geographical area
etc. ( diversification strategy in Ansoff expansion grid).

The leitmotif of this short writing is to unearth the reason and ways to reduce ultimate tax liability of
firms; operating globally.

REASON PLAYING COGENT ROLE BEHIND EFFORT TO DRAG DOWN HOLISTIC TAX LIABILITY
1 Companys quest is to maximize shareholders interest and maximize profit. If tax is paid at exorbitant
rate then company net profit will be lower enough to reduce EPS.
2 Different govt. have their own Income Tax Ordinance with different tax rate. So companies should
made some check and balance to reduce the repercussion of high disparity in tax rates
3 To grab opportunity availed in different countries; company may be compelled to enter into them. But
should have cost-benefit analysis and contingent plan to affront adverse tax and govt. policies.

4 To dissolve the impact of high tax with large figure of tax saving aroused from diversified industries in
various countries.
5 If company pay tax as per local tax rate then they had to charge high price for same standard product
which will sap their profit and market base and welcome new competitors ( local firms ). In short; price
disparity will prevail across world; excluding impact of changing foreign exchange.

WAYS TO ABATE GLOBAL TAX LIABILITY VIA TAX AVOIDANCE

Tax avoidance is using the law to ones own advantage to reduce liability for taxation. Tax avoidance is
perhaps better and commonly described by professionals as tax mitigation. Tax mitigation is clearly not
only legitimate but should be considered a key component of companies financial planning. Benefits can
be maximized with careful consideration to companys nationality and tax domicile, current residence,
double taxation treaties, banking, assets, and investments.

We should make it apparent that tax evasion and tax avoidance is not same before proceeding into
discussion about tax avoidance techniques; which will proliferate companys consolidated profit.
 Tax evasion
Tax evasion is unlawful. Act of dwindling tax will
pose threat of litigation and huge amarcement;
which will aggravate profit and reputation more
than the situation where company pay tax
properly.
Tax avoidance
Tax avoidance programs is the proper use of
loopholes in legal system for companys
betterment. Requires astute person or workforce
who has high experience regarding laws ,
regulation and legitimate path to abate taxes

Ways to reduce global tax liability

1. Exercise corporate Tax Planning Strategies: Is the development and implementation of

appropriate strategies to reduce, defer, or eliminate either current or future income tax liabilities-
Splitting income
Using tax deferral plans via
Retirement Savings Plan (RRSP)
Entire eligible contribution is tax-deductible
Contribution limit based on earned income
Education Savings Plan (RESP)
Disability Savings Plan
Deferred Annuities
Using tax-advantaged investments:
Dividend-paying
Capital shares or property
Labor-sponsored fund
Corporate class mutual fund
Making all allowable deductions
Incorporating insurance products
2. Transfer pricing: Reducing income taxes in high-tax countries by overpricing goods transferred to
units in such countries; profits are eliminated and shifted to low-tax countries
3. Deploying Resource in R&D: the amount of tax deduction for companies involved in research and
product development (R&D) has significantly increased. A company can now receive relief against
Corporation Tax if their work during the past (including the last two tax years), present or future
qualifies.
4. Staring SBUs in foreign country having low tax jurisdiction: mother company must retain
control of the new entity and ensure its financing without transferring money that had already
been taxed or may be taxed when transferred. One way of accomplishing this is to guarantee a
loan to the new entity at a foreign bank.
5. Repatriating profit back to home country: successfully transfer operations and profits to low-tax
foreign locations but at some point some of these profits must be brought back to the home
country to finance local operations, proclaim dividend and finance new viable investments.
6. Expanding operation without any physical movement rather through e-commerce; may improve
tax inability.
7. Royalty payments: Most governments allow deductions for royalty payments, which reduces tax
liability to the licenseeeven if the licensee is part of the same MNC, and even if no R&D had
been performed in the licensees nation.