Tax planning is the optimal and legal management of tax matters. It is considered a way to use legal and legitimate tools to reduce the tax burden on individuals or entities.
The implementation of proper tax planning represents an essential mechanism for organizations. Our associate lawyer, Adalicia Torres, was invited to the radio show "5-Minute Legal" on Radio Femenina to discuss this topic in more detail.
"In contrast to tax evasion and tax avoidance, tax planning is entirely legal by utilizing the resources and/or benefits created by the law itself to generate and ensure savings for the taxpayer," emphasized Torres.
According to our specialist, tax planning is not only about implementing mechanisms to reduce the tax burden but should also be aligned with the company's goals to achieve objectives such as business growth and cost reduction.
"It is an exercise to implement a business's tax regime and ensure that taxpayers' legal rights are in optimal conditions. When there is no planning, excessive taxes may be declared, and in some cases, fines or interest may be paid," stated our associate.
To engage in proper planning, our expert explained that it is necessary to understand the economic activity of the taxpayers to determine how taxes are generated. Based on this knowledge, it forms the foundation for planning internal decisions, such as investments, sales, personnel selection, among others.
Secondly, Torres recommends researching a company's tax reality as it can provide an idea of how tax obligations are met, the tax burden on the company's operations, and determine if there is an opportunity to optimize the tax burden.
Lastly, tax planning should be considered and implemented alongside the company's financial and operational planning: "If the business intends to make an investment, the tax effect should be evaluated and adapted to optimize it," said Torres during the radio interview.
During the interview, our associate compared tax planning to other activities such as tax avoidance, which is a practice to reduce or avoid tax payments by exploiting gaps in regulations or interpretations that deviate from the law's purpose. On the other hand, tax evasion involves concealing information and providing false information.
"In other words, the company or individual takes advantage of regulatory gaps or interpretations that deviate from the purpose of the law to reduce their tax obligations," mentioned our tax law expert.
If you have further inquiries about this or other topics, you can contact us through our social media channels or by visiting our offices located at Calle Cuscatlán, #4312, Colonia Escalón, San Salvador, El Salvador.
-Written by the Torres Legal Team