Why is it important to hire and maintain adequate tax staff?
Firms are efficient when they have a low employee turnover and
maintain adequate tax staff. Primarily because compliance with tax
laws and regulations is complex and constantly changing. A dedicated
tax staff ensures that a firm remains compliant with the tax laws of
the jurisdictions in which it operates. A firm non-compliance can
result in penalties, fines, and reputational damage. An adequate tax
staff can help navigate the challenges of tax codes and ensure that
the company meets its tax obligations. For example, in 2019,
Facebook was hit with a $5 billion fine by the U.S. Federal Trade
Commission due to privacy violations. However, the company also
faced scrutiny for its tax practices. Hiring additional tax staff and
investing in tax compliance could have helped Facebook navigate tax
regulations more effectively and minimize potential controversies.
What importance does tax planning provide during a sale or
acquisition of another company?
Tax planning is essential for corporations and individuals by reducing
high tax liabilities through beneficial income tax deductions or credits
applicable to the taxpayer. The applicable deductions and credits are
usually limited by AGI (Adjusted Gross Income). Through effective tax
planning, tax optimization can help companies minimize their tax
liabilities while remaining compliant with the law. By analysing the tax
implications of various transactions, mergers, and acquisitions, tax
accountants can identify opportunities for tax optimization. This
includes structuring deals tax-efficiently, utilizing available tax
incentives, and maximizing tax deductions. Such planning can lead to
significant cost savings and enhance the company's financial
performance. For example, Example: In 2015, Pfizer, a multinational
pharmaceutical company, pursued a merger with Allergan, a global
pharmaceutical firm, in a deal valued at $160 billion. However, the
merger faced significant scrutiny due to potential tax implications.
The tax planning involved structuring the deal to optimize tax
benefits, resulting in Pfizer terminating the merger.
References.
FTC imposes a $5 billion penalty and sweeping new privacy
restrictions on ... (n.d.). https://www.ftc.gov/news-
events/news/press-releases/2019/07/ftc-imposes-5-billion-penalty-
sweeping-new-privacy-restrictions-facebook
Merced, M. J. D. L., & Picker, L. (2016, April 5). Pfizer and Allergan are
said to end merger as tax rules tighten. The New York Times.
https://www.nytimes.com/2016/04/06/business/dealbook/tax-
inversion-obama-treasury.html
