Fixed Assets Tax Planning Strategy

Abstract: The choice of method of depreciation of fixed assets related to the amount of enterprise income tax deduction, thereby affecting the financial position of the enterprise. Based on the company's fixed assets, tax planning YB practice analysis, only thinking on corporate strategy to create a business strategic competitive advantage and maintain long-term profitability as the goal-oriented in order to maximize the after-tax income.

Keywords: fixed assets, tax planning, strategy

First, the fixed asset tax planning method of accelerated depreciation under the

Tax planning is a relatively new concept, it inevitably has the characteristics of immature new things, reflected in the fixed assets of tax planning is as follows: too much focus on the case and the single tax planning is not standing in the global point of view, consider the overall concept of planning, overlooked tax reduction period, the tax holiday only emphasizes the characteristics of reducing current taxable income and so on. Every time we talk about tax planning in fixed assets, fixed assets will think of the depreciation method chosen, and often consider the use of accelerated depreciation method. accelerated depreciation method is sometimes the effect can play a plan, because the accelerated depreciation method, the pre-and post-depreciation less depreciation and more, thus making pre-profit companies to increase profits later reduced, resulting in higher volatility of the tax on profits large, which provides space for the tax planning. Meanwhile, behind the accelerated tax depreciation period for enterprises of deferred tax benefits, interest-free loan equivalent to access to the government. is generally believed that, as far as possible in a short depreciation recovery period of investment, tax benefit goals. If the business is profitable period, the proportion of the tax system, the general choice of accelerated depreciation instead of straight-line method enables enterprises to obtain the benefits of tax deferral, followed by two years before the double declining balance method, the total number of years of law, work method, the straight line method depreciation tax benefits obtained by the maximum in the third year onwards the number of years the sum method to obtain the tax benefit greater than the double declining balance method, the number of years to the last year suddenly reduced to the sum of law under the declining balance method.

However, in some cases, accelerated depreciation method chosen is not suitable, such as


(A) In general, accelerated depreciation method is not allowed by our tax laws
China's current <"Enterprise Income Tax Ordinance,>> For the tax treatment of fixed assets strictly limited to the use of accelerated depreciation method, in which one hundred and ninety eighth Article: Corporate Income Tax Act, referred to can take twelve or shorten the depreciation period accelerated depreciation method for fixed assets, including: 1, due to advances in technology, products, rapid replacement of fixed assets: 2, year round in a strong vibration, high corrosion of fixed assets. to shorten the depreciation period of not less than sixty of this Ordinance depreciation period set out in Article 60% accelerated depreciation methods, can take years of double declining balance method or the sum method, but the above is subject to local tax authorities for examination, the State Administration of Taxation level by level approval accelerated depreciation method, which makes the choice of fixed assets depreciation method is greatly limited.


(B) When the business is tax exempt or loss during the period of accelerated depreciation method may not be suitable
In the tax-free period, the effect of the depreciation tax deduction does not exist in the tax period, the effect of the depreciation of the tax credit does not effect the normal tax on big. Because the total amount of accumulated depreciation of the established, tax reduction or exemption of the smaller amount of depreciation, the taxable income The smaller the greater the role of depreciation tax deduction (equal to the amount of taxes the greater of depreciation), on the contrary, the greater the depreciation, the smaller the role of depreciation tax deductible. If the business at a loss tends to lose money or time or in accordance with tax laws provides a number of years before the losses can be offset against capital, the use of accelerated depreciation will increase the annual amount of the loss. The loss was only the next five consecutive tax year pre-tax profits make up for losses if the tax year in a row 5 can not all be remedied, the accelerated depreciation method is not desirable.


(C) the impact of corporate profit reports, and brought a series of non-tax issues can not be ignored
Corporate financial reports reflect the financial position of a certain date and certain accounting period operating results, cash flow documents, users of the report pursuant to calculate sales margin, asset turnover, return on net assets and other financial indicators to judge whether an enterprise profitability, solvency, growth and development, asset operation status, as the main basis for decision-making. if only to reduce the tax burden from the perspective of choice of accelerated depreciation, which causes a loss, so that investors believe that corporate profitability is not strong will result in poor corporate financing, missed the opportunity to grow, increasing the opportunity cost of the enterprise.


Second, fixed asset tax planning framework for thinking

The reason why the above problems, because we ignore tax planning should be subordinated to and serves on the corporate financial goals, the ultimate goal is to help companies achieve strategic goals, it should serve the strategic purpose. When the conflict with the strategic goals , should be subject to strategic objectives, so during the fixed assets tax planning, tax planning and the need to expand the report in the planning of profit and other non-tax factors to reach equilibrium. So I believe that the fixed assets of business tax planning from a strategic perspective Select depArture planning methods, subordinated to and serves on the corporate strategy, and form pArt of corporate strategy, its purpose is to maximize after-tax income. This requires a specific plan for when the fixed assets in pursuit of maximizing the coordination of after-tax income principle, consider two aspects of balance. that lower taxes and lower the cost of the balance of non-tax costs, tax costs tax costs of the implicit and explicit tax costs of the balance. taxpayers by reducing the fixed assets, tax planning is only the total tax burden tax cost (explicit and implicit tax costs tax costs reduction is the ideal J. To this end, I built the business tax planning in fixed assets, strategic thinking framework (Figure 1).


Third, case studies

YB is a set of cement production and marketing in one of the private manufacturing enterprises, in order to grasp the significant domestic market growth opportunities in the areas of cement manufacturers in the competitive formation of regional comparative advantage, through the strategic layout, quickly seize the resource, the market occupation of southern Shaanxi Province to the surrounding provinces scale expansion and market penetration, development of overseas capital markets through the landing, to provide financing for the capacity expansion to support the strategic position. Hanzhong area the company intends to establish new production bases, in 2007 a group of production equipment to be purchased . These include cement mill, raw mill, and ultra-fine grinding mills and other large equipment, batch of fixed assets 1 000 million, 40 million estimated net salvage value, expected life of 5 years, the minimum number of years with the same tax law , corporate income tax rate is 33% (the old tax laws). According to tax law. batch of depreciation of fixed assets can enjoy preferential taxation policies. assuming compound interest rate of 10%, 1 to 5 years on the present value of the coefficients were : 0.909,0.826,0.751,0.683,0.621. batch of fixed assets depreciation method with a different provision for depreciation and the present value as shown in Table 1:
Of fixed assets depreciation method with a different provision for depreciation each year and present value analysis and comparison as follows:
Option One: the depreciation method is usually adopted. Enterprises do not take into account the usual tax breaks and depreciation method depreciation, depreciated at an average age about to depreciation of fixed assets should be allocated to balance the amount of estimated useful life of fixed assets. Fixed assets estimated useful life of 5 years, the annual depreciation amount (500-20) -5 = 96 (million), the present value of accumulated depreciation totaling 192 × 0.909 +192 × 0.826 +192 × 0.751 +192 × 0.683 +192 × 0.621 = 727.68 (million), pre-tax deduction for depreciation may be a corresponding tax credit 727.68 × 33% = 240.13 (million).

Option Two: Take the double declining balance method. That in considering the case of the expected residual value of fixed assets, in accordance with each beginning of Fixed Assets less accumulated depreciation and double the amount of straight-line depreciation rate of fixed assets. S an annual depreciation amount of 1000 × 2-5 = 400 yuan. the first 2 years of depreciation amount (1000-40) × 2-5 = 240 (million), 3 years depreciation amount (1000-40-240) × 2 ÷ 5 = 144 (million), 4 years, 5 years, the depreciation amount (1000-40-240-144-49) × 2 = 88 (million). the present value of accumulated depreciation totaling 400 × 0.909 +240 × 0.826 +144 × 0.751 +88 × 0.683 +88 × 0.621 = 784 74 (million). due to depreciation may be tax deductible. corresponding tax deduction 784.74 × 33% = 258.96 (million).

Option Three: Take the number of years of summation. About the original value of fixed assets minus the expected residual Links http://www.hi138.com Research Papers Download Balance, multiplied by a fixed asset life of molecules, and the projected service life figures for the denominator of the fraction of gradually reducing the amount of annual depreciation calculation. Depreciation amount in year 1 (1000-40) × 5 ÷ 15 = 320 (million), the depreciation amount in year 2 (500-20) × 4-15 = 256 (million), 3 years depreciation amount (500-20) × 3-15 = 192 (million) Depreciation amounted to 4 years (500-20) × 2-15 = 128 (million), the first 5 years the depreciation amount (500-20) × 1 ÷ 15 = 64 (million). the present value of accumulated depreciation totaling 320 × 0.909 +256 × 0826 +192 × 0.751 +128 × 0.683 +64 × 0.621 = 73369 (million). because of the depreciation tax deduction available, the corresponding tax credit 73369 × 33% = 24211 (million).

Through comparative analysis of the three programs, or to shorten the depreciation period of accelerated depreciation methods, estimated useful life of fixed assets, pre-provision for depreciation more. Because of the time value of money effect, the depreciation method than the tax credit is usually taken obvious effect. In the three programs identified a tax deductible depreciation method is usually taken for at least the program adopted two tax deductible up to double declining balance method. take double declining balance method of depreciation over the normal method of multi-deductible 258.96-240.13 = 18.83 (million) , to take the program for three years the sum method, and more than the normal method of depreciation tax deduction 242.11-2401.3 = 1.98 (million).

However, the combined company's development strategy, if taken to program two of the accelerated depreciation will affect the company's return on equity, growth force of about investors to determine a series of financial targets, thereby affecting investor confidence. So , in order to achieve strategic planning with Taiwan companies listed overseas, the strategic goals for the future development of the company broaden the financing channels, enhance corporate reputation, should be tax deductible less the average life method.


IV, Conclusion

The traditional, purely reduce the tax burden is different tax planning, strategic tax planning to create a strategic competitive advantage and sustain business profitability for the long-term goal-oriented, the tax on corporate strategy planning to arrange the height of economic activities of enterprises. By YB plan will include fixed assets, examples of areas of strategic management, corporate strategy emphasized the guiding role of tax planning. Of course, fixed assets, tax planning, corporate tax planning is just tip of the iceberg, however, based on strategic considerations, but in the integration of various tax planning techniques to maximize after-tax gain on the basis of thinking makes the link.



Main references
[1] Ding Qingguang, Lin Yanqin On the international tax planning [J] Guangxi College of Finance, 2004 (6)
[2] Wang Zhiyong corporate tax planning, program design and case reviews [M] Enterprise Management Press, 2008
[3] Xu Wenli of the corporate accounting policies, accounting estimates and tax planning [J] Shanghai University, 2006 (4)

Links to Research Papers Download http://www.hi138.com