On The Corporate Tax Decisions

With the new century coming, the economy globalization trend has been more obvious. China is going to enter WTO, which makes Chinese enterprises confronted with more developing opportunities as well as severe competitions. One of the important matters all enterprises care about is that they should try to reduce their costs so as to increase their profits and competitive ability in the market. Tax is one of the important costs. Since the new tax system took effect from 1994, Chinese enterprises have been sent into the fierce market competition within the tax restraint. Hence it is necessary for enterprises to take advantage of the lever of tax to reduce their tax burden as much as possible within the tax law in order to obtain the largest interest. This dissertation intends to help enterprises to renew their tax paying consciousness and improve tax planning in their financial management, so that enterprises' net profit after tax will increase in harmony with government's tax revenue. In other words, tax planning benefits both enterprises and the government. When analyzing the tax paying decision, the writer takes five steps as the logic through the whole dissertation as follows: (1) What is the goal of the decision? (2) What are the approaches to the goal? (3) What is the best approach? (4) What are the measures to realize the goal? (5) How is the goal realized? Based on the above five steps, the main body of the dissertation is divided into four chapters. The second and third steps are united into one chapter. The main body of the dissertation is divided into four chapters. The first chapter: The goal of tax paying decision. First, the tax paying cost includes direct cost, indirect cost and risk cost. Second, reducing tax burden is a common trend for enterprises that assume sole responsibilities for its profits or losses. There are both subjective and external reasons for the trend. Third, reducing tax burden is one basic right of modern enterprises. Enterprises should be encouraged to use and protect the right. Last, enterprises have two kinds of goal of reducing tax burden——the first-best goal and the second-best goal. When the tax benefit is in line with the whole benefit, the former goal is preferred, which is to minimize the total tax paying cost. While the tax benefit conflicts with the whole benefit, enterprises should choose the latter goal. The second chapter: The approaches and the best approach to achieving the goal. First, there are three approaches for enterprises to reducing their tax burden——tax evasion, tax avoidance and tax planning. Their respective concepts, characters and effects are analyzed one by one. Second, by comparing the advantages and disadvantages of the above three approaches, the writer concludes that tax planning is the best approach because it represents the advanced financial management. The third chapter: Measures of reaching the goal. This is the key part of the dissertation. In accordance with the major four kinds of financial management——financing, investment, production and profit distribution, the writer analyzes in four steps the corresponding tax planning theories as well as several real cases so as to make the tax planning measures more applicable. This chapter is hence divided into four sections. (1) In tax planning of financing, the writer focuses on the tax cost of several financing approaches and then provides the tax planning in optimizing capital structure. (2) In tax planning of investment, the writer concentrates on the direct investment because it has more planning chances than indirect investment. The planning of enterprise form, investing area, investing industry and investing project are included. Furthermore, the writer provides one case in which the other factors besides tax in investing planning are analyzed. It refers to tax planning as one part of financial management. (3) In tax planning of production, the writer first discusses the planning principles of inventory valuation methods and depreciati...