I understand!

This website uses cookies to ensure you get the best experience on our websiteLearn More

image for site

What even is tax planning and why should you pay for it?

As the premier tax consultancy in Portugal, we come across many people who completely misunderstand what tax planning (and tax consultancy) is and how does it work. Whilst we have no ambition to change everyone's opinion, we do feel that it is time for us to clearly and concisely explain what tax planning (and tax advice) is and advocate for its incredible value.

Our argument in favour of quality tax planning spans over clarifying 3 concepts (or disbanding 3 myths):

First concept - it's about paying less, not about how much you pay

Many people think that tax planning/advice is about understanding how much tax you need to pay in your future country/setup. The assumption that such people make is that tax is a binary and definitive subject, that it can be correctly calculated and that there is only one correct answer to how much tax you need to pay. With this perspective, it is easy to see why such people fail to understand the value of tax planning. After all, they believe that their time with the tax advisor is used to simply inform them of a number and that this number would always be the same no matter what. Since they do not see a potential saving in the horizon, the fee paid to the tax planner is an expense and since they expect each competent tax advisor to give them the same answer, they should pay the lowest fee they can find.

In fact, tax advisors are not there to calculate your taxes. The role of tax advisors is to help you plan your taxes so that you will payless. Indeed, tax is not a binary matter at all and the amount you will pay depends to a great extent on the quality of your planning. As an example, if you make 100,000 Euros a year, each 1% of reduction in tax means 1,000 Euros less to pay every year. The typical benefits stretch over 10 years, and therefore, each 1% of reduction for someone making 100,000 translates to a 10,000 Euros lifetime saving. 10% reduction in taxes is worth 100,000 and so on. 

In Portugal specifically, the difference between full taxation which can reach 70% in some cases and full utilization of benefits which can lead to 0% in some cases is perhaps larger than almost any other country. Of course, reducing tax from 70% to 0% would be a very extreme case, but a lifetime reduction of double digit figures is a very common outcome of even a 30 minute consultation. 

It is therefore easy to see how focusing on the value can mean potentially saving tens of thousands, hundreds of thousands or even millions, making quality tax planning one of the most important factors influencing the future wealth and rendering the cost of advice negligible compared to the value achieved. 

Second concept - tax is an art, not a science. No two advisors are the same

Another typical misconception is that tax advisory is equivalent to many other types of services, where speaking to different advisors should lead to the same outcome and where the same laws lead to the same outcomes.

This is normally true for many legal services including many of the services that we provide, but it is completely false for taxes.

The possibilities in tax planning are endless and the scope of planning is only limited by the creativity and skill of the planner. Tax planners apply deep legal knowledge and structures created are always highly specific to the circumstances of the individual. In this context, in tax planning, just like art, you can have a Picasso or you can have a printout. 

Third concept - tax planning is a high end tailored service, not a commodity

Since we advice hundreds of people, we have to set a price for a consultation. Our price reflects what we feel is a fair compensation for our very unique expertise in this market on one hand, and is affordable to almost any pocket on another.

Whilst the majority of people understand the importance of tax advice, we do face a common a frustrating reaction that treats our time as a commodity. Perhaps the most frustrating reaction of all is the one of people who calculate a notional hourly rate based on doubling our consultation fee. This approach represents, again, a complete misunderstanding not only of what tax advice is about, but also of the concept of hourly rates.

As explained above, tax planning and tax advice are about finding routes to pay less. It tends to be a high value exercise at almost any cost if the advisors are competent and would have continued to offer incredible value even if it were to cost 10 times more than it does. Many tax advisors charge a percentage of savings achieved and have we done that, we would have been earning a huge multiple across our client base. We have chosen to make our advice affordable and one undesirable outcome is that our consultation is looked at by some people who do not understand it, in comparison to hourly rates.

The hourly rates mechanism, despite much criticism that hourly rates lead to inefficiency and adverse incentives, still continues to be the most common mechanism for charging in law firms. The idea is that a lawyer is paid for their time and the time is measured by increments. 

The hourly rate mechanism is meant to offer a manner of compensation when lawyers spend a considerable amount of hours on a matter (such as in litigation or drafting contracts).

The hourly rates mechanism isnot meantfor situation where a client acquires a one-off short consultation where the underlying value is the lawyer's many years of accumulated expertise. It is important to note that the overwhelming global standard for tax advisors is that the first consultation is taxed in a value-based manner and not based on the hourly rate of the relevant advisor.

We offer unique expertise

We don't claim to be Picasso, but we do have a team of incredibly skilled, highly creative tax lawyers with multiple qualifications who regularly develop strategies and we have the largest expat client base in Portugal, giving us an opportunity to thoroughly think about scenarios and strategies like no other firm can do.

Our tax advice is not comparable to that of any other firm in the market. This is not to say that we are the necessarily the best advisors for everyone, but we certainly have one of the most competent team and by far the largest expat client base. Market prices for lawyers in our caliber are not lower than what we charge and the value achieved from our advice typically renders the cost of our services negligible.

We are selective when working with clients 

Another misconception that some people carry from their past experiences is that "the client is always right" or that "I pay and hence I can behave in any way I want".

We noticed a high degree of correlation between clients who do not understand the importance of quality advice and clients who are disrespectful to our time and expertise.  

For that reason, we decided to write this article to explain what tax advice is about and to send it to potential clients who notionally calculate our imaginary hourly rate (e.g. "you charge 420 Euros for 30 minutes so your hourly rate is 840 Euros. That's more than New York") or, for example, wonder whether we have lost our mind or made an error on our website ("are you sure this is the correct price?").

We believe that people who failed to understand what tax advice is about deserve an explanation but we also believe that having read this, if people still feel that they want to question our accuracy or calculate notional hourly rates, than we are not a good choice for them. On that note,we would like to remind everyone that it is a free market and everyone is welcome to choose the advisors that fit their preferences. 

Fresh - Expat Lawyers
© 2021-2024 Fresh
image for site