Introduction to¬†tax Law
Why are taxes necessary?
- for¬†government¬†‚Äď a¬†source of¬†revenue
- for¬†business¬†‚Äď the¬†cost of¬†(food, income are taxed) business/living
- for¬†society¬†‚Äď a¬†price for¬†civilization (Oliver Wendell Holmes)
How to¬†measure the¬†importance of¬†taxes?
- tax to¬†GDP ratio
- ‚ÄúHigh‚ÄĚ and¬†‚Äúlow‚ÄĚ tax countries
- Is there a¬†‚Äúright‚ÄĚ / ‚Äúfair‚ÄĚ level of¬†tax?
Austria has Tax/GDP = 40%. The¬†government wants to¬†lower it, but¬†it is not¬†possible for¬†now. The¬†re are low and¬†high tax countries: AT¬†and¬†Germany are high-tax, Hungary and¬†Switzerland have low-tax.
There is a¬†suitable level of¬†tax: high tax countries provide better services: Free universities, free insurance, and¬†high pensions.
In¬†low-tax countries, services are mostly paid: In¬†Switzerland, citizens should pay for¬†insurance.
VAT is 20% for¬†every consumption is significant.
There are income taxes of¬†40%-50% in¬†AT. Taxes have a¬†significant impact on¬†the¬†taxpayers‚Äô budget.
Government should adequately justify the¬†amount of¬†tax paid.
Public deficit: Gov spends more money than it gains.
Taxes can help to¬†attract businesses: Ireland was one of¬†the¬†poorest nations in¬†The¬†EU. At¬†the¬†end of¬†20 century, Ireland decreased the¬†tax to¬†12.5% from 25%. The¬†population increased by¬†25%, and¬†before, it was the¬†immigration country. The¬†Republic of¬†Ireland has become so successful that the¬†UK fears that Northern Ireland will become a¬†part of¬†Ireland.
What is a¬†tax?
- Imposed by¬†legislation / levied by¬†the¬†government
- Under the¬†rule of¬†law
- For¬†a¬†public purpose
- Not¬†paid in¬†exchange for¬†a¬†specific service to¬†the¬†taxpayer
In¬†the¬†UK, there was a¬†discussion that Social networks do not¬†pay enough taxes. People say that they have to¬†pay more. The¬†law did not¬†require that, but¬†there was a¬†public opinion. Some companies voluntarily pay more taxes to¬†the¬†budget to¬†satisfy the¬†public.
There should be a¬†law where it stays that a¬†taxpayer has to¬†pay the¬†taxes. It goes deep into history.
The¬†rule of¬†law means that the¬†payment should be within the¬†limits of¬†the¬†law. High-income people pay more taxes than others, and¬†this is due to¬†democracy: The¬†majority wants wealthy people to¬†pay more.
After the¬†last financial crisis in¬†2008, many countries asked banks to¬†pay additional taxes to¬†a¬†fund. The¬†government spends money to¬†rescue packages. So they were forced to¬†pay more without any return, even though that banks pay the¬†highest taxes.
Government imposes (–ĺ–Ī–Ľ–į–≥–į—ā—Ć—Ā—Ź) / levies (–≤–∑—č–ľ–į—ā—Ć—Ā—Ź) taxes on¬†different levels of¬†States:
States are free to¬†choose the¬†amount of¬†state income taxes.
Florida is an¬†example of¬†a¬†no-state tax, but¬†it still has the¬†federal tax.
There are such municipal taxes (fees) in¬†Vienna as¬†property-related taxes.
What types of¬†taxes may exist?
- Income tax¬†‚Äď has become less critical over time.
- Corporate income tax¬†‚Äď Corporate income tax is relatively low
- Value-added tax (VAT)/ goods and¬†services taxes (GST)/ sales taxes. Most important, biggest tax in¬†the¬†EU
- Wealth taxes
- Inheritance and¬†gift taxes
- Real estate transfer taxes
- Consumption taxes
- Energy taxes¬†‚Äď e.¬†g., help to¬†decrease the¬†carbon footprint.
Is there a¬†perfect tax mix?
The¬†US does not¬†have the¬†VAT, but¬†it has the¬†sales tax much lower than VAT in¬†the¬†EU. However, the¬†corporate income is much higher than in¬†the¬†EU.
There are not¬†enough consumption and¬†income taxes in¬†developing countries, so the¬†corporate tax is high.
Inflation is essential now. In¬†some decades, money will lose half of¬†its cost due to¬†inflation. That means that people have to¬†spend their money, consume. The¬†government will get its VAT.
What is a¬†purpose of¬†a¬†tax?
- to¬†generate revenue for¬†public budgets
- to¬†influence behavior
- To¬†price-in external cost (Pigouvian Taxes)¬†‚Äď A¬†carbon tax.
- To¬†purpose non-tax goals. e.¬†g., many tax-exemptions, non-deductions.
Tobacco taxes are paid for¬†centuries even though the¬†harm from them was discovered only in¬†the¬†20th century. The¬†tax was not¬†about behavior before, but¬†the¬†way how to¬†get extra cash. If gov wants to¬†get rid of¬†tobacco behavior, then gov has to¬†raise tobacco taxes in¬†New Zealand significantly.
In¬†AT¬†salaries as¬†5k‚ā¨ and¬†more cannot be tax-deductable because the¬†income was too high.
People in¬†retail, supermarket workers, have a¬†low payment. The¬†government wants to¬†increase the¬†income of¬†these workers by¬†deducting some taxes.
Is a¬†specific purpose/justification legally needed at¬†all?
For¬†the¬†tax as¬†such?/ For¬†the¬†design of¬†a¬†specific tax?
Germany has a¬†problem with introducing carbon taxes. The¬†constitution stays that people and¬†companies pay taxes on¬†consumption, but¬†carbon emission is not¬†consumption; it is production.
Austria can do that, but¬†then everyone will have to¬†pay taxes on¬†the¬†breath.
Who decides on¬†a¬†tax system?
Taxes are at¬†the¬†core of¬†State sovereignty.
‚ÄúThe¬†power to¬†tax is the¬†power to¬†govern‚ÄĚ¬†‚Äď ‚ÄúTaxes are politics converted into money.‚ÄĚ
Tax sovereignty may result in¬†tax competition between states¬†‚Äď pros and¬†cons.
- VAT¬†‚Äď fully harmonized (but¬†not¬†on¬†the¬†tax rate: standard rate from 15% to¬†27%. E.g., Hungary has 27%)
- Income tax¬†‚Äď not¬†harmonized
- Corporate income tax¬†‚Äď Common (Consolidated) Corporate Tax Base (CC(C)TB) proposed
- Anti Tax Avoidance Directive (ATAD)
- EU fundamental Freedoms¬†‚Äď to¬†ensure non-discrimination in¬†the¬†Single Market
- Prohibition of¬†State Aid¬†‚Äď to¬†ensure fair competition
International Agreements (Tax treaties)¬†‚Äď to¬†avoid international double taxation.