Very detailed notes for the Tax Law course (Business Law Minor, 5th semester), includes notes from lectures, slides, and all the mandatory readings. Includes pictures from lecture slides. Organised and easy to understand. Readings are clearly separated and marked. Includes notes from all the weeks ...
Course Notes Tax Law
Course literature
- Textbook: Hugh Ault, Brian Arnold, Graeme Cooper, Comparative Income Taxation, A structural
Analysis, Fourth Edition, Kluwer Law International B.V
Lecture 1
Readings
Hugh Ault, Brian Arnold, Graeme Cooper, Comparative Income Taxation, A structural Analysis, Fourth
Edition, Kluwer Law International B.V.
- Introduction
- Part One, General Description,
- The Netherlands, 1. History of the Netherlands Income Tax System
- The United Kingdom, 1. History: Income tax
- United States, 1. History of Federal Income Tax
- Part Two, Basic Income Taxation, Subpart A Global vs. Schedular Design of Income Tax
G. Beretta, The Taxation of the “Sharing Economy”, 70 Bull. Intl. Taxn. 11 (2016), Journals IBFD
Discussion questions
- Why taxation and what kind of taxes exist?
- Why is taxation not the same in every country?
- What types of taxes exist?
Reading notes (textbook)
The Netherlands - HISTORY OF THE NETHERLANDS INCOME TAX SYSTEM
- 1821 Act - first conceptual framework for taxes
- Mostly excise taxes at the time
- Taxes under Patent Right Act of 1819 (imposed on trades and businesses)
- 1892-93: first true income taxes
- Income from capital taxed under Wealth Tax Act of 1892
- Business Tax Act of 1893
- Taxing income under 2 acts
- desire to tax passive (unearned) income more heavily than active (earned) income
- 2 acts replaced by Income Tax Act (ITA) of 1914
- Wealth tax also introduced (wealthy individuals higher tax)
- 1918: special tax on corporate distributions
- 1940: Germany occupied Netherlands
- 1941: individual income tax
- 1942: company income tax
- 1960s: replaced by Income Tax Act 1964 and Company Tax Act 1969
- Tax avoidance tactics led to countering measures by government - elements of overkill - further
negative taxpayer reactions, increased complexity of statutes and lack of clarity
- 1980s: rate reduction and base broadening of the income tax
, - 1990s: gov commission for simplification of the individual income tax law
- Late 1990s: blueprints for partial return to 1982 tax system
- ITA 2001 - 3 schedules of income
- Work and home
- Substantial interest
- Capital
- taxation on a deemed-yield basis rather than real income
- Percentage of underlying asset - since 2019 between 0.36% and 5.38%,
depending on nature of the value of the asset
UK - HISTORY: INCOME TAX
- Roots Middle Ages
- Tax year starts April 6
- Income tax introduced 1798
- Gap in enforcement between 1816 - 1842
- Temporary tax, annual parliamentary approval
- Doctrine of annual tax
- Ensures regular parliamentary sessions
- applies to income tax and corporation tax but not to capital gains tax or inheritance tax
- 1803: significant overhaul of income tax system
- taxation of individual income rather than total income
- schedular system and withholding taxes at source
- Different parts of the tax law define and tax specific types of income
- "net adjusted income" as the focal point of taxation
- 1803 system
- Introduction of taxation of imputed income generated from property occupation
- until 1963 under Schedule A
- implementing graduation (varying tax rates) and differentiation (between earned and
investment income) was challenging
- Graduation introduced in 1907
- 1910: surtax
- applied to an individual's total income in addition to income tax
- targeted those more capable of paying
- Merged with income tax in 1973
- Income vs capital distinction significant
- 1965: capital gains tax
- Corporation tax
- Covers profits i.e. income and capital gains
- Introduced in 1965 alongside Capital Gains Tax (CGT)
- Prior: companies paid tax through mix of income tax, special taxes, and surtax
- Before 1965: dividends grossed up for surtax calculations
- 1922: legislation addressing tax advantages of one-man companies, precursor to close company
laws
, - 1937: National Defense Contribution for extra taxation of profits
- Profits tax tied to income tax rates
- alteration in personal sector income tax rates led to changes in profits tax rate
- Different profit calculation methods for profits tax and income tax, creating complexity
- 1965: transition to a classical corporation tax system, replaced by partial imputation system in
1973
- Imputation features removed between 1997 and 1999, leading to current corporation tax structure
- Corporation tax legislation consolidated in the Income and Corporation Taxes Act 1988, rewritten
into CTAs 2009 and 2010
- Certain capital gains rules found in the Taxation of Chargeable Gains Act 1992
- Supplemented by the Taxation of International and Other Provisions Act 2010 (TIOPA) and
annual Finance Acts
- New legislation contains schedular system elements, fewer in Corporation Tax than Income Tax
United States - HISTORY OF FEDERAL INCOME TAX
- 1864: income tax to fund the Civil War, including undistributed corporate income
- repealed in 1872, affecting only 1% due to exemptions
- 1895: tax on income for individuals and corporations was declared unconstitutional by the
Supreme Court
- 16th Amendment in 1913: enabled individual income tax, leading to the original income tax and
subsequent changes
- Revenue Acts until 1938 were complex
- codification in 1939 created the Internal Revenue Code (IRC) for easier amendment
- IRC of 1954 replaced the 1939 Code
- altered income tax for partnerships, trusts, estates, introducing new deductions, and faster
depreciation
- Significant change in 1980s
- lower individual rates, tax incentives for savings, 1986 Tax Reform Act, renaming it IRC
of 1986
- Amendments between 1986 and 2000 increased max individual rates to 39.6% by 1993,
addressing budget deficits
- From 2001: Republican-led Congress introduced tax cuts till 2010, including reduced individual
and estate taxes
- 2003: maximum tax rate for individuals on capital gains and dividends reduced to 15%
- 2008: more generous depreciation and expensing due to economic concerns
- President Obama (2009-2016)
- extended tax cuts through 2012 and made some permanent, raised max tax rate for
high-income individuals
- Medicare surtax in 2013
- President Trump and Republican Congress in 2017
- Tax Cuts and Jobs Act (TCJA), reducing corporate rates to 21%, providing significant
individual tax cuts, projected to decrease revenues by over $1.7 trillion from 2018 to
2027
, Subpart A - Global vs. Scheduler Design of Income Tax
- Income tax structured wither on global or scheduler basis
- Pure global income tax
- tax applied to a person’s total income
- income and deductions are combined to produce an overall taxable income amount
- Pure scheduler income tax
- separate taxes on different types or sources of income
- Deduction of expenses may be limited/prohibited in certain income categories
- overall loss in one category generally cannot be offset against income in other categories
- assessment and collection measures often differ (e.g. withholding, filing returns)
- Scheduler system - more difficulties than global
- Tax rate manipulation by taxpayers to minimize tax
- Difficult classification of income types, resource-intensive
- Hinders progressive taxation based on ability-to-pay principle
- Tax imposed separately on each schedule, not total income
- Taxation even with offsetting losses in other schedules
- Challenges implementing exemptions, rebates, relief
- Countries have mixed systems combining global and scheduler elements
- Examples of combined systems
- Australia, Canada, U.S. - global approach with schedular provisions
- Limited deductibility of expenses/losses for specific activities
- Withholding tax on certain investment income
- Lower tax rates for capital gains
- Predominantly schedular systems with global modifications
- Allowance of losses from one category to offset income from others
- Labeling a country's system as global or schedular is limited
- awareness of basic principles is crucial
- The country's general approach influences income inclusions, deductions, computation rules,
treatment of losses, etc
LECTURE NOTES
Types of taxes
- Direct vs indirect
- Direct: paid directly to government, cant be shifted to other person or group
- Indirect: can be passed on to other person / group
- Levied on goods and services before they reach consumer
- Paid as part of market price
- Global vs schedular system
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