Tax Law Summary
Lecture 1:
Content
After a short introduction to the course the importance of taxes will be discussed in
this lecture.
Questions to discuss are:
Why taxation and what kind of taxes do exist?
Why is taxation not the same in every country?
What types of taxes do exist
Literature
Hugh Ault, Brian Arnold, Graeme Cooper, Comparative Income Taxation, A structural
Analysis, Fourth Edition, Kluwer Law International B.V.
Introduction
Part One, General Description
6. The Netherlands, 1. History of the Netherlands Income Tax System
8. The United Kingdom, 1. History: Income tax
9. 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.
Introduction
Need for an accountant
You should pay taxes (exceptions, tax free amounts) you are liable to taxes, but a
combination of the rules makes it possible that you don’t pay taxes.
You pay tax over income
We all need food, drinks, etc: if you go to the store and you buy groceries, you are
paying taxes (value added tax). There is no tax free amount on that. Taxes are
everywhere, even though you don’t see it.
Specific types of taxes: income tax, value added tax, environmental taxes
Tax vehicles (gas) or subsidize them (electric)
Value added tax is a part of sale tax (learn the difference)
Why do we have to pay taxes?
Taxes are the income of the government, differs per country
Basis for taxes in the Netherlands are always a specific act (specific rules that are
applicable to income tax, value added tax, etc) funded in the Statutes (“no one
has to pay taxes if there is no specific tax act”). If you find a specific sources of
income that is not mentioned in the Income Statute (the act of parliament), you
don’t have to pay taxes over that income.
In the UK, taxes are based on court decisions (court precedence decides the rules)
Compare the tax rules in the different countries (Netherlands, UK and US)
The entrepreneur can ask for a tax return (refund) from the tax authorities in the
Netherlands for the taxes he paid to the factory (sale tax) --> the buyer/consumer
will now pay the value added tax (we pay tax over the price we pay), follow the
supply chain to understand the tax administration
The results of different tax systems
If I don’t like the tax on a product in the Netherlands, I can try to buy the good in a
different country against a lower tax rate (which is a problem)
, This means that one country with a higher tax rate will not levy the tax income,
whereas another country with a lower tax rate will levy the tax income from multiple
nationalities
Everyone pays taxes according to his or her financial position
European countries all have their own sets of tax rules (not completely free). The EU
obliges eu countries to specific sets of tax rules, all European companies have to levy
a value added tax (the same everywhere, because it’s based on eu rules), whereas
countries are free to choose some different tax rates based on goods (21% luxury
goods, 9% food and drinks, and 0% on export)
As a US national, you have to pay US taxes no matter where you are, simply because
of your US nationality. The basis of your tax rate is your nationality and income
If you live in one country and you decide to earn your income in a different country,
that makes things more difficult. If you are a resident of a country, then this country
is allowed to levy taxes over your income made in another country (your worldwide
income). However, the country in which you earn your income will also levy taxes,
the source of your income. If you earn your income in the country of which you are a
resident, then taxes will only be levied once. If you are a resident of a different
country than in which you earn your income, double taxes will be levied. Under
international law, a tax agreement can be concluded (bilateral tax agreements are
the solution to double taxation).
Basis of tax: nationality, residence, source of income (where do you earn your income), and
territory (real estate)
If you earn income because you own real estate in another country, then taxes will
be levied over this real estate income. If you only own the real estate, there will be
no income and thus there will be no taxes levied, but if you make money on that real
estate, then real estate taxes will be levied in the country of source.
Social security premiums
Obliged to pay them to the governments
Are taxes the same?
State old age pension in the Netherlands (67 years). In the years before 67, you have
to pay social security pensions for the people that are already above the age of 67.
Form of an insurance (premiums are insurance premiums being paid to the
government in case of unemployment, disabilities or pensions)
Taxes have no direct relations to the things you receive in return from the
government, and therefore are no insurance form
Court case that a resident deducted the amount of taxes directed to the army from
his tax form
We all pay taxes and social security premiums to the government, but we eventually
get the social security premium back
Problems in international relations
Tax agreements between the Netherlands and the uk, and the Netherlands and the
us
Netherlands is famous because of the big amount of bilateral agreements with other
countries
Legal persons: international companies, multinationals
Corporate income tax act
Natural persons: we as the people
Is it acceptable that governments levy taxes?
Paying a part of our income to the government, which right do they have to ask this
from us? To take a part of our money?
, The distribution of wealth (if someone is able to earn an income, and somebody else
is not able, there might be a legit reason, and then there is a job for the government
that this person without an income can stay alive, and thus get money to buy goods
and food) this is the reason that the government thus levies taxes
Is this reason enough?
We have a job, we do some work for our employer, and in return for this work, our
employer pays us the price of an income. This is thus our money. Why is the
government allowed to take some?
Think of human rights
We are allowed to have certain things, like money. And nobody is allowed to take
something form us that is ours. This is also applicable on governments.
One exception: a government is allowed to levy taxes, but within margins. They are
not allowed to take everything from us, only a reasonable amount.
If you have a bank account, existing of 100.000 euros. You hardly receive any interest
on this account, but the interest that you do receive is an income. The government
will levy and income tax over this interest, but in the Netherlands we do not tax the
received interest. We take a fictional amount, and we assume that this is our income,
and this amount will be taxed. “We are expected to receive an interest of 4% of the
bank account worth”. This rule has changed, but let’s stick with this idea. We are
expected to receive 4%, and this full amount will be taxed around 30%. In fact, 1.2%
was the amount of tax that you had to pay. It was easy to receive 8% interest, and
thus this would amount to 15% tax when the interest on bank accounts went
down, the government was allowed to take 120%, this was more than the received
interest. Now, we hardly receive any interest, and the government does tax us a high
amount on income. This violates human rights principles, where we have a right to
our things (does government taxes amount to theft?).
National tax law, European tax law, international tax law, human rights as an
important factor in all (interaction)
Taxes as theft, or taxes as part of our social contract (used for infrastructure, education,
healthcare, protection)?
It’s a fact that we all should contribute
But what is a fair amount?
Paradox between human rights and the right to have rights e.g. COVID-19 (rights are
take from me in case of 1.5m distance and face masks, we are not free to choose. On
the other hand, these rules are for our own protection and to get rid of the virus)
The meaning of the tax rules can differ per country
Same basic idea, but all different e.g. rates, kinds of taxes, exceptions
How systems work or don’t work, the importance of the taxes
Different kinds of taxes in different countries for multinationals (the people pay the value
added tax, not the companies or entrepreneurs)
Netherlands: if you have a job in the Netherlands, and you receive a salary from your
employer, your employer will withhold a salary tax from your income. You as an
employee are liable for this tax, but the employer is obliged to withhold this from
your brute income, and you will receive the net income. Your employer will pay the
government what you as an employee owe them as income tax. Then you fill in a tax
form, based on your annual income, calculating your annual income tax.
The same goes for dividends. If you own shares in a specific company, then you will
receive dividend. If the company is paying you this dividend, the company must
withhold some kind of dividend income tax. You have to mention this dividend as a
sort of income in your annual tax reform. This will be deducted from the income tax.
Salaries withholding tax and dividend withholding tax. However, there is no double
taxation possible. There is a deduction for that.
, Personal tax acts: gives us the rules on how our personal income tax is calculated vs
corporate income tax act: gives the set of rules for companies who have to pay
income tax
Salaries tax act or income tax act
Focus on income tax (no import tax, value added tax, etc)
Starbucks example
International company
Organized their company: let’s not pay taxes governments are fighting these kinds
of companies
Netherlands: you have to file a tax return form at the end of the year, informing the
government of our income. Why are we willing to do so?
People within the tax administration are not allowed to discuss the income of tax
payers outside of the tax administration
The government is not allowed to make public what is happening with Starbucks,
because of the rules on anonymity. No numbers/amounts may be named in the
rulings.
That’s why examples related to tax are hard to give
One exception: Starbucks brought before the European Court (regarding
international taxation)
What Starbucks is doing is not illegal, they are making use of loopholes. They decided
to buy products in another country, and not the Netherlands, that has a lower tax
rate. Is this tax evasion? In some way it is. What exactly is tax evasion?
People would prefer not to pay taxes, so if there is a possibility to pay lower tax
rates, they will take it. It becomes illegal if you disobey the rules.
Legal way of not paying taxes
Netherlands: if you buy real estate, you have to pay tax because you’re becoming an
owner of real estate. If you don’t buy real estate, you don’t pay tax. You also don’t
pay taxes if you don’t have an income and don’t buy anything. However, you will die.
Think about people’s and companies’ contribution to the costs of society (everyone
should pay a fair amount of tax)
As long as you obey the rules, you pay certain taxes. However, some people pay less
taxes than others.
Another example: Deliveroo
Pays students an income for delivering food, thus personnel/employees under the
employer Deliveroo. Thus, Deliveroo had to pay social security premiums to the
government and withhold income taxes from these employees. This was the
employer’s job en their costs, not that of the employee.
Deal with labour law: it is quite difficult to get rid of personnel in the Netherlands. A
lot of companies do not like this strict set of rules.
Important relation between labour law and tax law (salaries tax)
Hiring and firing personnel is expensive, same with changing an agreement
Employment agreement (paid a standard salary per hour, only work for Deliveroo)
agreement between Deliveroo and employee (paid for each delivery, also allowed to
work for other companies) the employee now becomes an entrepreneur.
As an employee, your income is fully taxed according to the third box. As an
entrepreneur, your income is business profit, and is also taxed in the third box.
However, 14% of the business incomes of an entrepreneur is not taxed.
Also, Deliveroo now no longer has the obligation to pay a social security premiums,
since they only have to do this for an employee, and not an entrepreneur.
If you are fired as an employee, you would be receiving social security, your income,
from the government. But if you are en entrepreneur, and you become unemployed,
