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This summary for the Tax Law course is designed to provide you with a detailed summary of the course that goes beyond general concepts, but instead strives to provide more specific examples and case studies of the course. It is based on the course textbook (2024/2025)...
Tax Law – Notes for Global Law
These notes are based on the Principles of Taxation textbook (Bammens, Debelva), lectures,
and other readings assigned for class.
Week 1 – What is a Tax? Why and how do we Tax?
Definition of a tax
o No clear definition that is generally accepted. Plus, different names can be
used for similar charges to a tax: levies, duties, impositions, contributions, etc.
o For the basis of the course, a tax is a compulsory payment that is usually
made in cash to support the functioning and the activities of the
government.
o What is not a tax?
Payments that are made to the government on the basis of a contractual
obligation are not taxes,
Neither are payments made on the basis of non-contractual liability
(torts),
Fines or penalties imposed as punishment
Voluntary gifts, donations or payments are not taxes
Characteristics of taxes:
1. Legal basis - tax must be imposed and collected in accordance with the rule of
law. Must comply with laws and regulations established by the govt.
2. Public purpose – the public authority has the discretion to use the revenue as
they see fit to support the functioning of the activities of the government
3. No consideration or compensation – the taxpayer has no right to claim personal
compensation nor has any right to decide how the payment of the tax is spent
Given the above, a tax can be best described as: “(1) a mandatory contribution (2) in
accordance with the rule of law (3) imposed by the public authority on its subjects (4)
for the purpose of public spending (5) without any personal compensation”
Breaking down the definition:
1. A mandatory contribution
a. Legally required payment that the taxpayer must make to the public purse
regardless of whether they agree with the government's spending decisions or
their policy
i. Enforced by the government through a variety of means: fines, interest,
legal action
b. Economic explanations:
i. risk of market failure in the case of public products;
ii. economies of scale realized by the government by providing the public
goods and services
2. In accordance with the rule of law
, a. A tax can only be levied in accordance with the rule of law, a.k.a. the legality
principle
b. Ensures that taxes are collected in accordance with laws and regulations, and
that the taxation process is clear and predictable for taxpayers
c. Principle of “no taxation without representation” – citizens should be able to
have a say in how taxes are spent if they are required to pay them (origins in
Magna Carta, UK Bill of Rights, French Declaration of the Rights of Man and
of the Citizen)
3. Imposed by the public authority on its subjects
a. The government can only tax subjects (or situations) with a sufficiently close
connection to its territory
4. For the purpose of public spending (in the public interest)
a. Government must consider the needs of an evolving society, the political and
economic context
b. Taxes have to be allocated efficiently and effectively
c. Even though the government has discretion, it may still be subject to certain
legal constraints, e.g., mandatory percentage allocation of funding to certain
programmes or initiatives
5. Without personal compensation
a. Unilateral payments imposed on individuals and entities based on them being
subject to the government’s authority
b. Not a quid pro quo, simply a means for the government to raise revenue
c. With the revenue collected, the government provides public goods and services
– healthcare, education, security, public infrastructure. No personal
compensation.
Distinguishing taxes from other types of contributions:
1. Social security contributions
a. Both taxes and social security payments are imposed by government by law
b. Can be aggregated with taxes from an economic perspective, but not from a
legal one
c. For a payment to qualify as tax, it must be collected by the government for the
purpose of funding public services and programs without it giving rise to
specific personal compensation. However, social contributions are collected to
specifically fund social risks such as unemployment, illness, accidents, old age,
retirement and childcare.
d. This differentiates social security payments from taxes
2. Toll charges and fees
a. These are payments provided for specific goods and services, e.g., public roads
or bridges, access to ports
i. Specific good or service
ii. Quid pro quo
iii. Can be avoided by not making use of the good / service
,Fundamental Questions I: Why do we Tax?
1. The Benefit Theory
a. Derived from the social contract theory of the State
b. Individuals consent to relinquishing a portion of their private property (in the
form of a taxpayment) in exchange for which they are able to benefit from
government services, such as the use of public infrastructure, protection by the
fire and the police services, the use of public healthcare and public education
c. Also justifies that those who benefit the most should pay the most –
progressive taxation
d. Criticisms:
i. Hard to figure out how much each person actually benefits
ii. Conflicts with idea that taxes are mandatory and come without
compensation
2. The sovereignty theory
a. Right of the State to regulate its affairs through governmental institutions –
includes the right to enforce rules such as taxes on / against persons with
connection to the territory of that State
i. Establishing connection with the State: nationality, economic activity
within the State
Fundamental Questions II: How do we Tax?
1. The ‘Ability to Pay’ Principle and Equality
a. The Ability to Pay principle considers the tax burden itself rather than the
government expenditure (cf. Benefit Principle)
b. Equitable distribution of the tax burden in accordance with the person’s
economic capacity to bear the burden relative to other taxpayers
c. Capacity to redistribute wealth
d. Assessing capacity to bear the tax burden: 3 main factors:
i. Income – a measure of the person’s earning capacity
ii. Wealth – a measure of the person’s accumulated assets
iii. Consumption – a measure of the person’s standard of living
e. Equality principle / principle of non-discrimination: equals should be taxed
equally and unequals should be taxed unequally
i. Horizontal equity: individuals who are in a comparable financial
situation (i.e., with the same income, wealth or consumption, since
those criteria are assumed to reflect ability to pay) should pay the same
amount of tax
ii. Vertical equity: individuals who are not in a similar financial situation
should also not pay the same amount of tax. This means that
individuals with different income and wealth levels should be subject to
different tax rates. The idea behind this requirement is that individuals
with higher income and wealth should contribute a greater share of
their resources towards public goods and services.
f. Justification: diminishing utility of income. Each additional unit of income will
serve less and less marginal utility after the needs of the person have been met.
Therefore it should be taxed more.
, 2. The principle of legality
a. A tax only becomes due when the essential aspects of a tax, i.e., scope,
underlying amount, rate, and procedure are explicitly defined by a legal statute
b. The abovementioned framework also has to be established through the due
process of law, made by the elected representatives of the people they govern
(no taxation without representation)
c. In practice, taxation often requires quick measures that do not warrant a
statute. These are made through executive decrees, administrative regulations
and rulings.
d. Both the legislator and tax administration are overseen by the judiciary, which
can settle disputes between the government and its tax subjects
3. The essential elements of a tax
a. Personal scope: who pays the tax?
i. Outline of the individuals / entities that pay the tax (e.g., individuals or
family units, legal entities, individuals or entities acting as economic
agents, retailers or manufacturers, polluters)
ii. Taxpayer from a legal perspective may be different from the taxpayer
in the economic perspective. Important to distinguish:
1. Non-transferable taxes: statute-obligated taxpayer bears the
economic burden with no room to transfer it (e.g., inheritance
taxes, taxes on wages)
2. Transferable taxes: tax code foresees that the tax is due by a
certain taxpayer, but the burden is ultimately shifted to another
person without much effort (e.g., excise taxes on tobacco / fuel
– consumers bear the ultimate burden)
b. Material scope: what triggers the tax?
i. Determines the events, acts or transactions that trigger tax liability
1. Earning income in a taxable period, moment of the supply (in
case of VAT / GST), transfer of real property, transfer of
financial assets, sale of specific products, donations of goods,
providing digital services
c. Tax base: on what basis is the tax calculated?
i. The value on which the tax rate is applies
ii. Most complex rules in a tax statute
iii. Often done on a net rather than a gross basis
iv. Based on:
1. Taxable income, price of goods or services, value of real
property, value of donated or transferred assets, value of
financial assets, turnover from digital services
d. Tax rate: how high is the tax?
i. Most taxes are ‘ad valorem’ – the amount is calculated on the assessed
value of the taxed income or transaction, which is then multiplied by a
percentage
ii. Some taxes are fixed fees per unit sold, e.g., lots of excise taxes
iii. 3 types of tax rates to be distinguished:
1. Proportional – constant tax rate applied to taxable amount. Easy
to administer, but does not take the ability to pay into account.
E.g., corporate income tax
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