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
