1. Introduction to Income taxation

Question 1

Can business tax avoidance become a PR issue or result in large fines, even if the action is in line with the law?

Answer 1

Yes, if the action is in line with the letter of the law, but breaks the intention of it.

Question 2

How can tax knowledge have an effect on business?

Answer 2

From good knowledge to bad knowledge:

1. Identification of business opportunities
2. Doing business others cannot do
3. An asset to the business
4. Harmless
5. Danger to your business
6. Danger to yourself and others

A healthy interest can be an asset that helps you run a healthy business that pays the correct taxes. An unhealthy interest, or disinterest, can be a business risk, causing you to do business you don’t understand or risking to turn the goal of the business into avoiding taxes.

Question 3

Why do we have taxes?

Answer 3

1. Can solve some economic problems, such as the financing of public goods (related to minimizing free rider problems). This can enable good standards of living and a healthy business environment, with developed infrastructure and an educated population/workforce.
2. Purely fiscal interest, where tax is an income for the state and its regions.
3. Distribution of income and wealth.
4. Stabilisation. Expanding or contracting the economy over time.
5. Alternative aims are: family policy (spouse), employment policy (increases/reliefs), regional policy, environmental/energy policies (carbon tax) and public health (alcohol).

Question 4

What are tax expenditures?

Answer 4

Taking a lower tax than normal standard for the industry. Tax expenditures are government revenue losses from taking out less tax (a form of government spending). From a purely fiscal perspective, there is really no difference between giving state contribution and refraining from tax revenue.

Question 5

Is tax law a part of Civil law or Public law?

Answer 5

Tax law is a part of Public law, which regulates the State’s relationship with its population. Some principles that apply are:

• Principle of legality (no tax if it is not in the law)
• Principle of objectivity and equality (what is equal treatment? Same tax rate or progressive tax rate?)
• Principle of proportionality
• Right to attend and be heard

Question 6

In what way can tax law be connected to civil law?

Answer 6

It can be connected to civil law and contract law, where the State can be seen as a third party in agreements between citizens. Agreements often incur taxation (salaries, VAT, etc). The main parties usually cannot regulate the tax consequences, since they cannot bind the State or other third parties. They can only regulate the relationship between themselves.

Question 7

What is generally taxed, and what kind of tax has historically proven not to work?

Answer 7

Generally, income and consumption is taxed. It is related to the ability to pay. Lump sum taxes (head taxes) where everyone pays the same amount has proven to not work as it is seen as unfair to large amounts of the population.

Question 8

What are the types of taxes on the Swedish fiscal income?

Answer 8

• Direct taxes on employment.
• Indirect taxes on employment (ex social contribution)
• Tax on capital
• Consumption taxes (ex VAT, alcohol)

Question 9

What are the two general types of tax liability?

Answer 9

• Unlimited tax liability. The worldwide income is taxed, no matter where it is sourced. (positive definition). For individuals grounds are Domicile, Residency or extended stay (+183 days) and nationality. For companies it’s the country of incorporation/establishment or effective management.
• Limited (source based) tax liability. Sourced income from countries where you are NOT subject to unlimited tax liability (negative definition). Usual items for individuals are salaries from local employers, dividends, royalties and interests. The sourced income is taxed in the source state.

Question 10

What are two common bases to tax on?

Answer 10

1. Single income: all income is added up to become the tax base.
2. Dual income: income is separated based on its characteristics, such as earned income and capital. The different categories have different tax rates.

Question 11

What is the classical system for business and owner taxation?

Answer 11

Investments are usually subject to two levels of taxation:
1. Corporation tax of business profits (company level)
2. Dividend taxation (owner level)
This is economic double taxation; it is taxed twice but at different levels.

Corporations:

• can only distribute taxed profits
• view tax as a cost
• reinvest profits after tax

Question 12

What is the Imputation system for business and owner taxation?

Answer 12

Owners credit paid corporate tax against dividend tax, but most European countries have abolished this system.